================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
Commission file number 1-3677
ALCAN INC.
(Exact name of registrant as specified in its charter)
CANADA Inapplicable
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1188 SHERBROOKE STREET WEST, MONTREAL, QUEBEC, CANADA H3A 3G2
(Address of Principal Executive Offices and Postal Code)
(514) 848-8000
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ____
At September 30, 2001, the registrant had 320,844,342 shares of common stock
(without nominal or par value) outstanding.
================================================================================
PART I - FINANCIAL INFORMATION
In this report, all dollar amounts are stated in U.S. dollars and all
quantities in metric tons, or tonnes, unless indicated otherwise. A tonne is
1,000 kilograms, or 2,204.6 pounds. The word "Company" refers to Alcan Inc. and,
where applicable, one or more consolidated subsidiaries.
ITEM 1. FINANCIAL STATEMENTS
ALCAN INC.
INTERIM CONSOLIDATED STATEMENT OF INCOME
(unaudited)
- -----------------------------------------------------------------------------------------
Periods ended September 30 Third Quarter Nine Months
------------------ -----------------
(in millions of US$, except per share amounts) 2001 2000 2001 2000
------- ------- ------- -------
SALES AND OPERATING REVENUES $ 3,157 $ 1,979 $ 9,589 $ 5,966
COSTS AND EXPENSES
Cost of sales and operating expenses 2,484 1,530 7,535 4,544
Depreciation and amortization 204 120 604 350
Selling, administrative and general expenses 136 89 407 267
Research and development expenses 31 15 98 48
Interest (note 11) 70 12 190 28
Other (income) expenses - net (note 7) (3) 2 117 1
------- ------- ------- -------
2,922 1,768 8,951 5,238
------- ------- ------- -------
Income before income taxes and other items 235 211 638 728
Income taxes (note 4) 67 34 226 226
------- ------- ------- -------
Income before other items 168 177 412 502
Equity income (loss) (1) 4 2 4
Minority interests 3 - 3 2
------- ------- ------- -------
NET INCOME BEFORE AMORTIZATION OF GOODWILL $ 170 $ 181 $ 417 $ 508
Amortization of goodwill 19 - 55 -
------- ------- ------- -------
NET INCOME $ 151 $ 181 $ 362 $ 508
Dividends on preference shares 2 2 6 7
------- ------- ------- -------
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 149 $ 179 $ 356 $ 501
------- ------- ------- -------
NET INCOME PER COMMON SHARE BEFORE AMORTIZATION
OF GOODWILL (BASIC AND DILUTED) (NOTE 2) $ 0.52 $ 0.85 $ 1.28 $ 2.33
Amortization of goodwill per common share 0.06 - 0.17 -
------- ------- ------- -------
NET INCOME PER COMMON SHARE (BASIC AND DILUTED)
(NOTES 2 AND 5) $ 0.46 $ 0.85 $ 1.11 $ 2.33
------- ------- ------- -------
DIVIDENDS PER COMMON SHARE $ 0.15 $ 0.15 $ 0.45 $ 0.45
------- ------- ------- -------
The accompanying notes are an integral part of the interim financial statements.
1
ALCAN INC.
INTERIM CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(unaudited)
- --------------------------------------------------------------------------------
Nine months ended September 30
(in millions of US$) 2001 2000
------ ------
RETAINED EARNINGS - BEGINNING OF PERIOD $ 4,290 $ 4,227
Net income 362 508
Amount related to common shares purchased for
cancellation (note 13) - (299)
Dividends - Common (143) (98)
- Preference (6) (7)
------- -------
RETAINED EARNINGS - END OF PERIOD $ 4,503 $ 4,331
======= =======
</Table>
The accompanying notes are an integral part of the interim financial statements.
2
ALCAN INC.
INTERIM CONSOLIDATED BALANCE SHEET
(unaudited for 2001)
- --------------------------------------------------------------------------------
(in millions of US$) September 30, December 31,
2001 2000
----------- ------------
ASSETS
CURRENT ASSETS
Cash and time deposits $ 223 $ 261
-------- --------
Receivables 2,321 2,280
Inventories - Aluminum operating segments
- Aluminum 943 1,034
- Raw materials 435 414
- Other supplies 287 268
-------- --------
1,665 1,716
- Packaging operating segment 426 399
-------- --------
2,091 2,115
-------- --------
TOTAL CURRENT ASSETS 4,635 4,656
-------- --------
Deferred charges and other assets 717 719
Property, plant and equipment
Cost (excluding Construction work in progress) 15,835 14,807
Construction work in progress 885 1,979
Accumulated depreciation (6,861) (6,753)
-------- --------
9,859 10,033
-------- --------
Intangible assets, net of accumulated amortization
of $22 in 2001 and $5 in 2000 312 330
Goodwill, net of accumulated amortization of $72
in 2001 and $17 in 2000 (note 9) 2,947 2,669
-------- --------
Total assets $ 18,470 $ 18,407
======== ========
</Table>
The accompanying notes are an integral part of the interim financial statements.
3
ALCAN INC.
INTERIM CONSOLIDATED BALANCE SHEET (CONT'D)
(unaudited for 2001)
- --------------------------------------------------------------------------------
<Table>
<Caption>
(in millions of US$, except per share amounts)
September 30, December 31,
2001 2000
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables $ 2,198 $ 2,427
Short-term borrowings 914 1,080
Debt maturing within one year 81 333
-------- --------
3,193 3,840
-------- --------
Debt not maturing within one year (note 10) 3,787 3,195
Deferred credits and other liabilities 876 874
Deferred income taxes 1,187 1,227
Minority interests 145 244
SHAREHOLDERS' EQUITY
Redeemable non-retractable preference shares 160 160
Common shareholders' equity
Common shares 4,655 4,597
Retained earnings 4,503 4,290
Deferred translation adjustments (36) (20)
-------- --------
9,122 8,867
-------- --------
9,282 9,027
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 18,470 $ 18,407
======== ========
COMMON SHAREHOLDERS' EQUITY PER COMMON SHARE $ 28.43 $ 27.89
-------- --------
RATIO OF TOTAL BORROWINGS TO EQUITY 34:66 33:67
-------- --------
The accompanying notes are an integral part of the interim financial statements.
4
ALCAN INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
- -----------------------------------------------------------------------------------------------------------
Periods ended September 30 Third Quarter Nine months
(in millions of US$) ---------------- ----------------
2001 2000 2001 2000
---- ----- ---- ----
OPERATING ACTIVITIES
Net income $ 151 $ 181 $ 362 $ 508
Adjustments to determine cash from
operating activities:
Depreciation and amortization 223 120 659 350
Deferred income taxes 9 12 (1) 77
Equity income - net of dividends 1 (4) (1) (3)
Change in operating working capital
Change in receivables (79) 135 (41) (34)
Change in inventories 14 (89) 24 (121)
Change in payables (28) (77) (229) 70
Change in operating working capital due to:
Deferred translation adjustments 73 (32) (11) (61)
Acquisitions, disposals and
consolidations/deconsolidations -- -- (58) (44)
----- ----- ----- -----
(20) (63) (315) (190)
Change in deferred charges, other assets,
deferred credits and other liabilities - net 9 (25) (68) 5
Loss (gain) on sales of businesses - net -- 1 122 (9)
Other - net 2 25 12 11
----- ----- ----- -----
CASH FROM OPERATING ACTIVITIES $ 375 $ 247 $ 770 $ 749
----- ----- ----- -----
The accompanying notes are an integral part of the interim financial statements.
5
ALCAN INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (CONT'D)
(unaudited)
- ---------------------------------------------------------------------------------------------------------
PERIODS ENDED SEPTEMBER 30 Third Quarter Nine months
(in millions of US$) ------------------ ------------------
2001 2000 2001 2000
------- ------- ------- -------
FINANCING ACTIVITIES
New debt $ 9 $ 633 $ 1,828 $ 634
------- ------- ------- -------
Debt repayments (170) (54) (1,476) (324)
------- ------- ------- -------
(161) 579 352 310
Short-term borrowings - net 131 (228) (143) 171
Common shares purchased for cancellation -- (230) -- (363)
Common shares issued 1 2 58 18
Dividends - Alcan shareholders (including preference) (50) (35) (149) (105)
- Minority interests (1) (2) (2) (2)
------- ------- ------- -------
CASH FROM (USED FOR) FINANCING ACTIVITIES (80) 86 116 29
------- ------- ------- -------
INVESTMENT ACTIVITIES
Property, plant and equipment (232) (328) (729) (975)
Business acquisitions -- (401) (200)
Net proceeds from disposal of businesses,
investments and other assets 12 -- 206 173
------- ------- ------- -------
CASH USED FOR INVESTMENT ACTIVITIES (220) (328) (924) (1,002)
------- ------- ------- -------
Effect of exchange rate changes
on cash and time deposits 10 (2) -- (5)
------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND TIME DEPOSITS 85 3 (38) (229)
Cash of companies consolidated -- -- -- 5
Cash and time deposits - beginning of period 138 88 261 315
------- ------- ------- -------
Cash and time deposits - end of period $ 223 $ 91 $ 223 $ 91
======= ======= ======= =======
The accompanying notes are an integral part of the interim financial statements.
6
ALCAN INC.
INTERIM INFORMATION BY OPERATING SEGMENT
(unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Periods ended September 30
(in millions of US$)
SALES AND OPERATING REVENUES - INTERSEGMENT Third Quarter Nine Months
------------------- -------------------
2001 2000 2001 2000
------ ------ ------ ------
Primary Metal $ 524 $ 374 $ 1,730 $ 1,164
Aluminum Fabrication, Americas and Asia 35 22 132 64
Aluminum Fabrication, Europe 53 65 187 202
Packaging 15 16 49 44
Intersegment and other (627) (477) (2,098) (1,474)
------- ------- ------- -------
$ - $ - $ - $ -
======= ======= ======= =======
SALES AND OPERATING REVENUES - THIRD PARTIES Third Quarter Nine Months
------------------- -------------------
2001 2000 2001 2000
------ ------ ------ ------
Primary Metal $ 768 $ 403 $ 2,188 $1,289
Aluminum Fabrication, Americas and Asia 939 1,024 2,924 2,980
Aluminum Fabrication, Europe 720 379 2,274 1,175
Packaging 724 168 2,185 505
Other 6 5 18 17
------- ------- ------ ------
$ 3,157 $ 1,979 $ 9,589 $5,966
======= ======= ======= ======
EBITDA Third Quarter Nine Months
------------------- -------------------
2001 2000 2001 2000
------ ------ ------ ------
Primary Metal $ 276 $ 194 $ 913 $ 696
Aluminum Fabrication, Americas and Asia 87 95 258 249
Aluminum Fabrication, Europe 30 33 155 110
Packaging 86 9 264 25
------- ------- ------- ------
EBITDA from operating segments 479 331 1,590 1,080
Depreciation and amortization (204) (120) (604) (350)
Intersegment and other * 46 25 (107) 63
Corporate office (17) (9) (49) (33)
Interest (70) (12) (190) (28)
Income taxes (67) (34) (226) (226)
Minority interests 3 -- 3 2
------- ------- ------- ------
NET INCOME BEFORE AMORTIZATION OF GOODWILL $ 170 $ 181 $ 417 $ 508
------- ------- ------- ------
NET INCOME AFTER AMORTIZATION OF GOODWILL $ 151 $ 181 $ 362 $ 508
------- ------- ------- ------
* Included in Intersegment and other is a pre-tax loss on the sale of the
Jamaican bauxite and alumina operations of $123 for nine months, 2001.
7
ALCAN INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
(Unaudited)
(in millions of US$, except per share amounts)
1. ACCOUNTING POLICIES
The unaudited interim consolidated financial statements are based upon
accounting policies and methods of their application consistent with those
used and described in our annual financial statements, except for the
accounting change described in note 2. The interim financial statements do
not include all of the financial statement disclosures included in the
annual financial statements prepared in accordance with Canadian generally
accepted accounting principles (GAAP) and therefore should be read in
conjunction with the most recent annual financial statements.
- --------------------------------------------------------------------------------
2. ACCOUNTING CHANGE
In the first quarter of 2001, the Company adopted the new recommendations
of the Canadian Institute of Chartered Accountants dealing with earnings
per share. The standard requires the disclosure of the calculation of basic
and diluted earnings per share and the use of the treasury stock method for
calculating the dilutive impact of stock options. There was no impact on
the diluted net income per common share, both before and after amortization
of goodwill, for each period presented.
- --------------------------------------------------------------------------------
3. RECONCILIATION OF CANADIAN AND U.S. GAAP
Differences relate principally to accounting for foreign currency
translation, derivatives and "available for sale" securities.
Beginning in 2001, the Company is required to adopt, for supplementary U.S.
GAAP reporting purposes only, Financial Accounting Standards Board (FASB)
Statements 133 and 138. These standards require that all derivatives be
recorded in the financial statements and valued at market. However, the
Company has elected not to adopt the FASB's optional hedge accounting
provisions. Accordingly, for U.S. GAAP reporting purposes only, beginning
in 2001, unrealized gains and losses resulting from the valuation of
derivatives at market value are recognized in net income as the gains and
losses arise and not concurrently with the recognition of the transactions
being hedged. In its primary Canadian GAAP financial statements, the
Company continues to recognize the gains and losses on derivative contracts
in income concurrently with the recognition of the transactions being
hedged.
Upon initial adoption of the FASB standards in the first quarter of 2001,
the cumulative effect of the accounting change results in a decrease in net
income of $12.
8
3. RECONCILIATION OF CANADIAN AND U.S. GAAP (cont'd)
Third Quarter Nine Months
----------------------------------- ------------------------------------
2001 2000 2001 2000
------------- -------------- -------------- --------------
$ per $ per $ per $ per
Common Common Common Common
$ Share $ Share $ Share $ Share
--- ----- --- ------ --- ------ --- ------
Net income - as reported 151 181 362 508
Differences due to:
Foreign currency translation (2) (2) (4) (6)
Valuation of derivatives (45) - (79) -
Other - - 5 -
--- --- --- ---
Net income from continuing
operations before cumulative effect
of accounting change - U.S. GAAP 104 179 284 502
Cumulative effect on prior years of
accounting change - - (12) -
--- --- --- ---
Net income - U.S. GAAP 104 179 272 502
--- --- --- ---
Net income attributable to common
shareholders - as reported 149 0.46 179 0.85 356 1.11 501 2.33
--- ---- --- ---- --- ---- --- ----
Net income attributable to common
shareholders from continuing
operations before cumulative
effect of accounting change
- U.S. GAAP 102 0.32 176 0.84 278 0.87 495 2.30
--- ---- --- ---- --- ---- --- ----
Net income attributable to common
shareholders - U.S. GAAP 102 0.32 176 0.84 266 0.83 495 2.30
--- ---- --- ---- --- ---- --- ----
</Table>
<Table>
<Caption>
Third Quarter
---------------------------------------------------------------------
2001 2000
------------------------------------ -----------------------------
As reported U.S. GAAP As reported U.S. GAAP
----------- --------- ----------- ---------
Deferred charges and other
assets - September 30 $ 717 $ 707 $ 530 $ 532
Payables - September 30 $ 2,198 $ 2,313 $ 1,338 $ 1,338
Deferred income taxes - September 30 $ 1,187 $ 1,143 $ 785 $ 785
Retained earnings - September 30 $ 4,503 $ 4,447 $ 4,331 $ 4,371
Deferred translation adjustments
(DTA) - September 30 $ (36) $ (92) $ (132) $ (188)
</Table>
<Table>
<Caption>
Third Quarter Nine Months
----------------------------- -----------------------------
2001 2000 2001 2000
-------------- ------------ ------------ -----------
COMPREHENSIVE INCOME (U.S. GAAP ONLY)
Net income $ 104 $ 179 $ 272 $ 502
Net change in deferred translation adjustments 185 (38) (16) (56)
Net change in market value of
available-for-sale securities (7) (3) 4 (1)
------ ------ ------ -----
Comprehensive income $ 282 $ 138 $ 260 $ 445
====== ====== ====== =====
</Table>
9
3. RECONCILIATION OF CANADIAN AND U.S. GAAP (cont'd)
Nine Months
ACCUMULATED OTHER COMPREHENSIVE ------------------
INCOME (U.S. GAAP ONLY) 2001 2000
---- ----
Accumulated other comprehensive income
- beginning of year $(61) $(113)
Change in deferred translation adjustments (16) (56)
Change in excess of market value over book value of
available-for-sale securities 4 (1)
---- -----
Accumulated other comprehensive income
- September 30 $(73) $(170)
==== =====
- --------------------------------------------------------------------------------
4. INCOME TAXES
Third Quarter Nine Months
--------------- ------------------
2001 2000 2001 2000
---- ---- ---- ----
Current $58 $22 $227 $149
Deferred 9 12 (1) 77
--- --- ---- ----
$67 $34 $226 $226
=== === ==== ====
The composite of the applicable statutory corporate income tax rates in
Canada is 40.1% (40.3% for 2000). The difference between income taxes
calculated at the composite rate and the amounts shown as reported is
primarily attributable to lower tax rates in foreign jurisdictions and
translation gains on the revaluation of deferred tax balances, partially
offset by unrecorded tax benefits on losses. In 2000, the difference is
primarily attributable to prior years' tax adjustments, investment and
other allowances and the effect of the reduced corporate income tax rate in
Germany.
- --------------------------------------------------------------------------------
5. NET INCOME PER COMMON SHARE
Net income per common share is based on the average number of shares
outstanding during the period (third quarter 2001: 320.8 million; 2000:
210.3 million; nine months 2001: 319.5 million; 2000: 215.3 million). As at
September 30, 2001, there were 320,844,342 common shares outstanding. The
following table outlines the calculation of basic and diluted net income
per common share.
Third Quarter Nine Months
----------------- -----------------
2001 2000 2001 2000
---- ---- ---- ----
Numerator for basic and diluted net income per
common share $ 149 $ 179 $ 356 $ 501
===== ===== ===== =====
Denominator:
Denominator for basic net income per
common share - weighted average of
outstanding shares (in millions) 321 210 320 215
Effect of dilutive stock options (in millions) 1 1 1 1
----- ----- ----- -----
Denominator for diluted net income per
common share - adjusted weighted average
of outstanding shares (in millions) 322 211 321 216
===== ===== ===== =====
Net income per common share (basic and
diluted) $0.46 $0.85 $1.11 $2.33
===== ===== ===== =====
10
6. SUPPLEMENTARY INFORMATION
<Table>
<Caption>
STATEMENT OF CASH FLOWS Third Quarter Nine Months
----------------- ----------------
2001 2000 2001 2000
---- ---- ---- ----
Interest paid $ 91 $ 35 $252 $ 95
Income taxes paid $ 28 $ 20 $187 $135
</Table>
- -------------------------------------------------------------------------------
7. SALE OF THE JAMAICAN OPERATIONS
Effective May 31, 2001, the Company completed the sale of its Jamaican
operations. Proceeds from the sale were $153. The total pre-tax loss on the
sale was $123 which was recorded in Other (income) expenses - net. An
amount of $90 was recorded as an impairment charge in the first quarter
with the remaining amount charged in the second quarter.
- -------------------------------------------------------------------------------
8. SALE OF ASSETS PURSUANT TO THE EUROPEAN COMMISSION REQUIREMENTS RELATED
TO THE MERGER
The following transactions were completed in the second quarter of 2001 as
part of the divestment requirements imposed by the European Commission as a
condition to its approval of the merger between Alcan and Alusuisse Group
Ltd in October 2000.
o The Company sold its alumina specialties production plant, Martinswerk,
located in Bergheim, Germany.
o The Company sold a number of foil container manufacturing assets in
Spain and Germany.
o The Company sold its lithographic sheet production plant, Star Litho,
located in Bridgnorth, United Kingdom.
The Company received proceeds of approximately $35 from these sales.
- -------------------------------------------------------------------------------
11
9. ACQUISITION OF 30% OF GOVE ALUMINA REFINERY
In the first quarter of 2001, the Company acquired the remaining 30% of the
Gove alumina refinery and related bauxite mine at a cost of $379, subject
to certain post-closing adjustments. As a result of this transaction, the
Company now owns 100% of these assets. The acquisition is accounted for
using the purchase method of accounting. The purchase price was allocated
in the accounts based on the assigned fair values of the assets acquired
and liabilities assumed as follows:
<Table>
Working capital $ 17
Property, plant and equipment 172
----
189
Other liabilities - net 41
Long-term debt 1
----
42
----
Fair value of net assets $147
====
</Table>
The difference between the total purchase price and the net fair value of
all identifiable assets and liabilities acquired was $232 and is accounted
for as goodwill, which is being amortized over a period of 40 years using
the straight-line method of amortization.
- -------------------------------------------------------------------------------
10. LONG TERM DEBT
In the second quarter of 2001, the Company issued Euro 600 million of 5.5%
Euro notes due 2006.
During the first quarter of 2001, the Company issued $400 of 6.45%
debentures due 2011 and $400 of 7.25% debentures due 2031.
- -------------------------------------------------------------------------------
11. CAPITALIZATION OF INTEREST COSTS
Total interest costs in the third quarter and nine months were $72 and $220
(2000 : $34 and $84) respectively of which $2 and $30 (2000 : $22 and $56)
were capitalized.
- -------------------------------------------------------------------------------
12. PRIOR PERIOD AMOUNTS
Certain prior period amounts have been reclassified to conform with the
2001 presentation.
- -------------------------------------------------------------------------------
13. SHARE REPURCHASE PROGRAM
Under a normal course issuer bid, which terminated on June 18, 2001, the
Company was authorized to repurchase up to 21,800,000 common shares,
representing approximately 10% of the outstanding shares. In 2001, nil
common shares were purchased under this authorization.
In the third quarter and nine months of 2000, 6,938,100 common shares and
11,238,100 common shares, respectively, were purchased under this
authorization.
12
In the opinion of management, all adjustments necessary for a fair presentation
of interim period results have been included in the financial statements. These
interim results are not necessarily indicative of results for the full year.
13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company reports third quarter consolidated net income, excluding
non-recurring items and foreign currency translation effects, of US$121 million
(US$0.37 per share) compared to US$141 million (US$0.66 per share) in the third
quarter of 2000 and US$128 million (US$0.41 per share) in the second quarter of
2001.
Including non-recurring items and foreign currency translation effects, net
income for the quarter was US$151 million (US$0.46 per share) compared to US$181
million (US$0.85 per share) a year earlier and to US$74 million (US$0.23 per
share) in the previous quarter.
For the first nine months of 2001, earnings per share, excluding non-recurring
items and foreign currency translation effects, were US$1.29 per share compared
to US$2.06 per share during the first nine months of 2000. On an as reported
basis, earnings per share were US$1.11 compared to US$2.33 for the comparable
period of 2000.
The Company expects business conditions to continue to be challenging. However,
the Company considers itself to be well positioned given its sound financial
situation, the positive contribution from the new smelter in Alma, which has now
reached full operating capacity, and the impact of earnings improvement measures
presently in place. In addition, the Company is implementing a restructuring
program aimed at safeguarding its competitiveness. The restructuring program is
expected to have a positive impact of approximately US$200 million on annual
pre-tax earnings when fully implemented. The Company expects that the total
costs associated with implementing this program will amount to approximately
US$250 million. Most of these one-time costs are expected to be provided for
during the fourth quarter of 2001.
14
CONSOLIDATED REVIEW
<Table>
<Caption>
(US$ millions, unless otherwise noted) Third Quarter Nine Months Second Quarter
------------------- -------------------- --------------
2001 2000 2001 2000 2001
---- ---- ---- ---- ----
SALES & OPERATING REVENUES 3,157 1,979 9,589 5,966 3,162
Shipments (thousands of tonnes)
Ingot products 1 368 203 992 600 328
Rolled products 474 463 1,486 1,377 493
Conversion of customer-owned metal 84 87 262 252 87
Aluminum used in engineered products & packaging 123 71 452 214 143
----- ----- ---- ----- -----
TOTAL ALUMINUM VOLUME 1,049 824 3,192 2,443 1,051
Ingot product realizations (US$ per tonne) 1,575 1,726 1,623 1,718 1,628
Rolled product realizations (US$ per tonne) 2 2,379 2,420 2,412 2,434 2,409
Average London Metal Exchange 3-month price 1,405 1,587 1,493 1,580 1,511
(US$ per tonne)
Net income excluding non-recurring items
and foreign exchange translation 121 141 414 449 128
Non-recurring items -- 31 (87) 32 (17)
Foreign exchange translation 30 9 35 27 (37)
Net income including non-recurring items
and foreign exchange translation 151 181 362 508 74
Economic Value Added (EVA(R)), excluding
purchase accounting adjustments 3 8 36 88 119 14
Economic Value Added (EVA(R)), including
purchase accounting adjustments 3 (111) N/A (268) N/A (110)
</Table>
1 Includes primary and secondary ingot and scrap, as well as shipments
resulting from metal trading activities
2 Excluding conversion of customer owned metal
3 Goodwill and asset revaluation related to the merger with algroup, as well as
depreciation and amortization thereon
Sales and operating revenues for the quarter were significantly higher than the
year-ago quarter, due mainly to the merger with Alusuisse Group Ltd ("algroup"),
which was completed in October 2000. This also explains the increase in total
aluminum volume over the year-ago quarter. Compared to the preceding quarter,
sales and operating revenues were essentially unchanged as lower aluminum
selling prices and rolled product shipments were offset by higher shipments of
alumina and ingot products.
Total aluminum volume was 1,049 thousand tonnes (kt) in the quarter, compared to
824 kt a year earlier and to 1,051 kt in the preceding quarter. This includes
shipments of ingot and rolled products, conversion of customer-owned metal, and
aluminum used in engineered products and packaging.
15
Ingot products realizations of US$1,575 per tonne decreased by 9% from the
year-ago quarter compared with a 11% decrease in the London Metal Exchange (LME)
price. Compared to the previous quarter, ingot realizations decreased by 3%
versus a 7% decline in the LME price, due mainly to the time lag of about one
month in pricing ingot products to customers.
Rolled products realizations of US$2,379 per tonne were 2% lower than in the
prior-year and only 1% lower than in the previous quarter.
For the quarter, net income of US$151 million was US$77 million higher than in
the previous quarter. The US$77 million improvement was due mainly to favourable
movements in quarter-end foreign currency exchange rates, and to the absence of
a loss on disposal that was recorded in the previous quarter. The effect of
these two items more than offset the impact of lower aluminum prices and
weakening economic conditions during the quarter.
During the quarter, EVA(R) excluding purchase accounting adjustments was $8
million compared to $14 million in the second quarter of this year. These
adjustments relate to goodwill and asset revaluation arising from the algroup
merger. Including purchase accounting adjustments, EVA was a negative US$111
million, essentially unchanged compared to the previous quarter.
SEGMENT REVIEW
Third Quarter Nine Months Second Quarter
------------------ ------------------ ---------------
(US$ millions) 2001 2000 2001 2000 2001
---- ---- ---- ---- ----
EBITDA
Primary Metal 276 194 913 696 287
Aluminum Fabrication, Americas and Asia 87 95 258 249 79
Aluminum Fabrication, Europe 30 33 155 110 60
Packaging 86 9 264 25 92
EBITDA from operating segments 479 331 1,590 1,080 518
Depreciation & amortization (204) (120) (604) (350) (204)
Intersegment and other 46 25 (107) 63 (37)
Corporate offices (17) (9) (49) (33) (18)
Interest (70) (12) (190) (28) (65)
Income taxes (67) (34) (226) (226) (101)
Minority interests 3 -- 3 2 (1)
Net income before goodwill amortization 170 181 417 508 92
Net income after goodwill amortization 151 181 362 508 74
16
SEGMENTS
Third quarter earnings before interest, taxes, depreciation and amortization
(EBITDA) for Primary Metal, at US$276 million, increased by 42% compared to the
year-ago quarter, due mainly to higher shipments of ingot products and to the
merger with algroup, which more than offset the effect of lower aluminum selling
prices. Compared to the preceding quarter, EBITDA was 4% lower as a decrease in
selling prices for ingot products and alumina more than offset the favourable
change in foreign exchange balance sheet translation and lower production costs
in Primary Metal.
For Fabrication, Americas and Asia, EBITDA of US$87 million was 8% lower than in
the previous year, mainly as a result of lower rolled product shipments in North
America and Asia. Compared to the preceding quarter, EBITDA increased by 10%,
due mainly to lower production costs in the North American sheet and cable
businesses, offset in part by lower shipments of rolled products in all regions.
For Fabrication, Europe, EBITDA, at US$30 million was US$3 million lower than in
the previous year. Compared to the second quarter of 2001, EBITDA decreased by
US$30 million, due mainly to lower rolled product shipments resulting from the
weakening economic conditions and seasonal effects, and to higher production
costs for rolled products.
The Packaging group's EBITDA, at US$86 million, increased by US$77 million
compared to the previous year, as a result of the merger with algroup. EBITDA
was US$6 million lower than in the previous quarter, as the effect of lower
sales volume and a non-recurring gain recorded in the second quarter were offset
partly by manufacturing cost reductions, lower material costs and a more
favourable sales mix.
"Intersegment and other" includes the deferral or realization of profits on
intersegment sales of aluminum as well as other non-operating items. The third
quarter included a realization of previously deferred profits as aluminum prices
and inventories declined during the quarter. The previous quarter included a
US$33 million charge relating to the sale of the Company's operations in
Jamaica.
For the first nine months of 2001, excluding the currency revaluation of
Canadian dollar deferred taxes and the tax effect of the business disposal in
Jamaica, the Company's effective tax rate was 37%.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Cash generated from operating activities during the first nine months of 2001
was US$770 million compared to US$749 million in the comparable period of 2000.
Higher cash generation was largely offset by an unfavourable change in operating
working capital, most of which occurred during the first six months.
FINANCING ACTIVITIES
Cash from financing activities in the first nine months of 2001 was US$116
million compared to US$29 million in the same period in 2000. During the first
nine months of this year, total net debt raised was US$209 million. This
17
includes 17 the issue in March 2001 of US$400 million of 6.45% debentures due
2011 and US$400 million of 7.25% debentures due 2031. The new debt was used
mainly to purchase the remaining 30% interest in the Gove alumina refinery and
related bauxite mine, and to fund the Alma smelter project. On 2 May 2001, the
Company issued Euro 600 million of 5.5% Euro notes due 2006. Net proceeds from
the sale of the Notes have been used to repay debt outstanding under bank credit
facilities and commercial paper borrowings. The remaining debt repayments were
made using cash from operating activities.
The debt:equity ratio at September 30, 2001 was 34:66, unchanged compared to the
end of the second quarter and 25:75 a year ago. Interest expense for the
quarter, at US$70 million, was US$58 million higher compared to the previous
year due to increased borrowings following the algroup merger, the investment to
complete the new smelter in Alma, and the acquisition of the remaining 30%
interest in the Gove alumina refinery and related bauxite mine. Interest expense
was US$5 million higher than in the previous quarter as less interest was
capitalized in relation to the new Alma smelter.
INVESTMENT ACTIVITIES
Capital expenditures during the first nine months of 2001 were US$729 million
compared to US$975 million a year earlier. The most important project during the
period was the construction of the Alma, Quebec aluminum smelter, which reached
full operation on September 30, 2001.
During the first quarter, the Company acquired the remaining 30% of the Gove
alumina refinery and related bauxite mine at a cost of US$379 million, subject
to certain post-closing adjustments. As a result of this transaction, the
Company owns 100% of these assets.
Effective May 31, 2001, the Company completed the sale of the Jamaican
operations. Proceeds from the sale were US$153 million. In addition, during the
second quarter of 2001, the Company completed the divestment requirements
imposed by the European Commission in October 2000 as a condition to its
approval of the merger between Alcan and Alusuisse Group Ltd. The Company
received proceeds of approximately US$35 million from these sales.
CURRENCY HEDGING OF AUSTRALIAN DOLLAR
At September 30, 2001, the Company has hedged $AUD969 million of its future
Australian dollar commitments in respect of its Australian dollar operating cost
exposure, through forward exchange contracts and options maturing over the next
three years.
CAUTIONARY STATEMENT
Readers are cautioned that forward looking statements contained in this
Management's Discussion and Analysis should be read in conjunction with
"Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995" at Exhibit No. 99.3.
18
PART II. OTHER INFORMATION
ITEMS 1. THROUGH 5.
The registrant has nothing to report under these items.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(99.1) Alcan Inc. Stock Price Appreciation Unit Plan
(99.2) Alcan Inc. 2001 Deferred Share Unit Plan for Non-Executive
Directors
(99.3) Cautionary statement for purposes of the "Safe Harbor"
provisions of the Private Securities Litigation Reform Act
of 1995. (Filed herewith)
(b) Reports on Form 8-K
No reports were filed during the quarter ended 30 September 2001.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALCAN INC.
Dated: November 13, 2001 By: /s/ Richard Genest
----------------------------
Richard Genest
Vice President and Controller
(A Duly Authorized Officer)
19
EXHIBIT INDEX
<Table>
<Caption>
Exhibit
Number Description
(99.1) Alcan Inc. Stock Price Appreciation Unit Plan
(99.2) Alcan Inc. 2001 Deferred Share Unit Plan for Non-Executive
Directors
(99.3) Cautionary statement for purposes of the "Safe Harbor" provisions
of the Private Securities Litigation Reform Act of 1995. (Filed
herewith.)
</Table>
20