SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 22, 2003

Alcan Inc.
(Exact name of Registrant as specified in its charter)

Canada
(State or other jurisdiction of incorporation)

1-3677		Inapplicable
Commission File Number		(I.R.S. Employer Identification No.)

1188 Sherbrooke Street West, Montreal, Quebec, Canada H3A 3G2 (Address of principal executive offices, including postal code)

(514) 848-8000                           (Registrant's telephone number, including area code)

 

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Item 5.             Other Events

The following information is derived from a press release dated October 22, 2003 of Alcan Inc.  (the "Company").  Alcan Inc. today reported third quarter 2003 net income from continuing operations of US$0.36 per share versus US$0.59 per share a year ago.

After including results from discontinued operations, the Company reported net income of US$100 million (US$ 0.31 per share) for the quarter, compared to net income of US$191 million (US$0.59 per share) in the year-ago quarter.

CONSOLIDATED REVIEW

¹ includes primary and secondary ingot and scrap, as well as shipments resulting from trading activities

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Continuing operations

Sales and operating revenues of US$3.5 billion in the third quarter benefited from the acquisitions of packaging (VAW FlexPac) and composite (Baltek) businesses and the strengthening of the Euro. Increased third-party shipments of alumina and aluminum, together with better pricing, also contributed to the improvement over the year-ago quarter. While revenues were higher than in the second quarter of 2003, they were nonetheless affected by the summer slow-down in Europe and softer demand for rolled products in the United States.

Total aluminum volume of 1,146 thousand tonnes (kt) was 15 kt higher than a year earlier but 9 kt lower than the preceding quarter. The year-over-year increase reflects incremental volume arising from the acquisition of the second tranche of the Alouette smelter in Quebec and production restarts in Kitimat, British Columbia, partially offset by lower rolled product volumes in Europe due to business exits. Compared to the second quarter, increased third-party shipments of ingot were more than offset by the seasonal decline in rolled and fabricated product demand in Europe and weaker rolled product volumes in the United States.

Ingot product realizations, at US$1,552 per tonne, were US$57 per tonne higher than in the year-ago quarter largely reflecting the benefit of higher LME prices. Compared with the second quarter, realizations declined US$18 per tonne due to lower market premia and a changed sales mix. 

Third quarter operating earnings from continuing operations, at US$151 million, were little changed from the comparable quarter of last year. Benefits from cost reduction initiatives and improved prices offset higher pension, fuel and recycled metal costs, higher depreciation expense and the negative impact of foreign currency movements. Compared to the second quarter, operating earnings increased by US$7 million as cost reductions, benefits from acquisitions, and moderating energy and recycled metal costs more than offset lower volumes in rolled product and downstream businesses and higher depreciation expenses.

Net income from continuing operations was US$118 million, down US$74 million from the year-ago quarter mainly due to the unfavourable impact of foreign currency balance sheet translation, which represented a loss of US$8 million in the third quarter of 2003 versus a gain of US$55 million a year earlier. Net income from continuing operations rose by US$94 million compared to the second quarter of 2003, which was negatively impacted by foreign currency balance sheet translation losses of US$146 million.

Discontinued operations

In line with its objective of maximizing value, the company decided in the second quarter to sell certain non-strategic Packaging operations in order to release cash for higher value-adding opportunities.  A re-evaluation of the expected proceeds on sale versus the book value of these assets resulted in an additional non-cash, after-tax impairment charge of US$22 million in the third quarter. After-tax profits from discontinued operations, excluding the impairment charge, were US$4 million in the quarter.

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SEGMENT REVIEW

 

Segments

Business group profit (BGP) comprises earnings before interest, taxes, depreciation and amortization excluding certain items, such as corporate costs and asset impairments, that are not under the control of the business groups.  These items are managed by the Company's head office, which focuses on strategy development and oversees governance, policy, legal, compliance, human resources and finance matters.

Third quarter BGP of US$72 million for Bauxite, Alumina and Specialty Chemicals was 8% lower than the previous year.  Benefits from cost initiatives and higher alumina realizations were more than offset by increased foreign currency balance sheet translation losses, higher energy costs and the impact of currency movements on operating costs.  Compared to the second quarter, BGP was up by 20% mainly due to higher realizations on alumina sales and the negative impact of foreign currency balance sheet translation in the earlier quarter.

For the Primary Metal Group, BGP was US$239 million for the third quarter, up US$7 million year-over-year. The benefits from ongoing profit improvement initiatives, higher metal realizations and sales volumes more than offset the negative impact of strengthening local currencies, on both costs and balance sheet translation, as well as higher raw material and pension costs.  BGP increased by 41% over the second quarter, reflecting the ongoing benefits of profit improvement initiatives, higher sales volumes, marginally better metal realizations, and the absence of foreign currency balance sheet translation losses, which were US$27 million the earlier quarter.

 

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BGP for Rolled Products Americas and Asia, at US$86 million, was unchanged from the previous year's third quarter.  Ongoing benefits from cost initiatives and the positive impact of metal pricing lags were offset by lower volumes in North America and lower recycled metal spreads.  Compared to the preceding quarter, BGP declined by 8% as the positive impact of metal pricing lags and improving recycled metal spreads were more than offset by lower volumes and an unfavorable product mix in North America.

Rolled Products Europe achieved a BGP of US$46 million in the third quarter, representing an improvement of US$9 million over the year-ago quarter. Earnings benefited from an enhanced product mix, continued cost discipline and the stronger Euro. Compared to the record second quarter, BGP decreased by US$11 million mainly due to lower volumes resulting from the effects of the normal summer slow-down and tightening market conditions.

Despite continued economic weakness, Engineered Products posted a BGP of US$28 million, which was 22% higher than the year-ago quarter and 33% above the second quarter of 2003. Cost-reduction initiatives, the successful integration of the Baltek acquisition, and a stronger Euro were the main factors contributing to the improved results.  Composites and cable businesses recorded solid profit improvements over both the year-ago quarter and second quarter of 2003, and profits from extrusion operations were up year over year. Automotive and transportation segments and service centers continue to be affected by weak demand. Subsequent to quarter-end, Alcan added to its composites portfolio with the acquisition of Uniwood/Fome-Cor, a manufacturer of foam-based display boards. 

Packaging BGP was US$102 million in the third quarter, US$19 million ahead of the previous year, largely due to the FlexPac acquisition. Despite the adverse impact of volume weakness, results continue to improve, driven by benefits arising from foreign currency exchange, business disposals, merger synergies and restructuring programs. Packaging sales and operating revenues for the third quarter, at US$849 million, were 23% higher than a year earlier. The sharp increase reflected the FlexPac acquisition and the impact of the stronger Euro, partially offset by lower volumes. Compared to both the year-ago quarter and second quarter of 2003, demand across most segments of the flexible packaging market was markedly lower due to seasonal factors and customer de-stocking.

Reconciliation to net income from continuing operations

"Intersegment, corporate offices and other" includes the elimination of profits on intersegment sales of aluminum, as well as other non-operating items.  The increase of US$64 million from the year-ago quarter reflects the impact of higher pension costs, environmental provisions and the restructuring of businesses in Southeast Asia that resulted in the realization of a deferred translation loss of US$13 million on the sale of a subsidiary in Thailand. This sale completes the restructuring that started in the second quarter with the disposal of the Company's remaining portfolio investment in Nippon Light Metal Company, Ltd., which generated a gain of US$33 million.

Restructuring, impairment and other special charges for the third quarter arose mainly from operations in the United Kingdom and Malaysia. The second quarter of 2003 included a gain on sale of non-core assets in Italy amounting to US$18 million.

Depreciation and amortization of US$237 million was US$30 million higher than in the year-ago quarter, largely due to the impact of the stronger Euro, the purchase of FlexPac and increased ownership in the Alouette smelter. Compared to the second quarter of 2003, depreciation was US$6 million higher due in large part to the FlexPac acquisition. 

 

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Interest expense of US$52 million was unchanged from the year-ago quarter and US$4 million lower than in the preceding quarter.  Debt as a percent of invested capital at September 30, 2003 was 31%, compared to 32% at the end of the second quarter of 2003 and the year-ago third quarter.

The Company's effective tax rate on income from continuing operations was 40% in the quarter and 69% for the first nine months of the year, reflecting the effects of balance sheet translation and Other Specified Items.  Included in the quarter's results was the realization of a non-tax deductible deferred translation loss on the sale of the Company's subsidiary in Thailand.  Currency-related items increased the effective tax rate by 7 percentage points for the quarter and 39 percentage points for year to date.

For the third quarter of 2003, the average number of common shares outstanding was 321.8 million compared to 321.3 million in the comparable year-ago quarter.  At September 30, 2003, 322.0 million shares were outstanding.

All tonnages are stated in metric tonnes, equivalent to 2,204.6 pounds.

All figures are unaudited.

 

 

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ALCAN INC.

(in millions of US$, except per share amounts)

 

 1. ACCOUNTING POLICIES

The unaudited interim consolidated financial statements do not include all of the financial statement disclosures required to be in accordance with Canadian generally accepted accounting principles for interim reporting and, therefore, should be read in conjunction with the most recent annual financial statements.

 2.  DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

In the second quarter of 2003, the Company committed to a plan to sell certain non-strategic Packaging operations.  These businesses are classified as held for sale and are included in discontinued operations.  An impairment charge of $22, after tax, and $135, after tax, for the third quarter and nine months of 2003, respectively, was recorded in discontinued operations to reduce the carrying values of these businesses to estimated fair values less costs to sell.  Certain financial information has been reclassified in the prior periods to present these businesses as discontinued operations on the income statement, as assets held for sale and liabilities of operations held for sale on the balance sheet and as cash flows from (used for) discontinued operations on the statement of cash flows.  All of these divestments are expected to be completed within one year.

3.  CAPITALIZATION OF INTEREST COSTS

Total interest costs in continuing operations in the third quarter and nine months of 2003 were $55 and $161 respectively (2002:  $52 and $151) of which $3 and $5 (2002: nil) were capitalized.

4.  LONG TERM DEBT

On May 1, 2003, the Company issued $500 of 4.5% global notes due May 15, 2013.

 

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5.  SALES AND ACQUISITIONS OF BUSINESSES

Tender Offer for Pechiney

On July 7, 2003, the Company announced its intention to launch a tender offer to acquire all of the outstanding shares, convertible debentures, Bonus Allocation Rights and American Depositary Shares of Pechiney. On October 7, 2003, the Company announced that following the clearance by the French Commission des opérations de bourse of the documentation for its offer in France for Pechiney and the publication in France of such documentation, the French Conseil des marchés financiers published the notification of the opening of the offer. Accordingly, the French offer is made and open for acceptance beginning October 7, 2003.

The Company's offer in the U.S. is expected to open soon following completion of a review by the Securities and Exchange Commission of Pechiney's annual disclosure documentation.  Pechiney securities may not yet be tendered pursuant to Alcan's U.S. offer.

Pechiney is an international group listed on the Paris and New York Stock exchanges.  Its three core businesses are primary aluminum, aluminum conversion and packaging.  Pechiney employs 34,000 employees.  The offer is conditional upon the tendering of more than 50% of the total diluted number of Pechiney shares to the offer.  The Company expects the offer to be completed by December 31, 2003.

VAW Flexible Packaging

On April 30, 2003, the Company completed the acquisition of VAW Flexible Packaging from Norsk Hydro for a cost of $341, subject to post-closing adjustments.  The business combination is accounted for using the purchase method of accounting and the results of operations are included in the Consolidated Financial Statements since acquisition.

As part of the acquisition of VAW Flexible Packaging in the second quarter of 2003, the Company acquired, directly and indirectly, 63% of the total issued share capital of Strongpack Plc in Thailand.  Strongpack is engaged in packaging businesses, providing production and processing services on all types of flexible packaging materials.  On June 20, 2003, the Company acquired an additional 11% of Strongpack at a price of $4.

Also, as part of the acquisition of VAW Flexible Packaging, the Company acquired 70% of the total issued share capital of Rotopak in Turkey.  Rotopak is engaged in the food flexible packaging business.  On August 28, 2003, the Company acquired an additional 30% of Rotopak at a price of $24.

Baltek Corporation

On July 1, 2003, the Company completed the acquisition of Baltek Corporation for a cost of $38.  The business combination is accounted for using the purchase method of accounting and the results of operations are included in the Consolidated Financial Statements since acquisition.

Aluminium Company of Malaysia / Alcan Nikkei Siam Limited

In the third quarter of 2003, the Company increased its ownership position in Aluminium Company of Malaysia from 36% to 59% by acquiring additional shares from Nippon Light Metal in exchange for its ownership in Alcan Nikkei Siam Limited in Rangsit, Thailand and a cash payment of $6.  The sale of Alcan Nikkei Siam Limited resulted in the realization of deferred translation losses of $13, which is recorded in Other expenses (income) - net.  Aluminium Company of Malaysia is a manufacturer of light gauge aluminum products.

 

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Uniwood/Fome-Cor

On October 6, 2003, the Company completed the acquisition of Uniwood/Fome-Cor Division of Nevamar for $95, subject to post-closing adjustments.  Uniwood/Fome-Cor is one of the largest US-based manufacturers of foam-based display boards, with its head offices and production facilities in Statesvilles, North Carolina and another production site in Glasgow, Kentucky.

Item 12.           Results of Operations and Financial Condition

On October 22, 2003, Alcan Inc. issued a press release announcing its earnings for the third quarter of 2003.  A copy of the press release is attached hereto as Exhibits 99 and is furnished pursuant to this item.

Exhibits :

99.                   Press release of Alcan Inc., dated October 22, 2003.

 

The information under Item 12 of this report shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

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SIGNATURES

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 hereunto duly authorized.

	ALCAN INC.
BY:	/s/ Roy Millington
	Roy Millington
	Corporate Secretary

Date: October 22, 2003

 

 

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EXHIBIT INDEX

Exhibit Number		Description
(99)	Press release of Alcan Inc. dated October 22, 2003.

 

 

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