New Page 1
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 March 31, 2007
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 Ö
No ___
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
Ö Accelerated
filer
___ Non-accelerated
filer
___
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act)
Yes
___
No
Ö
At May 1, 2007, the registrant had 367,874,400 shares of common stock
(without nominal or par value) outstanding.
PART I. FINANCIAL INFORMATION
In this report, all dollar amounts are stated in US 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 of its consolidated subsidiaries.
Item 1. Financial
Statements
ALCAN INC.
INTERIM CONSOLIDATED STATEMENT OF INCOME (unaudited)
|
|
|
|
|
|
Three months ended March 31
|
|
|
2007
|
|
|
2006
|
|
(in millions of US$, except per share amounts)
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
|
6,420
|
|
|
5,550
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
Cost of sales and operating expenses, excluding depreciation and
|
|
|
|
|
|
|
|
amortization noted below
|
|
|
4,801
|
|
|
4,128
|
|
Depreciation and amortization
|
|
|
264
|
|
|
251
|
|
Selling, administrative and general expenses
|
|
|
374
|
|
|
364
|
|
Research and development expenses
|
|
|
54
|
|
|
52
|
|
Interest
|
|
|
60
|
|
|
76
|
|
Restructuring charges - net (note 6)
|
|
|
12
|
|
|
14
|
|
Other income - net (note 10)
|
|
|
(3
|
)
|
|
(31
|
)
|
|
|
|
5,562
|
|
|
4,854
|
|
Income from continuing operations before income taxes and other
items
|
|
|
858
|
|
|
696
|
|
Income taxes (note 9)
|
|
|
280
|
|
|
269
|
|
Income from continuing operations before other items
|
|
|
578
|
|
|
427
|
|
Equity income
|
|
|
12
|
|
|
28
|
|
Minority interests
|
|
|
-
|
|
|
(1
|
)
|
Income from continuing operations
|
|
|
590
|
|
|
454
|
|
Income from discontinued operations
|
|
|
1
|
|
|
3
|
|
Income before cumulative effect of accounting change
|
|
|
591
|
|
|
457
|
|
Cumulative effect of accounting change, net of income
|
|
|
|
|
|
|
|
taxes of $2 in 2006
|
|
|
-
|
|
|
(4
|
)
|
Net income
|
|
|
591
|
|
|
453
|
|
Dividends on preference shares
|
|
|
3
|
|
|
2
|
|
Net income attributable to common shareholders
|
|
|
588
|
|
|
451
|
|
Earnings (Loss) per share (note 5)
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
1.60
|
|
|
1.21
|
|
Income from discontinued operations
|
|
|
-
|
|
|
0.01
|
|
Cumulative effect of accounting change
|
|
|
-
|
|
|
(0.01
|
)
|
Net income per common share - basic
|
|
|
1.60
|
|
|
1.21
|
|
Diluted:
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
1.59
|
|
|
1.20
|
|
Income from discontinued operations
|
|
|
-
|
|
|
0.01
|
|
Cumulative effect of accounting change
|
|
|
-
|
|
|
(0.01
|
)
|
Net income per common share - diluted
|
|
|
1.59
|
|
|
1.20
|
|
Dividends per common share
|
|
|
0.20
|
|
|
0.15
|
|
The accompanying notes are an integral part of the interim consolidated
financial statements.
ALCAN INC.
INTERIM CONSOLIDATED BALANCE SHEET (unaudited)
|
|
|
|
|
|
|
|
March 31, 2007
|
|
December 31, 2006
|
|
(in millions of US$)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
Cash and time deposits
|
|
|
186
|
|
|
229
|
|
Trade receivables (net of allowances of $67 in 2007 and $58 in
2006)
|
|
|
3,106
|
|
|
2,910
|
|
Other receivables and deferred charges
|
|
|
1,171
|
|
|
1,195
|
|
Deferred income taxes
|
|
|
139
|
|
|
152
|
|
Inventories (note 11)
|
|
|
3,228
|
|
|
3,186
|
|
Current assets held for sale
|
|
|
4
|
|
|
5
|
|
Total current assets
|
|
|
7,834
|
|
|
7,677
|
|
|
|
|
|
|
|
|
|
Deferred charges and other assets
|
|
|
1,070
|
|
|
1,087
|
|
Investments
|
|
|
1,476
|
|
|
1,509
|
|
Deferred income taxes
|
|
|
911
|
|
|
989
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
Cost (excluding construction work in progress)
|
|
|
18,942
|
|
|
18,698
|
|
Construction work in progress
|
|
|
2,447
|
|
|
2,294
|
|
Accumulated depreciation
|
|
|
(8,800
|
)
|
|
(8,592
|
)
|
|
|
|
12,589
|
|
|
12,400
|
|
Intangible assets, net of accumulated amortization of $370 in
2007
|
|
|
|
|
|
|
|
and $346 in 2006
|
|
|
655
|
|
|
676
|
|
Goodwill
|
|
|
4,597
|
|
|
4,599
|
|
Long-term assets held for sale
|
|
|
1
|
|
|
2
|
|
Total assets
|
|
|
29,133
|
|
|
28,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the interim consolidated
financial statements.
ALCAN INC.
INTERIM CONSOLIDATED BALANCE SHEET (cont'd) (unaudited)
|
|
|
|
|
|
|
|
March 31, 2007
|
|
December 31, 2006
|
|
(in millions of US$)
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
Payables and accrued liabilities
|
|
|
5,335
|
|
|
5,430
|
|
Short-term borrowings
|
|
|
579
|
|
|
467
|
|
Debt maturing within one year
|
|
|
32
|
|
|
36
|
|
Deferred income taxes
|
|
|
35
|
|
|
46
|
|
Total current liabilities
|
|
|
5,981
|
|
|
5,979
|
|
|
|
|
|
|
|
|
|
Debt not maturing within one year
|
|
|
5,169
|
|
|
5,476
|
|
Deferred credits and other liabilities
|
|
|
1,681
|
|
|
1,787
|
|
Post-retirement benefits
|
|
|
3,363
|
|
|
3,381
|
|
Deferred income taxes
|
|
|
1,143
|
|
|
1,151
|
|
Minority interests
|
|
|
71
|
|
|
71
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
|
Redeemable non-retractable preference shares
|
|
|
160
|
|
|
160
|
|
Common shareholders' equity
|
|
|
|
|
|
|
|
Common shares
|
|
|
6,275
|
|
|
6,235
|
|
Additional paid-in capital
|
|
|
664
|
|
|
672
|
|
Retained earnings
|
|
|
4,772
|
|
|
4,281
|
|
Common shares held by a subsidiary
|
|
|
(31
|
)
|
|
(31
|
)
|
Accumulated other comprehensive loss (note 14)
|
|
|
(115
|
)
|
|
(223
|
)
|
|
|
|
11,565
|
|
|
10,934
|
|
|
|
|
11,725
|
|
|
11,094
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
|
29,133
|
|
|
28,939
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the interim consolidated
financial statements.
ALCAN INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
|
|
|
|
|
|
Three months ended March 31
|
|
2007
|
|
2006
|
|
(in millions of US$)
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
590
|
|
|
454
|
|
Adjustments to determine cash from operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
264
|
|
|
251
|
|
Deferred income taxes
|
|
|
67
|
|
|
144
|
|
Equity loss (income), net of dividends
|
|
|
8
|
|
|
(16
|
)
|
Asset impairment charges
|
|
|
1
|
|
|
9
|
|
Gain on disposal of businesses and investments - net
|
|
|
(4
|
)
|
|
-
|
|
Stock option expense
|
|
|
2
|
|
|
25
|
|
Change in operating working capital
|
|
|
|
|
|
|
|
Change in receivables
|
|
|
(165
|
)
|
|
(539
|
)
|
Change in inventories
|
|
|
(27
|
)
|
|
(78
|
)
|
Change in payables and accrued liabilities
|
|
|
(141
|
)
|
|
20
|
|
Change in deferred charges, other assets, deferred
credits and
|
|
|
|
|
|
|
|
other liabilities, and post-retirement benefits -
net
|
|
|
(7
|
)
|
|
92
|
|
Other - net
|
|
|
(6
|
)
|
|
-
|
|
Cash from operating activities
|
|
|
582
|
|
|
362
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of new debt - net of issuance costs
|
|
|
13
|
|
|
17
|
|
Debt repayments
|
|
|
(344
|
)
|
|
(66
|
)
|
Short-term borrowings - net
|
|
|
108
|
|
|
(36
|
)
|
Common shares issued
|
|
|
28
|
|
|
66
|
|
Dividends -
Alcan shareholders (including preference)
|
|
|
(75
|
)
|
|
(57
|
)
|
-
Minority interests
|
|
|
-
|
|
|
(1
|
)
|
Cash used for financing activities
|
|
|
(270
|
)
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the interim consolidated
financial statements.
ALCAN INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (cont'd) (unaudited)
|
|
|
|
|
|
Three months ended March 31
|
|
2007
|
|
2006
|
|
(in millions of US$)
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(312
|
)
|
|
(426
|
)
|
Business acquisitions and purchase of investments, net of cash
and time
|
|
|
|
|
|
|
|
deposits acquired
|
|
|
(2
|
)
|
|
(38
|
)
|
Net proceeds from disposal of businesses, investments and other
assets
|
|
|
7
|
|
|
198
|
|
Other
|
|
|
(49
|
)
|
|
-
|
|
Cash used for investment activities
|
|
|
(356
|
)
|
|
(266
|
)
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and time deposits
|
|
|
1
|
|
|
3
|
|
(Decrease) Increase in cash and time deposits
|
|
|
(43
|
)
|
|
22
|
|
|
|
|
|
|
|
|
|
Cash and time deposits - beginning of period
|
|
|
229
|
|
|
181
|
|
Cash and time deposits - end of period
|
|
|
186
|
|
|
203
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the interim consolidated
financial statements.
ALCAN INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
(unaudited)
(in millions of US$, except per share amounts)
1.
ACCOUNTING POLICIES
Basis of Presentation
The unaudited interim consolidated financial statements are based upon
accounting policies and methods of their application consistent with those
used and described in the Company's annual consolidated financial statements
as contained in the most recent Annual Report on Form 10-K (Form 10-K),
except as described below in notes 2 and 4. The unaudited interim
consolidated financial statements do not include all of the financial
statement disclosures included in the annual consolidated financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America (US GAAP) and therefore should be
read in conjunction with the Company's most recent Form 10-K.
In the opinion of management of the Company, the unaudited interim
consolidated financial statements reflect all adjustments, which consist
only of normal and recurring adjustments, necessary to present fairly the
financial position and the results of operations and cash flows in
accordance with US GAAP. The results reported in these unaudited interim
consolidated financial statements are not necessarily indicative of the
results that may be expected for the entire year.
2. ACCOUNTING CHANGES
FIN 48 - Accounting for Uncertainty in Income Taxes
On January 1, 2007, the Company adopted the provisions of the Financial
Accounting Standards Board (FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109
(FIN 48). Under FIN 48, the Company may recognize the tax benefit from a tax
position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the financial
statements from such a position should be measured based on the largest
benefit that has a greater than fifty percent likelihood of being realized
upon settlement. FIN 48 also provides guidance on derecognition,
classification, interest and penalties on income taxes, accounting in
interim periods and expanded income tax disclosures.
On January 1, 2007, the Company recorded a $28 net increase in the liability
for unrecognized tax benefits. This net increase in liabilities resulted in
a decrease to the January 1, 2007 balance of Retained earnings of $21, a net
decrease in Deferred tax liabilities of $8 and a reduction of $1 in
equity-accounted investments included in Deferred charges and other assets. See note
9 - Income taxes.
SFAS No. 156 - Accounting for Servicing of Financial Assets
On January 1, 2007, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 156, Accounting for Servicing of Financial Assets. This
statement, which is an amendment to SFAS No. 140, requires that all
separately recognized servicing assets and servicing liabilities be
initially measured at fair value, if practicable and permits, but does not
require, the subsequent measurement of separately recognized servicing
assets and servicing liabilities at fair value. The Company will recognize
servicing assets or liabilities at fair value at inception but will not
remeasure separately recognized servicing assets and liabilities at fair
value. The adoption of this standard did not impact the Company's financial
statements.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 157 - Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, to
increase consistency and comparability in fair value measurements and to
expand their disclosures. The new standard includes a definition of fair
value as well as a framework for measuring fair value. The standard is
effective for fiscal periods beginning after November 15, 2007 and should be
applied prospectively, except for certain financial instruments where it
must be applied retrospectively as a cumulative-effect adjustment to the
balance of opening retained earnings in the year in which this statement is
initially applied. The Company is currently evaluating the impact of this
standard on its financial statements.
SFAS No. 159 - The Fair Value Option for Financial Assets and Financial
Liabilities
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115. This statement permits entities to choose to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value and establishes presentation
and disclosure requirements designed to facilitate comparisons between
entities that choose different measurement attributes for similar types of
assets and liabilities. The standard is effective for fiscal periods
beginning after November 15, 2007 and should be applied prospectively with
the
effect of the remeasurement to fair value at adoption recorded as a cumulative-effect
adjustment to the opening balance of retained earnings. The Company is
currently evaluating the impact of this standard on its financial
statements.
4. CHANGE IN FUNCTIONAL CURRENCY OF THE EUROPEAN PRIMARY
METAL GROUP
Effective January 1, 2007, the smelting businesses of the European Primary
Metal group located in the UK, France, and Cameroon adopted the US dollar as
their functional currency. The currency of the primary economic environment
for these businesses in these countries became the US dollar. This change was triggered by the acquisition and
subsequent integration of Pechiney, the Novelis Spin-off, a European legal
reorganization, as well as reorganization of the European Primary Metal
group.
5. EARNINGS PER SHARE - BASIC AND DILUTED
Basic and diluted earnings per share are based on the weighted average
number of shares outstanding during the period. The treasury stock method
for calculating the dilutive impact of stock options is used. The following
table outlines the calculation of basic and diluted earnings per share on
income from continuing operations.
Three months ended March 31
|
|
2007
|
|
2006
|
|
Numerator:
|
|
|
|
|
|
Income from continuing operations
|
|
|
590
|
|
|
454
|
|
Less: dividends on preference shares
|
|
|
(3
|
)
|
|
(2
|
)
|
Income from continuing operations attributable to
|
|
|
|
|
|
|
|
common shareholders
|
|
|
587
|
|
|
452
|
|
Denominator (number of common shares in
millions):
|
|
|
|
|
|
|
|
Weighted average of outstanding shares
|
|
|
367
|
|
|
373
|
|
Effect of dilutive stock options
|
|
|
2
|
|
|
2
|
|
Adjusted weighted average of outstanding shares
|
|
|
369
|
|
|
375
|
|
Earnings per common share - basic
|
|
|
1.60
|
|
|
1.21
|
|
Earnings per common share - diluted
|
|
|
1.59
|
|
|
1.20
|
|
In the first quarter of 2007, there were no options to purchase common
shares (in 2006, 1,062,853 options at a weighted average grant price of
CAN$53.67 per share were outstanding) that were outstanding during the
period and that were not included in the computation of diluted earnings per
share because the options' exercise price was greater than the average price
of the common shares.
As at March 31, 2007, there were 367,565,058 (2006: 373,825,399) common
shares outstanding.
6. RESTRUCTURING PROGRAMS
Q1 2007 Restructuring Activities
The schedule provided below shows details of the charges by operating
segment:
Charges recorded in the statement of income
Three months ended March 31, 2007
|
|
Severance Costs
|
|
Asset Impairment Charges
|
|
Other
|
|
Total
|
|
Bauxite and Alumina
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
1
|
|
Primary Metal
|
|
|
7
|
|
|
-
|
|
|
-
|
|
|
7
|
|
Engineered Products
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
1
|
|
Packaging
|
|
|
2
|
|
|
1
|
|
|
-
|
|
|
3
|
|
Total
|
|
|
10
|
|
|
1
|
|
|
1
|
|
|
12
|
|
For the quarter ended March 31, 2007, $2 (2006: $11) of the restructuring
charges above are excluded from the measurement of the profitability of the
Company's operating segments (Business Group Profit), as they relate to
corporate initiatives as discussed in note 7 - Information by Operating
Segment.
The components of the 2007 restructuring charges were as follows:
Bauxite and Alumina
The Company announced in 2005 that its subsidiary, Société Générale de
Recherches et d'Exploitations Minières (Sogerem), had begun an information
and consultation process with its employee representatives and local
partners due to the exhaustion of mining resources in the Tarn region of
France. Production at its fluorspar mining operations came to a close during
the first half of 2006. The consultation process is now ended. In the first
quarter of 2007, the Company recorded additional
severance costs
of $1. No further charges are expected to be
incurred.
Primary Metal
The Company announced in 2006 that it had begun consultations with unions
and employee representatives for a proposed sale of selected assets at the
Company's Affimet aluminum recycling plant in Compiègne (France). The
consultation process is now ended. In the first quarter of 2007, the Company
recorded additional severance costs of $5. The divestiture is expected to be
completed in the second quarter of 2007. No further charges are expected to
be incurred as a result of this activity.
In 2005, the Company recorded restructuring charges related to the closure
of its aluminum smelter in Lannemezan (France). The closure process for
Lannemezan began in June 2006 and is expected to be completed, at the
latest, during the course of 2008. In the first quarter of 2007, the Company
recorded additional severance costs of $1. The Company expects to incur an
additional $8 of restructuring charges related to the closure of the smelter.
The Company recorded additional
severance costs
of $1 for other minor restructuring programs pursued in the first
quarter of 2007 in this operating segment.
Engineered Products
The Company announced in 2006 that it had begun consultations with unions
and employee representatives for a proposed closure of the Workington hard
alloy extrusion plant. Production from Workington will be consolidated at
Alcan's facilities in Issoire and Montreuil-Juigné (France). In the first
quarter of 2007, the Company recorded additional other restructuring charges
of $1. Workington is expected to cease production in the second quarter of 2007. The Company expects to incur additional charges of $4 in 2007 related to this
activity.
6. RESTRUCTURING PROGRAMS (cont'd)
Packaging
The Company launched in 2006 a restructuring program in the Global Beauty
Packaging sector aimed at streamlining processes and reaching an improved
competitive position. In the first quarter of 2007, the Company recorded
restructuring charges of $2 mainly associated with severance costs. The
Company expects to incur additional charges of $8 related to this activity.
The Company announced in 2005 the restructuring of certain businesses,
notably Global Beauty Packaging and Food Packaging Europe, as part of the
continuing drive to reshape its portfolio, counter increasing competitive
pressures in Western countries and improve margins. In the first quarter of
2007, the Company recorded additional restructuring charges of $1 for asset
impairment charges. The Company expects to incur additional charges of $6 in
2007 related to this activity.
2006 Restructuring Activities
The significant components of the first quarter of 2006 restructuring charges were as
follows:
Bauxite and Alumina
In relation to the proposed closure of mining operations in the Tarn region
of France announced in 2005 by Sogerem, the Company incurred additional
other restructuring charges of $2. Refer to the components of the 2007
restructuring charges discussed above for more details in relation to this
activity.
Packaging
In relation to pursuing plans to restructure certain businesses announced in
2005, notably Global Beauty Packaging and Food Packaging Europe, the Company
incurred an additional $9 of restructuring charges. This charge was
comprised of severance costs of $2, asset impairment charges of $5 and other
charges of $2. Refer to the components of the 2007 restructuring charges
discussed above for more details in relation to this activity.
Other
Other minor restructuring charges were incurred in the first quarter of 2006
for which the Company recorded severance costs of $2 and additional other
restructuring charges of $1.
The schedule provided below shows details of the provision balances and
related cash payments for the significant restructuring activities:
Provision roll-forward
|
|
|
|
|
|
Asset Impairment Charges*
|
|
|
Other
|
|
|
Total
|
|
Provision balance as at December 31, 2005
|
|
|
243
|
|
|
-
|
|
|
57
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges recorded in the statement of income
|
|
|
101
|
|
|
44
|
|
|
34
|
|
|
179
|
|
Cash payments - net
|
|
|
(160
|
)
|
|
-
|
|
|
(39
|
)
|
|
(199
|
)
|
Non-cash items
|
|
|
15
|
|
|
(44
|
)
|
|
9
|
|
|
(20
|
)
|
Provision balance as at December 31, 2006
|
|
|
199
|
|
|
-
|
|
|
61
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges recorded in the statement of income
|
|
|
10
|
|
|
1
|
|
|
1
|
|
|
12
|
|
Cash payments - net
|
|
|
(48
|
)
|
|
-
|
|
|
(5
|
)
|
|
(53
|
)
|
Non-cash items
|
|
|
2
|
|
|
(1
|
)
|
|
-
|
|
|
1
|
|
Provision balance as at March 31, 2007
|
|
|
163
|
|
|
-
|
|
|
57
|
|
|
220
|
|
* Fair value of assets was determined using discounted future cash flows.
7. INFORMATION BY OPERATING SEGMENT
The following presents selected information by operating segment, viewed on
a stand-alone basis. The operating management structure is comprised of four
operating segments or business groups: Bauxite and Alumina; Primary Metal;
Engineered Products and Packaging. The Company's measure of the
profitability of its operating segments is referred to as business group
profit (BGP). BGP comprises earnings before interest, income taxes, minority
interests, depreciation and amortization and excludes certain items, such as
corporate costs, restructuring costs (relating to major corporate-wide
acquisitions or initiatives), impairment and other special charges, pension
actuarial gains, losses and other adjustments, and unrealized gains and
losses on derivatives that are not under the control of the business groups
or are not considered in the measurement of their profitability. These items
are generally managed by the Company's corporate head office, which focuses
on strategy development and oversees governance, policy, legal, compliance,
human resources and finance matters. The unrealized change in fair market
value of derivatives is removed from individual BGP and is shown on a
separate line in the reconciliation to income from continuing operations.
This presentation provides a more accurate portrayal of underlying business
group results and is in line with the Company's portfolio approach to risk
management. Transactions between operating segments are conducted on an
arm's-length basis and reflect market prices. Thus, earnings from the
Bauxite and Alumina as well as from the Primary Metal groups represent
mainly profit on alumina or metal produced by the Company, whether sold to
third parties or used in the Company's fabricating and packaging operations.
Earnings from the Engineered Products and Packaging groups represent only
the fabricating profit on their respective products.
The accounting principles used to prepare the information by operating
segment are the same as those used to prepare the consolidated financial
statements of the Company, except for the following two items:
(1) |
The operating segments include the Company's proportionate share of
joint ventures (including joint ventures accounted for using the
equity method) and certain other equity-accounted investments as
they are managed within each operating segment, with the adjustments
for these investments shown on a separate line in the reconciliation
to Income from continuing operations; and
|
(2) |
Pension costs for the operating segments are based on the normal
current service cost with all actuarial gains, losses and other
adjustments being included in Intersegment and other.
|
The operating segments are described below.
Bauxite and Alumina
Headquartered in Montreal (Canada), this business group comprises Alcan's
worldwide activities related to bauxite mining and refining into
smelter-grade and specialty aluminas, owning, operating or having interests
in six bauxite mines and deposits in five countries, five smelter-grade
alumina plants in four countries and six specialty alumina plants in three
countries and providing engineering and technology services.
Primary Metal
Also headquartered in Montreal, this business group comprises smelting
operations, power generation, production of primary value-added ingot,
manufacturing of smelter anodes, smelter cathode blocks and aluminum
fluoride, smelter technology and equipment sales, engineering services and
trading operations for aluminum, operating or having interests in 22
smelters in 11 countries, 12 power facilities in four countries and 12
technology and equipment sales centers and engineering operations in ten
countries.
Engineered Products
Headquartered in Paris (France), this business group produces engineered and
fabricated aluminum products including rolled, extruded and cast aluminum
products, engineered shaped products and structures, including cable, wire,
rod, as well as composite materials such as aluminum-plastic, fibre
reinforced plastic and foam-plastic in 55 plants located in 12 countries.
Also included in this business group are 33 service centres in 11 countries
and 33 sales offices in 28 countries and regions.
7. INFORMATION BY OPERATING SEGMENT (cont'd)
Packaging
Also headquartered in Paris, this business group consists of the Company's
worldwide food, pharmaceutical and medical, beauty and personal care and
tobacco packaging businesses, operating 129 plants in 31 countries. This
business group produces packaging from a number of different materials,
including plastic, aluminum, paper, paper board and glass.
Intersegment and other
This classification includes the deferral or realization of profits on
intersegment sales of aluminum and alumina, corporate office costs as well
as other non-operating items.
|
|
Intersegment
|
|
Third Parties
|
|
Three months ended March 31
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Sales and operating revenues
|
|
|
|
|
|
|
|
|
|
Bauxite and Alumina
|
|
|
576
|
|
|
470
|
|
|
472
|
|
|
313
|
|
Primary Metal
|
|
|
551
|
|
|
571
|
|
|
2,345
|
|
|
2,011
|
|
Engineered Products
|
|
|
25
|
|
|
44
|
|
|
2,068
|
|
|
1,679
|
|
Packaging
|
|
|
1
|
|
|
-
|
|
|
1,535
|
|
|
1,501
|
|
Adjustments for equity-accounted joint ventures and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
certain investments
|
|
|
-
|
|
|
-
|
|
|
(17
|
)
|
|
36
|
|
Other
|
|
|
(1,153
|
)
|
|
(1,085
|
)
|
|
17
|
|
|
10
|
|
|
|
|
-
|
|
|
-
|
|
|
6,420
|
|
|
5,550
|
|
Three months ended March 31
|
|
2007
|
|
2006
|
|
Business Group Profit (BGP)
|
|
|
|
|
|
Bauxite and Alumina
|
|
|
175
|
|
|
129
|
|
Primary Metal
|
|
|
844
|
|
|
758
|
|
Engineered Products
|
|
|
174
|
|
|
154
|
|
Packaging
|
|
|
140
|
|
|
146
|
|
Adjustments for equity-accounted joint ventures and
|
|
|
|
|
|
|
|
certain investments
|
|
|
(47
|
)
|
|
(71
|
)
|
Adjustments for mark-to-market of derivatives
|
|
|
(15
|
)
|
|
14
|
|
Depreciation and amortization
|
|
|
(264
|
)
|
|
(251
|
)
|
Intersegment, corporate offices and other
|
|
|
(89
|
)
|
|
(107
|
)
|
Equity income
|
|
|
12
|
|
|
28
|
|
Interest
|
|
|
(60
|
)
|
|
(76
|
)
|
Income taxes
|
|
|
(280
|
)
|
|
(269
|
)
|
Minority interests
|
|
|
-
|
|
|
(1
|
)
|
Income from continuing operations
|
|
|
590
|
|
|
454
|
|
Risk Concentration
The Company's consolidated sales and operating revenues for the three months
ended March 31, 2007 include $676 (2006: $623) arising from transactions
with one customer. These sales and operating revenues, principally made by
the Primary Metal Group, represent 11% (2006: 11%) of consolidated sales and
operating revenues for the three months ended March 31, 2007.
8. STOCK OPTIONS AND OTHER STOCK-BASED COMPENSATION
Total Stock-Based Compensation Cost
Total pre-tax stock based compensation expense is $17 for the first quarter
ended March 31, 2007 (2006: $39). The amount includes other stock-based
compensation expense of $15 for the first quarter ended March 31, 2007
(2006: $14) and stock option expense of $2 for the first quarter ended March
31, 2007 (2006: $25). Total pre-tax stock based compensation expense for the
first quarter ended March 31, 2007 includes $2 of compensation expense
related to retired and retirement eligible employees (2006: $11).
9. INCOME TAXES
Three months ended March 31
|
|
2007
|
|
2006
|
|
Current
|
|
|
213
|
|
|
125
|
|
Deferred
|
|
|
67
|
|
|
144
|
|
|
|
|
280
|
|
|
269
|
|
The composite of the applicable statutory corporate income tax rates in
Canada is 33% (2006: 33%).
As a result of the implementation of FIN 48, the amount of unrecognized tax
benefits at January 1, 2007 is $193 of which $84 would impact the Company's
effective tax rate, if recognized. Also included in the amount of
unrecognized tax benefits is $44 that, if recognized, would be allocated to
reduce goodwill and $44 for which the Company would obtain an offset in
other taxing jurisdictions. There were no material changes in the amounts
above during the quarter ended March 31, 2007.
It is expected that the amount of unrecognized tax benefits will change in
the next 12 months, however we do not expect the change to have a
significant impact on the results of operations or the financial position of
the Company.
The Company recognizes accrued interest and penalties related to
unrecognized tax benefits as part of the income tax provision. As of January
1, 2007, the Company had recorded a net liability of $10 for interest and
penalties.
Canadian federal income tax returns are closed through 2001 (except for
potential transfer pricing adjustments) and Canadian provincial income tax
returns are closed through 1995. The process to obtain corollary adjustments
with the US competent authority for the 1996-1999 transfer pricing
adjustments to income is underway. The Canadian federal statute of
limitations remains open for the year 2002 and onward with years 2002 and
2003 currently under examination by the Canada Revenue Agency. Foreign
jurisdictions have statutes of limitations generally ranging from 2 to 5
years. Years still open to examination by foreign tax authorities in major
jurisdictions include US (2004 onward), Germany (2001 onward), UK (2004
onward), Switzerland (2004 onward), Australia (2002 onward) and France (1989
onward).
10. OTHER INCOME - NET
Three months ended March 31
|
|
2007
|
|
2006
|
|
Asset impairment charges not included in restructuring programs
|
|
|
-
|
|
|
4
|
|
Gain on disposal of businesses and investments - net
|
|
|
(4
|
)
|
|
-
|
|
Recoveries of legal claims
|
|
|
-
|
|
|
(62
|
)
|
Environmental provisions
|
|
|
-
|
|
|
2
|
|
Interest revenue
|
|
|
(10
|
)
|
|
(8
|
)
|
Exchange losses - net
|
|
|
17
|
|
|
18
|
|
Derivative (gains) losses - net
|
|
|
(16
|
)
|
|
2
|
|
Other
|
|
|
10
|
|
|
13
|
|
|
|
|
(3
|
)
|
|
(31
|
)
|
On January 19, 2006, the Company sold claims related to the Enron bankruptcy
to a financial institution for combined proceeds of $62,
recorded in Recoveries of legal claims.
11. INVENTORIES
|
|
March 31, 2007
|
|
December 31, 2006
|
|
Aluminum operating segments
|
|
|
|
|
|
Aluminum
|
|
|
1,024
|
|
|
1,060
|
|
Raw materials
|
|
|
854
|
|
|
835
|
|
Other supplies
|
|
|
529
|
|
|
495
|
|
|
|
|
2,407
|
|
|
2,390
|
|
Packaging operating segments
|
|
|
|
|
|
|
|
Raw materials and other supplies
|
|
|
323
|
|
|
311
|
|
Work in progress
|
|
|
158
|
|
|
155
|
|
Finished goods
|
|
|
340
|
|
|
330
|
|
|
|
|
821
|
|
|
796
|
|
|
|
|
3,228
|
|
|
3,186
|
|
12. SUPPLEMENTARY INFORMATION
Three months ended March 31
|
|
2007
|
|
2006
|
|
Income Statement
|
|
|
|
|
|
Interest on long-term debt
|
|
|
74
|
|
|
84
|
|
Capitalized interest
|
|
|
(23
|
)
|
|
(14
|
)
|
|
|
March 31, 2007
|
|
December 31, 2006
|
|
Balance Sheet
|
|
|
|
|
|
Payables and accrued liabilities include the following:
|
|
|
|
|
|
Trade payables
|
|
|
2,073
|
|
|
2,163
|
|
Other accrued liabilities
|
|
|
1,651
|
|
|
1,700
|
|
Derivatives
|
|
|
701
|
|
|
740
|
|
Income and other taxes
|
|
|
273
|
|
|
119
|
|
Accrued employment costs
|
|
|
637
|
|
|
708
|
|
|
|
|
5,335
|
|
|
5,430
|
|
13. COMMITMENTS AND CONTINGENCIES
On January 22, 2007, Alcan filed its leave to appeal application with the
British Columbia (BC) Court of Appeal regarding the BC Utilities Commission
December 29, 2006 decision to reject the amended and restated Long-Term
Energy Purchase Agreement between Alcan and BC Hydro. This appeal was
withdrawn on April 2, 2007. On March 28, 2007, the Supreme Court of BC in a
judgment concluded that there are no restrictions on the Company's use or
sale of Kemano power in the legislation or agreements with the Province of
BC.
The Company has guaranteed the repayment of indebtedness by third parties or
the indemnification of third parties for a total amount of approximately
$333. Alcan believes that none of these guarantees is likely to be invoked.
These guarantees relate primarily to debt held by equity-accounted Joint
Ventures, employee housing loans, obligations relating to businesses sold
and potential environmental remediation at former Alcan sites.
Alcan, in the course of its operations, is subject to environmental and
other claims, lawsuits and contingencies. The Company is involved in
proceedings arising out of laws regulating the discharge of materials into
the environment or laws seeking to protect the environment, for which it has
made accruals, in respect of 21 existing and former Alcan sites and third
party sites. Accruals have been made in specific instances where it is
probable that liabilities will be incurred and where such liabilities can be
reasonably estimated.
According to agreements entered into by the Company as part of Novelis
Spin-off, the Company has transferred to Novelis certain environmental
contingencies.
Alcan has agreed to indemnify Novelis and each of its Directors, officers
and employees against liabilities relating to:
|
liabilities of the Company other than those of an entity forming
part of Novelis or otherwise assumed by Novelis pursuant to its
separation agreement with Novelis;
|
|
any liability of the Company or its Subsidiaries, other than Novelis, retained by Alcan under the separation agreement; and
|
|
any breach by the Company of its separation agreement with Novelis
or any of its ancillary agreements with Novelis.
|
Although there is a possibility that liabilities may arise in other
instances for which no accruals have been made, the Company does not believe
that any losses in excess of accrued amounts would be sufficient to
significantly impair its operations, have a material adverse effect on its
financial position or liquidity, or materially and adversely affect its
results of operations for any particular reporting period, absent unusual
circumstances.
14. COMPREHENSIVE INCOME
Three months ended March 31
|
|
2007
|
|
2006
|
|
Net income
|
|
|
591
|
|
|
453
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
Net change in deferred translation adjustments
|
|
|
53
|
|
|
157
|
|
Net change in unreleased gains and losses on
derivatives
|
|
|
|
|
|
|
|
(net of tax of $(24) and $43 for 2007 and
2006, respectively):
|
|
|
|
|
|
|
|
Net change from periodic revaluations
|
|
|
(11
|
)
|
|
(123
|
)
|
Net amount reclassified to income
|
|
|
57
|
|
|
41
|
|
Net change in minimum pension liability (net of tax of
$1
|
|
|
|
|
|
|
|
for 2006)
|
|
|
-
|
|
|
(5
|
)
|
Net change in unfunded status of pension and other
postretirement plans (net of tax ($5) for 2007):
|
|
|
|
|
|
|
|
Net
amount reclassified
to income
|
|
|
9
|
|
|
-
|
|
|
|
|
108
|
|
|
70
|
|
Comprehensive income
|
|
|
699
|
|
|
523
|
|
14. COMPREHENSIVE INCOME (cont'd)
|
|
March 31, 2007
|
|
December 31, 2006
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
Deferred translation adjustments
|
|
|
1,070
|
|
|
1,017
|
|
Unrealized gain on "available-for-sale" securities
|
|
|
5
|
|
|
5
|
|
Unfunded status of pensions and other postretirement plans
|
|
|
(1,024
|
)
|
|
(1,033
|
)
|
Unreleased loss on derivatives
|
|
|
(166
|
)
|
|
(212
|
)
|
Accumulated other comprehensive loss
|
|
|
(115
|
)
|
|
(223
|
)
|
15. POST-RETIREMENT BENEFITS
Alcan and its subsidiaries have established retirement benefit plans in the principal
countries where they operate. The pension obligation relates mostly to
funded defined benefit pension plans in Canada, UK, US, Switzerland, the
Netherlands and Australia and to unfunded defined benefit pension plans
mainly in Germany and France, or lump sum retirement indemnities in France.
Pension benefits are generally based on the employee's service and highest
average eligible compensation before retirement, and are periodically
adjusted for cost of living increases, either by collective agreement such
as in Canada, statutory requirement such as in UK, France and Germany, or
Company practice when there are surpluses determined on a funding basis,
such as in Canada, Switzerland and the Netherlands.
Most Funded Pension Plans are administered by a Pension Committee or Board
of Trustees composed of plan members designated by the Company and
employees. Each Committee or Board adopts its own investment policy which
generally favours diversification and active management of plan assets
through selection of specialized managers. Investments are generally limited
to publicly-traded stocks and high rated debt securities, excluding
securities in Alcan, and include only small amounts in other categories,
except for the Swiss plan, whose target allocation is evenly distributed
between equity, bonds and real estate.
Components of Net Periodic Benefit Cost
|
|
Pension Benefits
|
|
Other Benefits
|
|
Three months ended March 31
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Current service cost
|
|
|
50
|
|
|
49
|
|
|
4
|
|
|
4
|
|
Interest cost
|
|
|
144
|
|
|
138
|
|
|
16
|
|
|
14
|
|
Expected return on assets
|
|
|
(165
|
)
|
|
(151
|
)
|
|
-
|
|
|
-
|
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses
|
|
|
21
|
|
|
27
|
|
|
4
|
|
|
4
|
|
Prior service cost
|
|
|
17
|
|
|
18
|
|
|
-
|
|
|
-
|
|
Net periodic benefit cost
|
|
|
67
|
|
|
81
|
|
|
24
|
|
|
22
|
|
The expected long-term rate of return on plan assets is 6.9% in 2007 (6.9%
in 2006).
Employer Contributions
Alcan previously disclosed in its financial statements for the year ended
December 31, 2006, that it expected to contribute $289 in aggregate to its
funded pension plans in 2007. The contributions are expected to be fully
comprised of cash. As at March 31, 2007, $66 has been contributed, and the
Company expects to contribute an additional $200 over the remainder of the
year. The Company expected to pay in 2007 $64 of unfunded pension benefits
and lump sum indemnities from operating cash flows. As at March 31, 2007,
$16 has been paid, and the Company expects to pay an additional $49 over the
remainder of the year.
16. LONG-TERM DEBT
During the first quarter of 2007, the Company entered into an interest rate
derivative to swap interest payments on $100 of its long-term debt from
fixed to floating rate (relating to the 4.875% Global notes due in 2012).
The fair market value of this derivative was $1 as at March 31, 2007. In
April 2007, the Company entered into interest rate derivatives to swap
interest payments on an additional $200 of the same long-term debt. These
derivatives have been designated and are effective as fair value hedges of
the underlying fixed rate debt.
17. PRIOR YEAR AMOUNTS
Certain prior year amounts have been reclassified to conform with current
period presentation.
18. SUBSEQUENT EVENTS
Effective April 2, 2007, the Company terminated a program to sell to a third
party an undivided interest up to $125 (€ 95 million) of selected trade
receivables without recourse.
On April 12, 2007, the Company announced its intention to sell its 45%
interest in India's Utkal Alumina International Limited (Utkal). The Utkal
project, which involves the development of a new bauxite mine and alumina
refinery in the Indian state of Orissa and is currently in an engineering
phase, will continue to benefit from an Alcan technology supply agreement.
The Company has already taken initial steps leading to the sale process and
expects completion during the second quarter of 2007.
On April 23, 2007, the Company reached an agreement in principle to sell its
Satma subsidiary to ALMECO Spa. Located in Goncelin (France), Satma
manufactures and sells capacitor foil for the electronic industry as well as
anodized strip for the lighting and decoration markets. Final terms of the
agreement are expected to be completed following the conclusion of
consultations with employee representatives. The transaction is anticipated
to close by the end of May 2007.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(In millions of US$, except per common share amounts, aluminum prices
and as otherwise stated)
This Management's Discussion and Analysis (MD&A) includes some measures
for which no meaning is prescribed by generally accepted accounting
principles (GAAP). Refer to the section "Definitions" for an explanation of
these measures.
Overview
The Company reported first quarter income from continuing operations of $590
or $1.60 per common share versus $454 or $1.21 per common share a year
earlier and $418 or $1.12 per common share in the fourth quarter of 2006.
Income from continuing operations increased $136 year-over-year as the
Company benefited from higher aluminum prices and better pricing, product
mix and volumes in the downstream businesses. These were partly offset by
increased raw materials and energy costs, a reduction of technology license
fees recognized in relation to the Oman smelter project, unfavourable
non-cash mark-to-market adjustments on derivatives as well as the negative
impact of stronger European currencies. The increase of $172 in income from
continuing operations from the fourth quarter of 2006 reflected increased
aluminum prices, a lower charge for Other Specified Items (OSIs), favourable
non-cash mark-to-market adjustments on derivatives, improved pricing and
product mix mainly in Engineered Products, lower head office costs and
higher volumes in the downstream businesses principally due to seasonality.
These benefits more than offset an unfavourable variance in foreign currency
balance sheet translation effects, higher costs for raw materials and
energy, as well as lower volumes in the upstream businesses. The terms
"Other Specified Items" (OSIs) and "Foreign Currency Balance Sheet
Translation" are defined under "Definitions" at the end of the MD&A.
Income from continuing operations for the first quarter of 2007 included an
after-tax charge of $19 or $0.05 per common share for the effects of foreign
currency balance sheet translation compared to an after-tax charge of $9 or
$0.02 per common share in the year-ago quarter and an after-tax gain of $97
or $0.26 per common share in the fourth quarter of 2006. The foreign
currency balance sheet translation gain for the fourth quarter of 2006
reflected the largely non-cash impact of the weakening Canadian dollar on
the Company's deferred income taxes. Also included in income from continuing
operations for the first quarter was an after-tax charge for OSIs of $9 or
$0.02 per common share compared to an after-tax charge of $10 or $0.03 per
common share in the year-ago quarter and an after-tax charge of $85 or $0.23
per common share in the fourth quarter of 2006. A detailed OSIs schedule is
provided below.
(in millions of US$, except as otherwise
noted)
|
|
First Quarter
|
|
Fourth Quarter
|
|
|
|
2007
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
Included in income from continuing operations are:
|
|
|
|
|
|
|
|
Foreign currency balance sheet translation
|
|
|
(19
|
)
|
|
(9
|
)
|
|
97
|
|
Other Specified Items (OSIs)
|
|
|
(9
|
)
|
|
(10
|
)
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
590
|
|
|
454
|
|
|
418
|
|
Income from discontinued operations
|
|
|
1
|
|
|
3
|
|
|
4
|
|
Cumulative effect of accounting change
|
|
|
-
|
|
|
(4
|
)
|
|
-
|
|
Net income
|
|
|
591
|
|
|
453
|
|
|
422
|
|
Basic earnings per common share ($ per
common share)
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
1.60
|
|
|
1.21
|
|
|
1.12
|
|
Net income
|
|
|
1.60
|
|
|
1.21
|
|
|
1.13
|
|
Average number of common shares outstanding (millions)
|
|
|
367.1
|
|
|
373.1
|
|
|
371.5
|
|
(in millions of US$, except as otherwise
noted)
|
|
First Quarter
|
|
Fourth Quarter
|
|
|
|
2007
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
|
6,420
|
|
|
5,550
|
|
|
6,219
|
|
Shipment volumes (kt)
|
|
|
|
|
|
|
|
|
|
|
Ingot products * |
|
|
744
|
|
|
749
|
|
|
776
|
|
Aluminum used in engineered products & packaging |
|
|
342
|
|
|
337
|
|
|
314
|
|
Total aluminum volume
|
|
|
1,086
|
|
|
1,086
|
|
|
1,090
|
|
Aluminum pricing data ($ per tonne)
|
|
|
|
|
|
|
|
|
|
|
Ingot product realizations * |
|
|
2,835
|
|
|
2,454
|
|
|
2,712
|
|
Average LME 3-month price (one-month lag)
|
|
|
2,760
|
|
|
2,369
|
|
|
2,631
|
|
* The bulk of Alcan's ingot product sales are based on the
LME 3-month price with a one-month lag plus a local market
premium and any applicable product premium.
|
Sales and operating revenues of $6,420 were up $870 compared to the year-ago
quarter mainly reflecting higher aluminum prices as well as favourable
pricing, product mix and volumes in downstream businesses. Compared to the
fourth quarter of 2006, sales and operating revenues increased by $201
mainly as a result of higher aluminum prices, increased volumes in
downstream businesses and product mix and pricing improvements, mainly in
Engineered Products.
The average realized price on sales of ingot products during the first
quarter was up $381 per tonne from the year-ago quarter and up $123 per
tonne from the fourth quarter of 2006. The increases over both the year-ago
and sequential quarters mainly reflected the impact of higher LME aluminum
prices.
|
|
First Quarter |
|
Fourth Quarter
|
|
(in millions of US$) |
|
2007 |
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
Other Specified Items (after-tax) |
|
|
|
|
|
|
|
|
|
|
Restructuring charges |
|
|
(7
|
) |
|
(21
|
)
|
|
(36
|
)
|
Asset impairments |
|
|
-
|
|
|
(6
|
)
|
|
(14
|
)
|
Gains (losses) from non-routine sales of assets, businesses and
investments |
|
|
2
|
|
|
(29
|
)
|
|
(8
|
)
|
Other |
|
|
(4 |
) |
|
46 |
|
|
(27
|
)
|
Other Specified Items |
|
|
(9 |
) |
|
(10
|
)
|
|
(85
|
) |
The most significant items included in OSIs in the first quarter of 2007
were after-tax restructuring charges of $7 which included costs related to
the Company's Affimet aluminum recycling plant in Compiègne, France. The
most significant items included in OSIs in the first quarter of 2006 were
after-tax losses of $29 on business and asset disposals, after-tax
restructuring charges of $21 mainly related to the packaging business, as
well as asset impairment charges of $6 mainly related to the sale of the
bottles business, offset by a gain of $41 arising on the sale of bankruptcy
claims against Enron. The most significant items included in OSIs in the
fourth quarter of 2006 were after-tax charges of $36 associated with
restructuring initiatives across most business groups, asset impairment
charges of $14 principally in relation to the Gove alumina refinery in
Australia, an asset retirement obligation adjustment in relation to closed
sites of $11 and a net loss on business divestments of $8.
Included in income from continuing operations for the first quarter of 2007
were non-cash mark-to-market charges on derivatives of $0.02 per common
share as compared to gains of $0.03 a year earlier and charges of $0.17 in
the fourth quarter of 2006. Also included in income from continuing
operations for the first quarter of 2007 were non-cash pre-tax expenses of
$17 for share-based compensation as compared to $39 in the year-ago quarter
and $24 in the fourth quarter of 2006.
Net Income
Including results from discontinued operations, the Company reported net
income of $591 or $1.60 per common share, compared to net income of $453 or
$1.21 per common share a year earlier and $422 or $1.13 per common share in
the fourth quarter of 2006.
Operating Segment Review
The term "Business Group Profit" (BGP) is defined under "Definitions" at the
end of the MD&A.
(in millions of US$)
|
|
First Quarter
|
|
Fourth Quarter
|
|
|
|
2007
|
|
2006
|
|
2006
|
|
Business Group Profit (BGP)
|
|
|
|
|
|
|
|
Bauxite and Alumina
|
|
|
175
|
|
|
129
|
|
|
156
|
|
Primary Metal
|
|
|
844
|
|
|
758
|
|
|
755
|
|
Engineered Products
|
|
|
174
|
|
|
154
|
|
|
168
|
|
Packaging
|
|
|
140
|
|
|
146
|
|
|
109
|
|
Subtotal
|
|
|
1,333
|
|
|
1,187
|
|
|
1,188
|
|
Equity accounted joint venture eliminations
|
|
|
(47
|
)
|
|
(71
|
)
|
|
(19
|
)
|
Change in fair market value of derivatives
|
|
|
(15
|
)
|
|
14
|
|
|
(82
|
)
|
|
|
|
1,271
|
|
|
1,130
|
|
|
1,087
|
|
Corporate Items
|
|
|
|
|
|
|
|
|
|
|
Intersegment, corporate offices and other
|
|
|
(89
|
)
|
|
(107
|
)
|
|
(255
|
)
|
Depreciation & amortization
|
|
|
(264
|
)
|
|
(251
|
)
|
|
(261
|
)
|
Interest
|
|
|
(60
|
)
|
|
(76
|
)
|
|
(76
|
)
|
Income taxes
|
|
|
(280
|
)
|
|
(269
|
)
|
|
(55
|
)
|
Equity income (loss)
|
|
|
12
|
|
|
28
|
|
|
(21
|
)
|
Minority interests
|
|
|
-
|
|
|
(1
|
)
|
|
(1
|
)
|
Income from continuing operations
|
|
|
590
|
|
|
454
|
|
|
418
|
|
Bauxite and Alumina: BGP for the first quarter was $175, an
increase of $46 compared to the year-ago quarter. Excluding OSIs and foreign
currency balance sheet translation effects, the year-over-year increase in
BGP was $51 or 40%. This improvement mainly reflected higher LME-linked
contract prices for alumina (given the normal one-quarter lag) partially
offset by the impact of the national strike in Guinea, lower shipment
volumes, higher raw material and operating costs and exchange losses due to
the strengthening Australian dollar. On a sequential basis, BGP for the
group was $19 above the previous quarter. Excluding OSIs and foreign
currency balance sheet translation effects, BGP increased by $17 or 10%,
reflecting higher LME-linked contract prices partially offset by the impact
of the national strike in Guinea, higher operating costs and lower shipment
volumes. The national strike in Guinea cost the business group $21 in BGP in
the first quarter, and is expected to cost an additional $12 in BGP in the
second quarter. Results for the second quarter of 2007 are expected to be
higher than the first quarter as a result of higher LME-linked contract
prices and a reduced impact of Guinea's national strike.
Primary Metal: BGP for the first quarter was a business
group record at $844, up $86 as compared to the year-ago quarter. Excluding
OSIs and foreign currency balance sheet translation effects, the year-over-year
increase in BGP was $90 or 12%. The improvement mainly reflected higher
aluminum prices as well as additional contribution from the acquisition of
the cathode producer Carbone Savoie, partially offset by higher input costs
(alumina, electricity and fuel-related raw material costs), lower revenues
from the sale of technology (mainly the non-recurrence of revenue associated
with the Oman project), the adverse impact of the stronger European
currencies on costs and higher operating costs. On a sequential quarter
basis, BGP increased by $89. Excluding OSIs and foreign currency balance
sheet translation effects, BGP increased by $112 or 15%, reflecting higher
aluminum prices and lower operating costs. These favourable impacts were
partially offset by higher input costs (alumina, electricity and fuel-related
raw material costs), lower volumes and lower contributions from power
generation. Based on current forward prices for aluminum and rates for
currency (including the recent weakening of the US dollar), results for the
second quarter are expected to be similar to those of the first quarter.
Engineered Products: BGP for the first quarter was a
business group record at $174, up $20 or 13% from a year earlier. Excluding
OSIs and foreign currency balance sheet translation effects, the
year-over-year increase in BGP was $21 or 13%. The year-over-year
improvement mainly reflected better prices and sales mix in most of the
group's businesses, most notably Cable and Aerospace. This was partly offset
by lower metal timing benefits, higher aluminum input costs and higher
operating costs. On a sequential quarter basis, BGP increased by $6 or 4%.
Excluding OSIs and foreign currency balance sheet translation effects, the
sequential increase in BGP was $12 or 7%, reflecting normal seasonal volume
improvements, better prices and improved sales mix, partially offset by
higher input and operating costs. BGP for the second quarter is expected to
decline slightly due to margin pressure, mainly in the softer North American
markets.
Packaging: BGP in the first quarter of $140 was down $6 or
4% from the prior-year quarter. Excluding the impact of OSIs, foreign
currency balance sheet translation effects and lost contributions from
divested businesses, BGP improved by $9 or 7%. The year-on-year improvement
was mainly due to volume growth initiatives, margin management in the face
of input cost pressure and a stronger Euro compared to the US dollar. On a
sequential quarter basis, BGP increased by $31 or 28%. Excluding the impact
of OSIs, foreign currency balance sheet translation effects and lost
contributions from divested businesses, BGP increased by $18 or 14%. The
growth drivers were stronger volumes from both seasonal effects and organic
growth initiatives plus cost savings measures. BGP in the second quarter of
2007 is expected to improve compared to the first quarter as progress
continues to be made in operating efficiencies.
Corporate Items
The Intersegment, corporate offices and other expense category includes
corporate head office costs as well as other non-operating items and the
elimination of profits on intersegment sales of aluminum and alumina. The
reduction of $18 compared to the first quarter of 2006 mainly reflects share-based
compensation. The reduction of $166 compared to the fourth quarter of 2006
reflects mainly the reduction of restructuring, asset impairment and closed-site
asset retirement obligation charges as well as lower head office costs.
Depreciation and amortization expenses were $13 higher than in the year-ago
quarter primarily reflecting increased depreciation at the Gove alumina
refinery in Australia. Depreciation and amortization expenses were
comparable to the prior quarter.
Interest expense, net of capitalized interest, was $16 lower than in both
the year-ago and prior-year quarters mainly reflecting a higher level of
capitalized interest and reduced debt levels. In the first quarter of 2007,
capitalized interest was $23 compared to $14 a year ago and $16 in the
fourth quarter of 2006, all largely related to the Gove expansion.
The Company's effective tax rate on income from continuing operations was
33% in the first quarter. Foreign currency balance sheet translation losses
due to the strengthening of the Canadian dollar increased the effective tax
rate.
Share Repurchase Program
Cumulatively since the program inception, Alcan purchased 9,831,200 common
shares at an average price of $47.42 per share for a total cost of $466.
This represents 52% of the total number of shares approved for repurchase.
Liquidity and Capital Resources
(in millions of US$)
|
|
First Quarter
|
|
Fourth Quarter
|
|
|
|
2007
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities in continuing
operations
|
|
|
582
|
|
|
362
|
|
|
1,104
|
|
Dividends
|
|
|
(75
|
)
|
|
(58
|
)
|
|
(76
|
)
|
Capital expenditures
|
|
|
(312
|
)
|
|
(426
|
)
|
|
(610
|
)
|
Free cash flow from (used for) continuing operations
|
|
|
195
|
|
|
(122
|
)
|
|
418
|
|
Operating Activities
Cash flow from operating activities in continuing operations increased by
$220 compared to the year-ago quarter and decreased by $522 compared to the
fourth quarter of 2006. The increase in cash from operating activities in
continuing operations over the year-ago quarter mainly reflects higher
earnings and a less unfavourable movement in operating working capital,
partially offset by an unfavourable movement in deferred items. The decrease
over the prior quarter principally reflects seasonally typical unfavourable
movements in operating working capital and deferred items which more than
offset higher earnings. After dividends of $75 and capital expenditures of
$312, free cash flow from continuing operations was $195 for the first
quarter of 2007. In the year-ago quarter, after dividends of $58 and capital
expenditures of $426, free cash flow from continuing operations was negative
$122. The term "Free cash flow from continuing operations" is defined under
"Definitions" at the end of the MD&A.
Financing Activities
Debt as a Percentage of Invested
Capital
(in millions of US$, except as
otherwise noted)
|
|
March 31
|
|
December 31, |
|
|
|
2007
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
|
579 |
|
|
308
|
|
|
467 |
|
Debt
maturing within one year
|
|
|
32 |
|
|
823 |
|
|
36 |
|
Debt not
maturing within one year
|
|
|
5,169 |
|
|
5,219 |
|
|
5,476 |
|
Total debt |
|
|
5,780 |
|
|
6,350 |
|
|
5,979 |
|
Minority
interests |
|
|
71 |
|
|
68 |
|
|
71 |
|
Equity |
|
|
|
|
|
|
|
|
|
|
Redeemable
non-retractable preference shares
|
|
|
160 |
|
|
160 |
|
|
160 |
|
Common
shareholders' equity
|
|
|
11,565
|
|
|
10,039 |
|
|
10,934 |
|
Total invested capital
|
|
|
17,576
|
|
|
16,617
|
|
|
17,144
|
|
Debt as a percent of invested capital (%)
|
|
|
33% |
|
|
38% |
|
|
35% |
|
The term "Debt as a percentage of invested capital" is defined under "Definitions"
at the end of MD&A.
Debt as a percentage of invested capital as at March 31, 2007 was 33%, down
from 35% at the end of the fourth quarter of 2006 due to lower debt and
higher equity.
During the first quarter of 2007, the Company entered into an interest rate
derivative to swap interest payments on $100 of its long-term debt from
fixed to floating rate (relating to the 4.875% Global notes due in 2012).
The fair market value of this derivative was $1 as at March 31, 2007. In
April 2007, the Company entered into interest rate derivatives to swap
interest payments on an additional $200 of the same long-term debt. These
derivatives have been designated and are effective as fair value hedges of
the underlying fixed rate debt.
Effective April 2, 2007, the Company terminated a program to sell to a third
party an undivided interest up to $125 (€ 95 million) of selected trade
receivables without recourse.
Liquidity
Effective in June 2006, the Company replaced its $3,000 multi-currency,
five-year, committed global credit facility with a two-tranche,
multi-currency, committed global credit facility with a syndicate of
international banks. The facility is comprised of a $2,000 five-year tranche
maturing in June 2011, and a $1,000 364-day tranche, which may be extended
by two years at the Company's option. The facility is available for general
corporate purposes and is primarily used to support Alcan's commercial paper
programs.
In addition to its existing $3-billion commercial paper program in Canada,
the Company reinstated in 2005 two new commercial paper programs, one in
France of € 1 billion and another in the US of $2 billion. The Company
guarantees the commercial paper issued under these two programs. In October
2005, a commercial paper program in the US was also initiated with Alcan
Corporation as the issuer. At any point in time, the total combined issuance
limit for all three programs cannot exceed $3 billion.
The Company had both the intention and the ability, through its long-term
credit facilities, to refinance its commercial paper borrowings on a
long-term basis and has classified them as Debt not maturing within one
year.
As at May 8, 2007, Alcan had $835 of commercial paper outstanding.
Based on the Company's forecasts, the Company believes that cash from
continuing operations together with available credit facilities will be more
than sufficient to meet the cash requirements of operations, planned capital
expenditures, dividends and any short-term debt refinancing requirements. In
addition, the Company believes that its ability to access global capital
markets provides any additional liquidity that may be required to meet
unforeseen events. Alcan's long-term debt rating remains unchanged at BBB+ /
Baa1 with short-term debt rated A2 / P2 by S&P's and Moody's respectively.
Credit rating agencies apply their own criteria and may change the ratings
at any time.
Investment Activities
In the first quarter of 2007, cash used for investment activities was $356
compared to $266 in the year-ago quarter. Both the current and year-ago
quarter balances mainly reflect capital expenditures of $312 and $426,
respectively. Excluding capital expenditures on the Gove expansion, capital
spending was 51% and 72% of depreciation and amortization expense for the
first quarter of 2007 and prior-year quarter, respectively.
On April 30, 2007, Alcan announced that it signed a Heads of Agreement with
Saudi Arabian mining company Ma'aden to develop a proposed US$7-billion
integrated aluminum "mine-to-metal" project including bauxite mining,
alumina refining, power generation and aluminum smelting. Alcan would hold a
49 percent stake in the project and would provide technology and operating
management support, with Ma'aden holding the balance of 51-percent ownership.
As one of the world's largest vertically integrated projects of its kind,
the initial operations would feature a power plant delivering 1,400
megawatts; a 90 million tonne bauxite reserve located in Az Zabirah in
northern Saudi Arabia representing a potential 30 years of mining; an
alumina refinery with a capacity of 1.6 million tonnes per year; an aluminum
smelter with a capacity of 720 thousand tonnes per year, and would leverage
Saudi Arabia's port facilities and infrastructure. First metal would be
expected during the first quarter of 2011, and first alumina a year later.
Contractual Obligations
The Company has future obligations under various contracts relating to debt
payments including those with associated interest rate swap agreements,
capital and operating leases, long-term purchase arrangements, pensions and
other post-employment benefits, and guarantees. The table below provides a
summary of these contractual obligations (based on undiscounted future cash
flows) as at March 31, 2007. There are no material off-balance sheet
arrangements.
Contractual Obligations
As at March 31, 2007
|
|
Payments due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (1)
|
|
5,201
|
|
32
|
|
536
|
|
965
|
|
3,668
|
|
Interest payments (1)
|
|
3,635
|
|
225
|
|
555
|
|
499
|
|
2,356
|
|
Capital lease obligations
|
|
31
|
|
6
|
|
8
|
|
3
|
|
14
|
|
Operating leases
|
|
449
|
|
59
|
|
136
|
|
95
|
|
159
|
|
Purchase obligations
|
|
6,442
|
|
1,083
|
|
1,175
|
|
1,050
|
|
3,134
|
|
Unfunded pension plans (2)
|
|
|
2,432
|
|
|
49
|
|
|
137
|
|
|
138
|
|
|
2,108
|
|
Other post-employment benefits (2)
|
|
|
2,762
|
|
|
49
|
|
|
144
|
|
|
159
|
|
|
2,410
|
|
Funded pension plans (2), (3)
|
|
|
(3
|
)
|
|
200
|
|
|
544
|
|
|
562
|
|
|
(3
|
)
|
Guarantees (4)
|
|
|
333
|
|
|
10
|
|
|
249
|
|
|
63
|
|
|
11
|
|
Total
|
|
|
|
|
|
1,713
|
|
|
3,484
|
|
|
3,534
|
|
|
|
|
(1) Interest payments are calculated
using the interest rate in effect, including the impact of interest rate
swap agreements on $700 of fixed rate long-term debt and the outstanding
debt balance as at March 31, 2007. All commercial paper borrowings and
interest payments thereon have been included to 2011 when long-term credit
facility matures.
(2) Refer to note 15, Post-Retirement
Benefits, of the accompanying consolidated financial statements.
(3) Pension funding generally includes the
contribution required to finance the annual service cost, except where the
plan is largely overfunded, and amortization of unfunded liabilities over
periods of 15 years, with larger payments made over the initial period where
required by pension legislation. Contributions depend on actual returns on
pension assets and on deviations from other economic and demographic
actuarial assumptions. Based on management's long-term expected return on
assets, annual contributions for years after 2011 are projected to be in the
same range as in prior years and to grow in relation with payroll.
(4) Refer to note 13, Commitments and
Contingencies, of the accompanying consolidated financial statements.
Selected Annual Information
Selected financial data for each of the Company's three most
recently completed financial years is as follows:
|
|
|
|
|
|
31 December
|
|
(in millions of US$, except as otherwise
noted)
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
|
23,641
|
|
|
20,320
|
|
|
24,948
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
1,786
|
|
|
155
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,786
|
|
|
129
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
28,939
|
|
|
26,638
|
|
|
33,341
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
5,512
|
|
|
6,067
|
|
|
6,914
|
|
|
|
|
|
|
|
|
|
|
|
|
($ per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations - basic
|
|
|
4.75
|
|
|
0.40
|
|
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations - diluted
|
|
|
4.74
|
|
|
0.40
|
|
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income - basic
|
|
|
4.75
|
|
|
0.33
|
|
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income - diluted
|
|
|
4.74
|
|
|
0.33
|
|
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
0.70
|
|
|
0.60
|
|
|
0.60
|
|
Selected Quarterly Information
Selected unaudited financial data for each of the Company's eight most
recently completed quarters is as follows:
(in
millions of US$, except as otherwise noted) |
|
Q1-07
|
|
Q4-06
|
|
Q3-06
|
|
Q2-06
|
|
Q1-06
|
|
Q4-05
|
|
Q3-05
|
|
Q2-05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
|
6,420
|
|
|
6,219
|
|
|
5,769
|
|
|
6,103
|
|
|
5,550
|
|
|
5,049
|
|
|
4,887
|
|
|
5,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from continuing operations
|
|
|
590
|
|
|
418
|
|
|
460
|
|
|
454
|
|
|
454 |
|
|
(333
|
) |
|
72
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (Loss)
|
|
|
591
|
|
|
422
|
|
|
456
|
|
|
455
|
|
|
453
|
|
|
(361)
|
|
|
81
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from continuing operations - basic
|
|
|
1.60
|
|
|
1.12
|
|
|
1.21
|
|
|
1.21
|
|
|
1.21
|
|
|
(0.90
|
) |
|
0.19
|
|
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from continuing operations - diluted
|
|
|
1.59
|
|
|
1.12
|
|
|
1.21
|
|
|
1.20
|
|
|
1.20
|
|
|
(0.90
|
) |
|
0.19
|
|
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (Loss) - basic
|
|
|
1.60
|
|
|
1.13
|
|
|
1.20
|
|
|
1.21
|
|
|
1.21
|
|
|
(0.98
|
) |
|
0.21
|
|
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (Loss) - diluted
|
|
|
1.59
|
|
|
1.13
|
|
|
1.20
|
|
|
1.20
|
|
|
1.20
|
|
|
(0.98
|
) |
|
0.21
|
|
|
0.52
|
|
Commitments and Contingencies
The Company's commitments and contingencies are described in note 13 -
Commitments and Contingencies, of the accompanying consolidated financial
statements.
Related Party Transactions
The only related party transactions are those with the joint ventures
accounted for under the equity method. These transactions are undertaken on
an arm's length, negotiated basis. For more details, refer to note 11 -
Related Party Transactions, of the consolidated financial statements in the
most recent Annual Report on Form 10-K.
Accounting Policies
The preparation of financial statements in conformity with United States
GAAP requires management to make estimates, judgments and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
periods. The most significant estimates are associated with the critical
accounting policies relating to post-retirement benefits; environmental
liabilities; property, plant and equipment; goodwill; income taxes; and
business combinations. These critical accounting policies are those that are
both most important to the portrayal of the Company's financial condition
and results and require management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect
of matters that are inherently uncertain.
The Company's critical accounting policies are more fully described in note
2 - Summary of Significant Accounting Policies, of the consolidated
financial statements and in the MD&A, contained in the most recent Annual
Report on Form 10-K.
On January 1, 2007, the Company adopted the provisions of the Financial
Accounting Standards Board (FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109
(FIN 48). The adoption of this standard resulted in the Company recording a
$28 net increase in the liability for unrecognized tax benefits on January
1, 2007. This net increase in liabilities resulted in a decrease to the
January 1, 2007 balance of Retained earnings of $21, a net decrease in
Deferred tax liabilities of $8 and a reduction of $1 in equity-accounted
investments included in Deferred charges and other assets. For more details, refer to
note 2 - Accounting Changes and note 9 - Income Taxes, of the accompanying
consolidated financial statements.
Cautionary Statement
Statements made in this Form 10-Q which describe the Company's or
management's objectives, projections, estimates, expectations or predictions
of the future may be "forward-looking statements" within the meaning of
securities laws which can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," "estimates,"
"plans," "anticipates" or the negative thereof or other variations thereon.
All statements that address the Company's expectations or projections about
the future including statements about the Company's growth, cost reduction
goals, operations, reorganization plans, expenditures and financial results
are forward-looking statements. Such statements may be based on the
Company's own research and analysis. The Company cautions that, by their
nature, forward-looking statements involve risk and uncertainty and that the
Company's actual actions or results could differ materially from those
expressed or implied in such forward-looking statements or could affect the
extent to which a particular projection is realized. Reference should be
made to the Company's most recent Annual Report on Form 10-K for a list of
factors that could cause such differences.
Important factors which could cause such differences include: changes in
global supply and demand conditions for aluminum and other products;
cyclical demand and pricing within the principal markets for the company's
products; changes in the relative value of various currencies; fluctuations
in the supply of and prices for power in the areas in which the company
maintains production facilities; changes in aluminum ingot prices and
changes in raw material costs and availability; competition in highly
competitive markets; changes in prevailing interest rates and equity market
returns related to pension plan investments; economic, regulatory and
political factors within the countries in which the company operates or
sells its products; the risk of significant losses from trading operations,
including losses due to market and credit risks associated with derivatives;
changes in government regulations, particularly those affecting
environmental, health or safety compliance; risks related to the use of
hazardous materials in manufacturing processes; delay and cost risks related
to significant capital projects; the consequences of transferring most of
the aluminum rolled products businesses operated by the company to Novelis
Inc.; relationships with, and financial and operating conditions of,
customers and suppliers; willingness of customers to accept substitution by
competing products; major changes in technology that affect the company's
competitiveness; potential catastrophic damage, increased insurance and
security costs and general uncertainties associated with the increased
threat of terrorism or war; the effect of international trade disputes on
the company's ability to import materials, export its products and compete
internationally; the effect of integrating acquired businesses and the
ability to attain expected benefits; potential discovery of unanticipated
commitments or other liabilities associated with the acquisition and
integration or disposition of businesses; and other factors affecting the
company's operations including, but not limited to, litigation, labour
relations and negotiations and fiscal regimes.
The Company undertakes no obligation to release publicly the results of any
future revisions it may make to forward-looking statements to reflect events
or circumstances after the date of this quarterly report or to reflect the
occurrence of unanticipated events. Furthermore, the Company undertakes no
obligation, in relation to future quarterly earnings disclosures, to release
publicly any information on an interim basis prior to the final earnings
disclosure.
Definitions
"$" all amounts are in US dollars.
"Business Group Profit" (BGP) comprises earnings before interest, income
taxes, minority interests, depreciation and amortization and excludes
certain items, such as corporate costs, restructuring costs (relating to
major corporate-wide acquisitions or initiatives), impairment and other
special charges, pension actuarial gains, losses and other adjustments, and
unrealized gains and losses on derivatives, that are not under the control
of the Business Groups or are not considered in the measurement of their
profitability. These items are generally managed by the Company's corporate
head office, which focuses on strategy development and oversees governance,
policy, legal, compliance, human resources and finance matters. Financial
information for individual business groups includes the results of certain
joint ventures and other investments accounted for using the equity method
on a proportionately consolidated basis, which is consistent with the way
the business groups are managed. However, the BGP of these joint ventures
and equity-accounted investments is removed from total BGP for the company
and the net after-tax results are reported as equity income. The unrealized
change in the fair market value of derivatives has been removed from
individual business group results and is shown on a separate line within
total BGP. This presentation provides a more accurate portrayal of
underlying business group results and is in line with the company's
portfolio approach to risk management.
"Debt as a percentage of invested capital" does not have a uniform
definition. Because other issuers may calculate debt as a percentage of
invested capital differently, Alcan's calculation may not be comparable to
other companies' calculations. The figure is calculated by dividing
borrowings by total invested capital. Total invested capital is equal to the
sum of borrowings and equity, including minority interests. The Company
believes that debt as a percentage of invested capital can be a useful
measure of its financial leverage as it indicates the extent to which it is
financed by debt holders. The measure is widely used by the investment
community and credit rating agencies to assess the relative amounts of
capital put at risk by debt holders and equity investors.
"Derivatives" including forward contracts, swaps and options are financial
instruments used by the Company to manage the specific risks arising from
fluctuations in exchange rates, interest rates, aluminum prices and other
commodity prices. Mark-to-market gains and losses on derivatives will be
offset over time by gains and losses on the underlying exposures.
"Foreign currency balance sheet translation" effects largely arise from
translating monetary items (principally deferred income taxes and long-term
liabilities) denominated in Canadian and Australian dollars into US dollars
for reporting purposes. Although these effects are primarily non-cash in
nature, they can have a significant impact on the Company's net income.
"Free cash flow from continuing operations" consists of cash from operating
activities in continuing operations less capital expenditures and dividends.
Management believes that free cash flow, for which there is no comparable
GAAP measure, is relevant to investors as it provides an indication of the
cash generated internally that is available for investment opportunities and
debt service.
"GAAP" refers to United States Generally Accepted Accounting Principles.
"LME" refers to the London Metal Exchange.
"Other Specified Items" (OSIs) include, for example: restructuring and
synergy charges; asset impairment charges; gains and losses on non-routine
sales of assets, businesses or investments; unusual gains and losses from
legal claims and environmental matters; gains and losses on the redemption
of debt; income tax reassessments related to prior years and the effects of
changes in income tax rates; and other items that, in Alcan's view, do not
typify normal operating activities.
All tonnages are stated in metric tonnes, equivalent to 2,204.6 pounds.
All figures are unaudited.
Additional information on Alcan is available on the Company's website at
www.alcan.com and the Company's regulatory filings can be viewed on the
Canadian Securities Administrators' site at www.sedar.com and on the US
Securities and Exchange Commission's site at www.sec.gov. All website
addresses contained in this report are textual references and information
from referenced websites is not incorporated by reference into this report.
The number of common shares outstanding as at May 1, 2007 is 367,874,400.
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
(in millions of US$, except LME prices)
Changes in interest rates, foreign exchange rates and the market price of
aluminum are among the factors that can impact the Company's cash flow. See
risk factors described in Item 1A of the Company's Annual Report
on Form 10-K for the year ended December 31, 2006.
Interest Rates
The impact of a 10% increase in interest rates on the Company's variable
rate debt outstanding and on the fixed rate debt that has been converted to
variable rate debt through interest rate swaps at March 31, 2007 and 2006,
net of its cash and time deposits at March 31, 2007 and
2006, would be to reduce annual net income by $7 and $3, respectively for
the variable rate debt including $2 and nil, respectively for the fixed rate debt converted to variable rate debt
through interest rate swaps. The fixed rate debt is expected to be
outstanding until maturity as the Company does not intend to refinance its
fixed rate debt prior to maturity. Transactions in interest rate financial
instruments for which there is no underlying interest rate exposure to the
Company are prohibited. For accounting policies for interest rate swaps used
to hedge interest costs on certain debt, see note 2 - Summary of Significant
Accounting Policies of the Company's most recent Annual Report on
Form 10-K.
Currency legend:
BRL |
Brazilian
Real |
GBP |
UK Pound |
CAD |
Canadian
Dollar |
ISK |
Iceland
Kronur |
CHF |
Swiss
Franc |
JPY |
Japanese
Yen |
CZK |
Czech
Koruna |
MXN |
Mexican
Peso |
DKK |
Denmark
Kroner |
SKK |
Slovak
Koruna |
EUR |
Euros |
USD |
US
Dollar |
The schedule below presents fair value information and contract terms
relevant to determining future cash flows categorized by expected maturity
dates of the Company's currency derivatives (principally forward contracts)
outstanding as at March 31, 2007.
|
2007
|
2008
|
2009 to 2012
and thereafter
|
Total Nominal Amount
|
Fair Value
|
|
|
|
|
(in US$ millions, except average contract rates)
|
|
|
|
|
|
|
|
FORWARD CONTRACTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To buy USD against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GBP
|
Nominal amount
|
29
|
-
|
-
|
29
|
-
|
|
Average contract rate
|
0.508
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
CAD
|
Nominal amount
|
4
|
-
|
-
|
4
|
-
|
|
Average contract rate
|
1.166
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
AUD
|
Nominal amount
|
1
|
-
|
-
|
1
|
-
|
|
Average contract rate
|
1.258
|
-
|
-
|
|
|
|
|
|
|
|
|
|
CHF
|
Nominal amount
|
-
|
-
|
1*
|
1
|
-
|
|
Average contract rate
|
-
|
-
|
1.166*
|
|
|
|
|
|
|
|
|
|
MXN
|
Nominal amount
|
7
|
1
|
-
|
8
|
-
|
|
Average contract rate
|
11.14
|
11.29
|
-
|
|
|
|
|
|
|
|
|
|
JPY
|
Nominal amount
|
8
|
-
|
-
|
8
|
-
|
|
Average contract rate
|
111.5
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
2008
|
2009 to 2012
and thereafter
|
Total Nominal Amount
|
Fair Value
|
|
|
|
|
(in US$ millions, except average contract rates)
|
|
|
|
|
|
|
|
|
FORWARD CONTRACTS (cont'd)
|
|
|
|
|
|
|
|
|
|
|
|
|
NZD
|
Nominal amount
|
2
|
-
|
-
|
2
|
-
|
|
Average contract rate
|
1.463
|
-
|
-
|
|
|
|
|
|
|
|
|
|
CZK
|
Nominal amount
|
3
|
-
|
-
|
3
|
-
|
|
Average contract rate
|
21.00
|
-
|
-
|
|
|
|
|
|
|
|
|
|
SKK
|
Nominal amount
|
4
|
-
|
-
|
4
|
-
|
|
Average contract rate
|
26.58
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To sell USD against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AUD
|
Nominal amount
|
8
|
-
|
-
|
8
|
-
|
|
Average contract rate
|
1.238
|
-
|
-
|
|
|
|
|
|
|
|
|
|
BRL
|
Nominal amount
|
35
|
-
|
-
|
35
|
8
|
|
Average contract rate
|
2.698
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
CHF
|
Nominal amount
|
17
|
-
|
-
|
17
|
-
|
|
Average contract rate
|
1.217
|
-
|
-
|
|
|
|
|
|
|
|
|
|
CZK
|
Nominal amount
|
10
|
-
|
-
|
10
|
-
|
|
Average contract rate
|
20.35
|
-
|
-
|
|
|
|
|
|
|
|
|
|
CAD
|
Nominal amount
|
9
|
-
|
-
|
9
|
-
|
|
Average contract rate
|
1.164
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To buy EUR against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD
|
Nominal amount
|
142
|
1
|
-
|
143
|
2
|
|
Average contract rate
|
1.316
|
1.154
|
-
|
|
|
|
|
|
|
|
|
|
|
GBP
|
Nominal amount
|
4
|
-
|
-
|
4
|
-
|
|
Average contract rate
|
0.680
|
-
|
-
|
|
|
|
|
|
|
|
|
|
JPY
|
Nominal amount
|
6
|
-
|
-
|
6
|
-
|
|
Average contract rate
|
146.1
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
2009
|
2010
|
2011
|
2012 and
thereafter
|
To buy USD against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
*CHF
|
Nominal amount
|
1
|
-
|
-
|
-
|
|
Average contract rate
|
1.166
|
-
|
-
|
-
|
|
2007
|
2008
|
2009 to 2012
and thereafter
|
Total Nominal Amount
|
Fair Value
|
|
|
|
|
(in US$ millions, except average contract rates)
|
|
|
|
|
|
|
|
FORWARD CONTRACTS (cont'd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To sell EUR against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD
|
Nominal amount
|
241
|
13
|
5**
|
259
|
(3)
|
|
Average contract rate
|
1.332
|
1.113
|
1.358**
|
|
|
|
|
|
|
|
|
|
CHF
|
Nominal amount
|
15
|
4
|
-
|
19
|
(1)
|
|
Average contract rate
|
1.577
|
1.506
|
-
|
|
|
|
|
|
|
|
|
|
CZK
|
Nominal amount
|
4
|
-
|
-
|
4
|
-
|
|
Average contract rate
|
28.17
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To sell GBP against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHF
|
Nominal amount
|
10
|
-
|
-
|
10
|
-
|
|
Average contract rate
|
2.375
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
2010
|
2011
|
2012 and
thereafter
|
To sell EUR against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
**USD
|
Nominal amount
|
1
|
1
|
1
|
2
|
|
Average contract rate
|
1.333
|
1.349
|
1.360
|
1.381
|
The schedule below presents fair value information and contract terms
relevant to determining future cash flows categorized by expected maturity
dates of the Company's currency derivatives (principally forward and option
contracts) outstanding as at March 31, 2006.
|
2006
|
2007
|
2008 to 2011 and thereafter
|
Total Nominal Amount
|
Fair Value
|
|
|
|
|
(in US$ millions, except average contract rates)
|
|
|
|
|
|
|
|
FORWARD CONTRACTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To buy USD against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GBP
|
Nominal amount
|
14
|
-
|
-
|
14
|
-
|
|
Average contract rate
|
0.573
|
-
|
-
|
|
|
|
|
|
|
|
|
|
CHF
|
Nominal amount
|
20
|
-
|
-
|
20
|
1
|
|
Average contract rate
|
1.226
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
JPY
|
Nominal amount
|
13
|
-
|
-
|
13
|
-
|
|
Average contract rate
|
113.96
|
-
|
-
|
|
|
|
|
|
|
|
|
|
MXN
|
Nominal amount
|
2
|
4
|
1***
|
7
|
-
|
|
Average contract rate
|
10.79
|
10.97
|
11.29***
|
|
|
|
|
|
|
|
|
|
NZD
|
Nominal amount
|
2
|
-
|
-
|
2
|
-
|
|
Average contract rate
|
1.546
|
-
|
-
|
|
|
|
|
|
|
|
|
|
DKK
|
Nominal amount
|
1
|
-
|
-
|
1
|
-
|
|
Average contract rate
|
6.130
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To sell USD against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GBP
|
Nominal amount
|
45
|
-
|
-
|
45
|
(1)
|
|
Average contract rate
|
0.566
|
-
|
-
|
|
|
|
|
|
|
|
|
|
CHF
|
Nominal amount
|
15
|
-
|
-
|
15
|
-
|
|
Average contract rate
|
1.274
|
-
|
-
|
|
|
|
|
|
|
|
|
|
AUD
|
Nominal amount
|
205
|
-
|
-
|
205
|
(4)
|
|
Average contract rate
|
1.375
|
-
|
-
|
|
|
|
|
|
|
|
|
|
BRL
|
Nominal amount
|
25
|
45
|
-
|
70
|
6
|
|
Average contract rate
|
2.507
|
2.669
|
-
|
|
|
|
|
|
|
|
|
|
|
ISK
|
Nominal amount
|
6
|
-
|
-
|
6
|
-
|
|
Average contract rate
|
66.33
|
-
|
-
|
|
|
|
|
|
|
|
|
|
JPY
|
Nominal amount
|
3
|
-
|
-
|
3
|
-
|
|
Average contract rate
|
113.7
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Other
|
Nominal amount
|
1
|
-
|
-
|
1
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To sell EUR against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD
|
Nominal amount
|
630
|
24
|
16****
|
670
|
(14)
|
|
Average contract rate
|
1.207
|
1.223
|
1.174****
|
|
|
|
|
|
|
|
|
|
GBP
|
Nominal amount
|
1
|
-
|
-
|
1
|
-
|
|
Average contract rate
|
0.693
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
CHF
|
Nominal amount
|
29
|
5
|
4*****
|
38
|
(1)
|
|
Average contract rate
|
1.526
|
1.522
|
1.506*****
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
2007
|
2008 to 2011 and thereafter
|
Total Nominal Amount
|
Fair Value
|
|
|
(in US$ millions, except average contract rates)
|
|
|
|
|
|
|
|
FORWARD CONTRACTS (cont'd)
|
|
|
|
|
|
|
|
|
|
|
|
To buy EUR against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
USD
|
Nominal amount
|
627
|
21
|
-
|
648
|
20
|
|
Average contract rate
|
1.193
|
1.201
|
-
|
|
|
|
|
|
|
|
|
|
GBP
|
Nominal amount
|
19
|
1
|
-
|
20
|
-
|
|
Average contract rate
|
0.690
|
0.694
|
-
|
|
|
|
|
|
|
|
|
|
AUD
|
Nominal amount
|
1
|
-
|
-
|
1
|
-
|
|
Average contract rate
|
1.627
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
JPY
|
Nominal amount
|
3
|
-
|
-
|
3
|
-
|
|
Average contract rate
|
138.5
|
|
|
|
|
|
|
|
|
|
|
|
CAD
|
Nominal amount
|
4
|
2
|
-
|
6
|
-
|
|
Average contract rate
|
1.459
|
1.525
|
-
|
|
|
|
|
|
|
|
|
|
Other
|
Nominal amount
|
1
|
-
|
-
|
1
|
-
|
|
|
|
|
|
|
|
OPTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
To sell EUR against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
USD
|
Nominal amount
|
106
|
20
|
-
|
126
|
-
|
|
Average contract rate |
1.320 |
1.320 |
-
|
|
|
|
|
|
|
|
|
|
|
2008
|
2009
|
2010
|
2011 and
thereafter
|
To buy USD against the foreign currency
|
|
|
|
|
|
|
|
|
|
***MXN
|
Nominal amount
|
1
|
-
|
-
|
-
|
|
Average contract rate
|
11.29
|
-
|
-
|
-
|
|
|
|
|
|
To sell EUR against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
****USD
|
Nominal amount
|
12
|
1
|
1
|
2
|
|
Average contract rate
|
1.113
|
1.333
|
1.349
|
1.374
|
|
|
|
|
|
|
*****CHF
|
Nominal amount
|
4
|
-
|
-
|
-
|
|
Average contract rate
|
1.506
|
-
|
-
|
-
|
|
|
|
|
|
|
Any negative impact of currency movements on the currency contracts that the
Company has taken out to hedge identifiable foreign currency commitments to
buy or sell goods and services would be offset by an equal and opposite
favourable exchange impact on the commitments being hedged. Transactions in
currency-related financial instruments for which there is no underlying
foreign currency exchange rate exposure to the Company are prohibited,
except for a small trading portfolio not exceeding $50. For accounting policies relating to currency contracts, see note 2 - Summary of
Significant Accounting Policies of the Financial Statements of
the Company's most recent Annual Report on Form 10-K.
Derivative Commodity Contracts
The effect of a reduction of 10% in aluminum prices on the Company's
aluminum forward and options contracts outstanding at March 31, 2007 would
be to increase net income over the period ending December 31, 2008 by
approximately $58 ($56 in 2007 and $2 in 2008). The $58 increase reflects a 10% reduction from the March 31, 2007,
three-month LME aluminum closing price of $2,780 per tonne and assumes an
equal 10% drop has occurred throughout the aluminum forward price curve
existing as at March 31, 2007. As of March 31, 2006, such sensitivity would
have increased net income over the period ending December 31, 2007 by $112 ($63 in 2006 and $49 in 2007).
The Company's
aluminum forward contract positions, producing the above results, are
entered into to hedge anticipated future sales of metal.
Consequently, any negative impact of movements in the price of aluminum on
the forward contracts would be offset by an equal and opposite impact on the
sales being hedged. The effect of a reduction of 10% in aluminum prices on
the Company's anticipated sales and purchases of aluminum is excluded from
the sensitivity analysis above.
Transactions in metal-related financial instruments for which there is no
underlying metal price exposure to the Company are prohibited, except for a
small trading portfolio of metal forwards not exceeding 25,000 tonnes.
Item 4. Controls and Procedures
a)
Evaluation of Disclosure Controls and Procedures
As at March 31, 2007, an evaluation was carried out under the supervision
and with the participation of the Company's management, including the Chief
Executive Officer and Chief Financial Officer (respectively, the Company's
principal executive and financial officers), of the effectiveness of the
design and operation of Alcan's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934). Based upon that evaluation, Alcan's Chief Executive Officer and
Chief Financial Officer concluded that these disclosure controls and
procedures were effective as of March 31, 2007.
b)
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial
reporting during the quarter ended March 31, 2007 that have materially
affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting. The Company will provide
management's assessment of the effectiveness of the Company's internal
control over financial reporting in the Company's Annual Report on Form 10-K
for 2007.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Millville,
New Jersey Plant.
Wheaton
USA Inc., now Alcan Global Pharmaceutical Packaging Inc. ("AGPP"),
operates air emission equipment pursuant to
permit at its Millville (New Jersey, US) glass plant. In January
2007, the New Jersey Department of Environmental Protection ("NJDEP")
served an administrative order and notice of administrative penalty on
AGPP for alleged violations of its air
permit at the Millville plant. AGPP is currently in discussions with New
Jersey state officials.
Berry's
Creek, New Jersey.
In February 1996, the Company's UK Subsidiary, British Alcan Aluminium
plc ("British Alcan") sold its investment in Luxfer USA Limited, now
Luxfer, Inc. ("Luxfer"), including a company called Magnesium Elektron,
Inc. ("ME"). As part of the sale agreement, British Alcan must indemnify
the purchaser for certain claims that may arise after the date of sale.
In January 2007, Luxfer's UK parent company notified British Alcan that
ME had received from the US Environmental Protection Agency ("EPA") a
Superfund notice in respect of a long since
divested ME joint venture with another company on property near the
Berry's Creek Study Area in New Jersey . British Alcan intends to
respond to the EPA.
Items 1A., 3. and 5.
The registrant has nothing to report under these items.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
Unregistered Sales of Equity Securities
In the first quarter of 2007, the Company issued 95,739 Common Shares to
former holders of Pechiney options that resided outside the United
States and Canada upon the exercise of such options. The aggregate
proceeds of the exercise of the options were approximately $3.8 million.
These proceeds were used for general corporate purposes. These Common
Shares were not registered under the Securities Act of 1933, as
amended in reliance on regulation S. The dates of sale and amounts of
Common Shares are set forth below:
Dates |
Number of Shares |
|
Dates |
Number of Shares |
|
Dates |
Number of Shares |
2 January 2007 |
1,595 |
|
7 February 2007 |
19,587 |
|
20 February 2007 |
1,116 |
4 January 2007 |
1,638 |
|
8 February 2007 |
798 |
|
21 February 2007 |
2,317 |
17 January 2007 |
819 |
|
9 February 2007 |
239 |
|
22 February 2007 |
3,190 |
30 January 2007 |
4,907 |
|
13 February 2007 |
4,987 |
|
26 February 2007 |
819 |
31 January 2007 |
1,617 |
|
14 February 2007 |
4,826 |
|
28 February 2007 |
1,638 |
1 February 2007 |
1,595 |
|
15 February 2007 |
28,858 |
|
2 March 2007 |
1,593 |
2 February 2007 |
319 |
|
16 February 2007 |
8,891 |
|
15 March 2007 |
1,116 |
5 February 2007 |
239 |
|
19 February 2007 |
3,035 |
|
|
|
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Alcan was held on April 26, 2007. At
the Annual Meeting:
On a vote by ballot,
each of the following 13 nominees were elected as a Director of the Company.
Nominee |
Votes For |
% Votes For |
Votes Withheld |
% Votes Withheld |
Roland Berger |
220,873,035 |
99.55 |
995,379 |
0.45 |
L. Denis
Desautels |
210,740,776 |
94.98 |
11,127,638 |
5.02 |
Richard B. Evans |
221,578,412 |
99.87 |
290,002 |
0.13 |
L. Yves Fortier |
207,681,594 |
93.61 |
14,186,820 |
6.39 |
Jeffrey E.
Garten |
221,662,065 |
99.91 |
206,349 |
0.09 |
Jean-Paul
Jacamon |
220,802,523 |
99.52 |
1,065,891 |
0.48 |
Yves Mansion |
215,644,013 |
97.19 |
6,224,401 |
2.81 |
Christine
Morin-Postel |
219,568,101 |
98.96 |
2,300,313 |
1.04 |
Heather Munroe-Blum |
221,496,089 |
99.83 |
372,325 |
0.17 |
H. Onno Ruding |
221,631,732 |
99.89 |
236,682 |
0.11 |
Gerhard
Schulmeyer |
209,909,163 |
94.61 |
11,959,251 |
5.39 |
Paul M. Tellier |
221,637,807 |
99.90 |
230,607 |
0.10 |
Milton K. Wong |
221,743,136 |
99.94 |
125,278 |
0.06 |
On a vote by ballot,
PricewaterhouseCoopers LLP were appointed as auditors of the Company.
Votes For |
% Votes For |
Votes Withheld |
% Votes Withheld |
220,378,630 |
99.3 |
1,489,784 |
0.7 |
On a vote by ballot, the
amendments to the Alcan Executive Share Option Plan were approved.
Votes For |
% Votes For |
Votes Against |
% Votes Against |
176,609,377 |
83.3 |
35,354,212 |
16.7 |
Item 6. Exhibits
(31.1)
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under
Securities Exchange Act of 1934.
(31.2)
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under
Securities Exchange Act of 1934.
(32.1)
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(32.2)
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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: 10 May
2007 By:
/s/ Cesidio Ricci
Cesidio Ricci
Vice President and Controller
(A
Duly Authorized Officer)
EXHIBIT INDEX
Exhibit
Number
Description
(31.1)
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under
Securities Exchange Act of 1934.
(31.2)
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under
Securities Exchange Act of 1934.
(32.1)
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(32.2)
Certification of Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.