UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 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. (Check one):

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 November 1, 2007, the registrant had 376,194,636 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 words "Company" and “Alcan” refer 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)

Third Quarter

 

Nine Months

Periods ended September 30

 

 

2007

 

 

2006

 

 

2007

 

 

2006

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and operating revenues

 

 

6,223

 

 

5,769

 

 

19,248

 

 

17,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales and operating expenses, excluding depreciation and

 

 

 

 

 

 

 

 

 

 

 

 

 

amortization noted below

 

 

4,926

 

 

4,454

 

 

14,725

 

 

13,228

 

Depreciation and amortization

 

 

274

 

 

273

 

 

807

 

 

782

 

Selling, administrative and general expenses

 

 

428

 

 

327

 

 

1,255

 

 

1,057

 

Research and development expenses

 

 

59

 

 

50

 

 

174

 

 

157

 

Interest

 

 

61

 

 

63

 

 

182

 

 

208

 

Restructuring charges - net (note 7)

 

 

16

 

 

22

 

 

54

 

 

130

 

Other expenses (income) - net (note 10)

 

 

37

 

 

11

 

 

189

 

 

(18

)

 

 

 

5,801

 

 

5,200

 

 

17,386

 

 

15,544

 

Income from continuing operations before income taxes and other

 

 

 

 

 

 

 

 

 

 

 

 

 

items

 

 

422

 

 

569

 

 

1,862

 

 

1,878

 

Income taxes (note 8)

 

 

211

 

 

146

 

 

657

 

 

610

 

Income from continuing operations before other items

 

 

211

 

 

423

 

 

1,205

 

 

1,268

 

Equity income

 

 

14

 

 

41

 

 

50

 

 

106

 

Minority interests

 

 

-

 

 

(4

)

 

(2

)

 

(6

)

Income from continuing operations

 

 

225

 

 

460

 

 

1,253

 

 

1,368

 

(Loss) Income from discontinued operations

 

 

-

 

 

(4

)

 

1

 

 

-

 

Income before cumulative effect of accounting change

 

 

225

 

 

456

 

 

1,254

 

 

1,368

 

Cumulative effect of accounting change, net of income

 

 

 

 

 

 

 

 

 

 

 

 

 

taxes of $2 in 2006

 

 

-

 

 

-

 

 

-

 

 

(4

)

Net income

 

 

225

 

 

456

 

 

1,254

 

 

1,364

 

Dividends on preference shares

 

 

-

 

 

3

 

 

6

 

 

8

 

Redemption of preference shares

 

 

 

 

 

 

 

 

 

 

 

 

 

in excess of stated value (note 14)

 

 

45

 

 

-

 

 

45

 

 

-

 

Net income attributable to common shareholders

 

 

180

 

 

453

 

 

1,203

 

 

1,356

 

Earnings per share (note 6)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

0.48

 

 

1.21

 

 

3.25

 

 

3.63

 

Loss from discontinued operations

 

 

-

 

 

(0.01

)

 

-

 

 

-

 

Cumulative effect of accounting change

 

 

-

 

 

-

 

 

-

 

 

(0.01

)

Net income per common share - basic

 

 

0.48

 

 

1.20

 

 

3.25

 

 

3.62

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

0.48

 

 

1.21

 

 

3.24

 

 

3.62

 

Loss from discontinued operations

 

 

-

 

 

(0.01

)

 

-

 

 

-

 

Cumulative effect of accounting change

 

 

-

 

 

-

 

 

-

 

 

(0.01

)

Net income per common share - diluted

 

 

0.48

 

 

1.20

 

 

3.24

 

 

3.61

 

Dividends per common share

 

 

0.20

 

 

0.20

 

 

0.60

 

 

0.50

 

 
The accompanying notes are an integral part of the interim consolidated financial statements.
 
 

-2-


 

ALCAN INC.

INTERIM CONSOLIDATED BALANCE SHEET (unaudited)

 

 

 

 

 

 

 

 

 

September 30, 2007

 

 

December 31, 2006

 

(in millions of US$)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and time deposits

 

 

499

 

 

229

 

Trade receivables (net of allowances of $72 in 2007 and $58 in 2006)

 

 

2,956

 

 

2,910

 

Other receivables and deferred charges

 

 

1,258

 

 

1,195

 

Deferred income taxes

 

 

112

 

 

152

 

Inventories (note 11)

 

 

3,398

 

 

3,186

 

Current assets held for sale

 

 

4

 

 

5

 

Total current assets

 

 

8,227

 

 

7,677

 

 

 

 

 

 

 

 

 

Deferred charges and other assets

 

 

1,051

 

 

1,087

 

Investments

 

 

1,421

 

 

1,509

 

Deferred income taxes

 

 

1,313

 

 

989

 

Property, plant and equipment

 

 

 

 

 

 

 

Cost (excluding construction work in progress)

 

 

20,153

 

 

18,698

 

Construction work in progress

 

 

2,200

 

 

2,294

 

Accumulated depreciation

 

 

(9,232

)

 

(8,592

)

 

 

 

13,121

 

 

12,400

 

Intangible assets, net of accumulated amortization of $431 in 2007

 

 

 

 

 

 

 

and $346 in 2006

 

 

617

 

 

676

 

Goodwill

 

 

4,473

 

 

4,599

 

Long-term assets held for sale

 

 

1

 

 

2

 

Total assets

 

 

30,224

 

 

28,939

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The accompanying notes are an integral part of the interim consolidated financial statements.

 
-3-

 

ALCAN INC.

INTERIM CONSOLIDATED BALANCE SHEET (cont’d) (unaudited) 

 

 

 

 

 

 

 

 

 

September 30, 2007

 

 

December 31, 2006

 

(in millions of US$)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Payables and accrued liabilities (note 18)

 

 

5,642

 

 

5,430

 

Short-term borrowings (note 13)

 

 

700

 

 

467

 

Debt maturing within one year

 

 

66

 

 

36

 

Deferred income taxes

 

 

-

 

 

46

 

Total current liabilities

 

 

6,408

 

 

5,979

 

 

 

 

 

 

 

 

 

Debt not maturing within one year (note 13)

 

 

4,658

 

 

5,476

 

Deferred credits and other liabilities

 

 

1,526

 

 

1,787

 

Post-retirement benefits

 

 

3,369

 

 

3,381

 

Deferred income taxes

 

 

1,328

 

 

1,151

 

Minority interests

 

 

63

 

 

71

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Redeemable non-retractable preference shares (note 14)

 

 

-

 

 

160

 

Common shareholders' equity

 

 

 

 

 

 

 

Common shares

 

 

6,607

 

 

6,235

 

Additional paid-in capital

 

 

603

 

 

672

 

Retained earnings

 

 

5,237

 

 

4,281

 

Common shares held by a subsidiary

 

 

(31

)

 

(31

)

Accumulated other comprehensive income (loss) (note 16)

 

 

456

 

 

(223

)

 

 

 

12,872

 

 

10,934

 

 

 

 

12,872

 

 

11,094

 

 

 

 

 

 

 

 

 

Commitments and contingencies (note 17)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

 

30,224

 

 

28,939

 

 

 

 

 

 

 

 

 


The accompanying notes are an integral part of the interim consolidated financial statements.
 
 

-4-


 

ALCAN INC.

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

 

 

Third Quarter

 

Nine Months

 

Periods ended September 30

 

2007

 

2006

 

2007

 

2006

 

(in millions of US$)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

225

 

 

456

 

 

1,254

 

 

1,364

 

Cumulative effect of accounting change

 

 

-

 

 

-

 

 

-

 

 

4

 

Loss (Income) from discontinued operations

 

 

-

 

 

4

 

 

(1

)

 

-

 

Income from continuing operations

 

 

225

 

 

460

 

 

1,253

 

 

1,368

 

Adjustments to determine cash from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

274

 

 

273

 

 

807

 

 

782

 

Deferred income taxes

 

 

85

 

 

73

 

 

126

 

 

300

 

Equity (income) loss, net of dividends

 

 

(13

)

 

(17

)

 

38

 

 

(35

)

Asset impairment charges

 

 

4

 

 

12

 

 

23

 

 

57

 

Loss (Gain) on disposal of businesses and investments - net

 

 

2

 

 

(4

)

 

48

 

 

(8

)

Stock option expense

 

 

-

 

 

3

 

 

11

 

 

39

 

Change in operating working capital

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in receivables

 

 

279

 

 

151

 

 

(111

)

 

(605

)

Change in inventories

 

 

(115

)

 

(164

)

 

(180

)

 

(273

)

Change in payables and accrued liabilities

 

 

64

 

 

(4

)

 

5

 

 

126

 

Change in deferred charges and other assets, deferred

 

 

 

 

 

 

 

 

 

 

 

 

 

credits and other liabilities, and post-retirement benefits -

 

 

 

 

 

 

 

 

 

 

 

 

 

net

 

 

43

 

 

21

 

 

154

 

 

188

 

Other - net

 

 

(5

)

 

(1

)

 

(11

)

 

(3

)

Cash from operating activities in continuing operations

 

 

843

 

 

803

 

 

2,163

 

 

1,936

 

Cash from operating activities in discontinued

 

 

 

 

 

 

 

 

 

 

 

 

 

operations

 

 

-

 

 

1

 

 

-

 

 

9

 

Cash from operating activities 

 

 

843

 

 

804

 

 

2,163

 

 

1,945

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of new debt - net of issuance costs

 

 

26

 

 

9

 

 

48

 

 

380

 

Debt repayments

 

 

(13

)

 

(250

)

 

(773

)

 

(1,086

)

Short-term borrowings - net

 

 

(15

)

 

(13

)

 

87

 

 

(13

)

Common shares issued

 

 

121

 

 

1

 

 

287

 

 

148

 

Preference shares redeemed, including premium

 

 

(205

)

 

-

 

 

(205

)

 

-

 

Dividends  - Alcan shareholders (including preference)

 

 

(77

)

 

(76

)

 

(224

)

 

(191

)

- Minority interests

 

 

(2

)

 

(1

)

 

(3

)

 

(2

)

Cash used for financing activities

 

 

(165

)

 

(330

)

 

(783

)

 

(764

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The accompanying notes are an integral part of the interim consolidated financial statements.
-5-

 


ALCAN INC.

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (cont’d) (unaudited)

 

 

Third Quarter

Nine Months

Periods ended September 30

 

 

2007

 

 

2006

 

2007

 

 

2006

 

(in millions of US$)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(444

)

 

(576

)

 

(1,177

)

 

(1,471

)

Business acquisitions and purchase of investments, net of cash

 

 

 

 

 

 

 

 

 

 

 

 

 

and time deposits acquired

 

 

(20

)

 

(8

)

 

(34

)

 

(48

)

Net proceeds from disposal of businesses, investments and other

 

 

 

 

 

 

 

 

 

 

 

 

 

assets

 

 

41

 

 

27

 

 

98

 

 

234

 

Other

 

 

32

 

 

58

 

 

(15

)

 

70

 

Cash used for investment activities in continuing

 

 

 

 

 

 

 

 

 

 

 

 

 

operations

 

 

(391

)

 

(499

)

 

(1,128

)

 

(1,215

)

Cash from investment activities in discontinued operations

 

 

-

 

 

-

 

 

-

 

 

5

 

Cash used for investment activities 

 

 

(391

)

 

(499

)

 

(1,128

)

 

(1,210

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and time deposits

 

 

14

 

 

1

 

 

18

 

 

6

 

Increase (Decrease) in cash and time deposits

 

 

301

 

 

(24

)

 

270

 

 

(23

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and time deposits - beginning of period

 

 

198

 

 

182

 

 

229

 

 

181

 

Cash and time deposits - end of period

 

 

499

 

 

158

 

 

499

 

 

158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The accompanying notes are an integral part of the interim consolidated financial statements.
 

-6-


 

ALCAN INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(unaudited)
(in millions of US$, except per share amounts)

 
1. NATURE OF OPERATIONS

Refer to note 22 - Subsequent Events.

 
2. 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 3 and 5. The 2006 year-end balance sheet data was derived from audited annual consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (US GAAP). 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 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.
 
3. 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 8 - 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.
 
 

-7-


 

4. 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.

5. 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.

6. 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.

 

 

Third Quarter

 

Nine Months

 

Periods ended September 30

 

2007

 

2006

 

2007

 

2006

 

Numerator:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

225

   

460

   

1,253

   

1,368

 

Less: dividends on preference shares

 

 

-

 

 

(3

)

 

(6

)

 

(8

)

Less: redemption of preference shares

 

 

 

 

 

 

 

 

 

 

 

 

 

in excess of stated value

 

 

(45

)

 

-

 

 

(45

)

 

-

 

Income from continuing operations attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

common shareholders

 

 

180

 

 

457

 

 

1,202

 

 

1,360

 

Denominator (number of common shares in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average of outstanding shares

 

 

373

 

 

376

 

 

370

 

 

375

 

Effect of dilutive stock options

 

 

1

 

 

1

 

 

1

 

 

1

 

Adjusted weighted average of outstanding shares

 

 

374

 

 

377

 

 

371

 

 

376

 

Earnings per common share - basic

 

 

0.48

 

 

1.21

 

 

3.25

 

 

3.63

 

Earnings per common share - diluted

 

 

0.48

 

 

1.21

 

 

3.24

 

 

3.62

 



 -8-


 

6. EARNINGS PER SHARE - BASIC AND DILUTED (cont’d)

In the third quarter and nine months ended September 30, 2007, there were no options to purchase common shares (2006: 3,214,739 and 402,561 options at a weighted average grant price of CAN$51.88 and CAN$56.34, respectively, per share were outstanding in the third quarter and nine months ended September 30, 2006) that were outstanding during the periods 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 September 30, 2007, there were 373,579,113 (2006: 376,155,267) common shares outstanding.

7. RESTRUCTURING PROGRAMS

2007 Restructuring Activities

The schedule provided below shows details of the charges by operating segment:

Charges recorded in the statement of income

Quarter ended September 30, 2007

 

Severance Costs

 

Asset Impairment Charges

 

Other

 

Total

 

Bauxite and Alumina

 

 

-

 

 

-

 

 

-

 

 

-

 

Primary Metal

 

 

5

 

 

-

 

 

-

 

 

5

 

Engineered Products

 

 

-

 

 

-

 

 

1

 

 

1

 

Packaging

 

 

5

 

 

-

 

 

4

 

 

9

 

Other

 

 

1

 

 

-

 

 

-

 

 

1

 

Total

 

 

11

 

 

-

 

 

5

 

 

16

 



Nine months ended September 30, 2007

 

Severance Costs

 

Asset Impairment Charges

 

Other

 

Total

 

Bauxite and Alumina

 

 

2

 

 

-

 

 

-

 

 

2

 

Primary Metal

 

 

16

 

 

-

 

 

1

 

 

17

 

Engineered Products

 

 

-

 

 

-

 

 

3

 

 

3

 

Packaging

 

 

22

 

 

4

 

 

4

 

 

30

 

Other

 

 

2

 

 

-

 

 

-

 

 

2

 

Total

 

 

42

 

 

4

 

 

8

 

 

54

 


For the third quarter and nine months ended September 30, 2007, $2 and $5 of severance costs and other 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 20 - Information by Operating Segment.

The significant components of the 2007 restructuring charges were as follows:

Bauxite and Alumina

In 2006, the Company signed a new collective labour agreement with its Quebec employees represented by the Canadian Auto Workers union. As part of this agreement, the Company has offered early retirement incentives to employees and recorded severance charges of $1 in the second quarter of 2007 for employees who have accepted. No further charges are expected to be incurred.

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.
 
 
-9- 

 
 
7. RESTRUCTURING PROGRAMS (cont’d)

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 was completed in the second quarter of 2007, as discussed in note 12 - Sales and Acquisitions of Businesses and Investments.  

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 severance costs of $1. In the second quarter of 2007, the Company recorded severance costs and other restructuring charges of $1 each. In the third quarter of 2007, the Company recorded additional severance costs of $1. The Company expects to incur additional charges of $10 related to the closure of the smelter.

The Company recorded additional severance costs of $4 and $8 for other minor restructuring programs pursued in the third quarter and nine months ended September 30, 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 and second quarters of 2007, the Company recorded other restructuring charges of $1 and $1, respectively. In the third quarter of 2007, the Company recorded additional other restructuring charges of $1. Workington production ceased in the second quarter of 2007. The Company expects to incur additional charges of $3 related to this activity.

Packaging

In the second quarter of 2007, along with the Company’s continuous effort to manage ongoing costs and margins, certain selected restructuring activities were announced, mainly in its Food Europe and Tobacco Businesses. In relation to these activities, the Company incurred severance costs of $12 in the second quarter of 2007. In the third quarter of 2007, the Company incurred additional other restructuring charges of $1. The Company expects to incur additional charges of $1 related to this activity.

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 and second quarters of 2007, the Company recorded severance costs of $2 and $3, respectively. In the third quarter of 2007, the Company recorded additional severance costs of $3 and other restructuring charges of $1. The Company expects to incur additional charges of $1 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 and second quarters of 2007, the Company recorded asset impairment charges of $1 and $3, respectively. In the third quarter of 2007, the Company reversed $1 of severance charges initially recorded in 2005. No further charges are expected to be incurred.

The Company recorded additional severance costs and other restructuring charges of $3 and $2, respectively, for other minor restructuring programs pursued in the third quarter of 2007 in this operating segment.

 
-10- 

 

7. RESTRUCTURING PROGRAMS (cont’d)

2006 Restructuring Activities

The schedule provided below shows details of the charges by operating segment:

Charges recorded in the statement of income

Quarter ended September 30, 2006

 

Severance Costs

 

Asset Impairment Provisions

 

Other

 

Total

 

Bauxite and Alumina

 

 

1

 

 

-

 

 

-

 

 

1

 

Primary Metal

 

 

5

 

 

-

 

 

-

 

 

5

 

Engineered Products

 

 

2

 

 

-

 

 

1

 

 

3

 

Packaging

 

 

-

 

 

1

 

 

12

 

 

13

 

Other

 

 

-

 

 

-

 

 

-

 

 

-

 

Total

 

 

8

 

 

1

 

 

13

 

 

22

 

Nine months ended September 30, 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

Bauxite and Alumina

 

 

2

 

 

11

 

 

2

 

 

15

 

Primary Metal

 

 

20

 

 

23

 

 

8

 

 

51

 

Engineered Products

 

 

12

 

 

-

 

 

2

 

 

14

 

Packaging

 

 

25

 

 

7

 

 

17

 

 

49

 

Other

 

 

1

 

 

-

 

 

-

 

 

1

 

Total

 

 

60

 

 

41

 

 

29

 

 

130

 


For the third quarter and nine months ended September 30, 2006, $13 and $35, respectively, of severance costs and other charges above are excluded from the measurement of the profitability of the Company’s operating segments (Business Group Profit), as they relate to major corporate initiatives as discussed in note 20 - Information by Operating Segment.

The significant components of the 2006 restructuring charges were as follows:

Bauxite and Alumina

In 2006, the Company announced the reorganization of its global specialty aluminas business entailing the gradual, yet permanent shut-down of the Company’s Specialty-Calcined Alumina plant (UPCA) in Jonquière, Quebec, by the end of the year. In relation to this activity, the Company recorded restructuring charges of $12 comprising $1 of severance costs and $11 of asset impairment charges during the second quarter of 2006. No further charges were incurred.

In relation to the new collective labour agreement with its Quebec employees, described above in the components of the 2007 restructuring charges, the Company recorded severance charges of $1 during the third quarter of 2006 for employees who accepted.

In relation to the proposed closure of mining operations in the Tarn region of France announced in 2005 by Sogerem, the Company recorded additional other restructuring charges of $2 in the first quarter of 2006. Refer to the components of the 2007 restructuring charges discussed above for more details in relation to this activity.

Primary Metal

During the third quarter of 2006, the Company incurred severance charges of $2 due to the restructuring of a trading operation in Switzerland.

In relation to the new collective labour agreement with its Quebec employees, described above in the components of the 2007 restructuring charges, the Company recorded severance charges of $2 during the third quarter of 2006 for employees who accepted.
 
-11- 

 
 
7. RESTRUCTURING PROGRAMS (cont’d)

In relation to the proposed sale of selected assets at the Company’s Affimet aluminum recycling plant in Compiègne (France) announced in 2006, the Company recorded restructuring charges of $44 comprising $14 of severance costs, $7 of other costs and $23 of asset impairment charges during the second quarter of 2006. Refer to the components of the 2007 restructuring charges discussed above for more details in relation to this activity. 

In the third quarter and nine months ended September 30, 2006, the Company recorded severance costs of $1 and $2, respectively, and other restructuring charges of $nil and $1, respectively, related to other minor restructuring programs in this operating segment.

Engineered Products

During the third quarter of 2006, the Company incurred charges of $6 relating to early retirement incentives accepted by employees at a research facility in France. These charges are included in severance costs.

In 2005, the Company announced the restructuring of its Engineered Products facilities in Singen, Germany, and Sierre, Switzerland, in order to improve efficiency and ensure their long-term viability. During the third quarter of 2006, the Company reversed $4 of severance charges initially recorded in 2005 in Singen, Germany as certain affected employees were transferred to other businesses, and certain employees took advantage of voluntary severance and early retirement programs.

In relation to the Workington closure announced in 2006, the Company recorded severance costs of $9 during the second quarter of 2006. Refer to the components of the 2007 restructuring charges discussed above for more details in relation to this activity.

In the third quarter and nine months ended September 30, 2006, the Company recorded severance costs of $nil and $1, respectively, and other restructuring charges of $1 and $2, respectively, related to other minor restructuring programs in this operating segment.

Packaging 

In 2006, the Company announced that it had begun consultations with unions and employee representatives for a proposed closure of the Midsomer Norton food flexibles packaging plant. The plant had been adversely affected by declining demand in the UK market and high raw material costs. The Company recorded restructuring charges of $17 comprising $16 of severance costs and $1 of asset impairment charges during the second quarter of 2006.

In relation to pursuing plans to restructure certain businesses announced in 2005, notably Global Beauty Packaging and Food Packaging Europe, the Company recorded additional restructuring charges of $9 in the first quarter of 2006. This charge was comprised of severance costs of $2, asset impairment charges of $5 and other charges of $2. In the second quarter of 2006, the Company recorded additional severance costs of $5 and other restructuring charges of $3. In the third quarter of 2006, the Company incurred asset impairment charges of $1 and other restructuring charges of $12. Refer to the components of the 2007 restructuring charges discussed above for more details in relation to this activity.

In addition, the Company also recorded severance costs of $2 during the second quarter of 2006 related to the closure of Alcan Packaging Mohammedia’s cookware activity.
 
 
-12- 

 

7. RESTRUCTURING PROGRAMS (cont’d)

The schedules provided below show details of the provision balances and related cash payments for the significant restructuring activities:

Provision roll-forward

Quarter ended September 30, 2007

 

Severance Costs

 

Asset Impairment Charges*

 

Other

 

Total

 

Provision balance as at June 30, 2007

 

 

159

 

 

-

 

 

52

 

 

211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charges recorded in the statement of income

 

 

11

 

 

-

 

 

5

 

 

16

 

Cash payments - net

 

 

(25

)

 

-

 

 

(9

)

 

(34

)

Non-cash items

 

 

8

 

 

-

 

 

4

 

 

12

 

Provision balance as at September 30, 2007

 

 

153

 

 

-

 

 

52

 

 

205

 


Quarter ended September 30, 2006

 

Severance Costs

 

Asset Impairment Charges*

 

Other

 

Total

 

Provision balance as at June 30, 2006

 

 

222

 

 

-