UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30,
2009
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Or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
001-32312
Novelis Inc.
(Exact name of registrant as
specified in its charter)
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Canada
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98-0442987
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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3399 Peachtree Road NE, Suite 1500
Atlanta, Georgia
(Address of principal
executive offices)
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30326
(Zip Code)
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Telephone:
(404) 814-4200
(Registrants 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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of July 31, 2009, the registrant had 77,459,658 common
shares outstanding. All of the Registrants outstanding
shares were held indirectly by Hindalco Industries Ltd., the
Registrants parent company.
PART I.
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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Three Months Ended
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June 30,
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2009
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2008
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Net sales
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$
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1,960
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$
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3,103
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Cost of goods sold (exclusive of depreciation and amortization
shown below)
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1,533
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2,831
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Selling, general and administrative expenses
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78
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84
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Depreciation and amortization
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100
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116
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Research and development expenses
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8
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12
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Interest expense and amortization of debt issuance costs
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43
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45
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Interest income
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(3
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)
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(5
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)
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Gain on change in fair value of derivative instruments, net
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(72
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)
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(65
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)
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Restructuring charges, net
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3
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(1
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)
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Equity in net loss of non-consolidated affiliates
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10
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2
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Other (income) expenses, net
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(13
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)
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23
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1,687
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3,042
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Income before income taxes
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273
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61
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Income tax provision
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112
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35
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Net income
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161
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26
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Net income attributable to noncontrolling interests
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18
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2
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Net income attributable to our common shareholder
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$
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143
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$
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24
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See accompanying notes to the condensed consolidated financial
statements.
2
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June 30,
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March 31,
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2009
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2009
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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237
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$
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248
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Accounts receivable (net of allowances of $3 and $2 as of
June 30, 2009 and March 31, 2009)
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third parties
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1,154
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1,049
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related parties
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19
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25
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Inventories
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813
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793
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Prepaid expenses and other current assets
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50
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51
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Fair value of derivative instruments
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111
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119
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Deferred income tax assets
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125
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216
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Total current assets
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2,509
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2,501
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Property, plant and equipment, net
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2,795
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2,799
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Goodwill
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582
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582
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Intangible assets, net
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781
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787
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Investment in and advances to non-consolidated affiliates
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740
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719
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Fair value of derivative instruments, net of current portion
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58
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72
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Deferred income tax assets
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5
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4
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Other long-term assets
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third parties
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87
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80
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related parties
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23
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23
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Total assets
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$
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7,580
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$
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7,567
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities
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Current portion of long-term debt
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$
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45
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$
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51
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Short-term borrowings
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237
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264
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Accounts payable
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third parties
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785
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725
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related parties
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52
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48
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Fair value of derivative instruments
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338
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640
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Accrued expenses and other current liabilities
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507
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516
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Deferred income tax liabilities
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|
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Total current liabilities
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1,964
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2,244
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Long-term debt, net of current portion
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third parties
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2,416
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2,417
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related parties
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94
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91
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Deferred income tax liabilities
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495
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469
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Accrued postretirement benefits
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517
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495
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Other long-term liabilities
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356
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342
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Total liabilities
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5,842
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6,058
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Commitments and contingencies
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Shareholders equity
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Common stock, no par value; unlimited number of shares
authorized; 77,459,658 shares issued and outstanding as of
June 30, 2009 and March 31, 2009
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Additional paid-in capital
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3,497
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3,497
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Accumulated deficit
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(1,787
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)
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(1,930
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)
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Accumulated other comprehensive loss
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(86
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)
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(148
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)
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Total equity of our common shareholder
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1,624
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|
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|
1,419
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Noncontrolling interests
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114
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|
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90
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|
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|
|
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Total equity
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1,738
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1,509
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Total liabilities and equity
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$
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7,580
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$
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7,567
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|
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See accompanying notes to the condensed consolidated financial
statements.
3
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Three Months Ended
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June 30,
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2009
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|
2008
|
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|
OPERATING ACTIVITIES
|
|
|
|
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|
|
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Net income
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|
$
|
161
|
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|
$
|
26
|
|
Adjustments to determine net cash provided by (used in)
operating activities:
|
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|
|
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|
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Depreciation and amortization
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100
|
|
|
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116
|
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Gain on change in fair value of derivative instruments, net
|
|
|
(72
|
)
|
|
|
(65
|
)
|
Deferred income taxes
|
|
|
98
|
|
|
|
10
|
|
Write-off and amortization of fair value adjustments, net
|
|
|
(51
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)
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(64
|
)
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Equity in net loss of non-consolidated affiliates
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10
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|
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|
2
|
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Foreign exchange remeasurement of debt
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|
(7
|
)
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|
|
|
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Other, net
|
|
|
2
|
|
|
|
1
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(80
|
)
|
|
|
(339
|
)
|
Inventories
|
|
|
11
|
|
|
|
(129
|
)
|
Accounts payable
|
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|
31
|
|
|
|
74
|
|
Other current assets
|
|
|
3
|
|
|
|
(29
|
)
|
Other current liabilities
|
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|
29
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|
|
|
(5
|
)
|
Other noncurrent assets
|
|
|
(9
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)
|
|
|
8
|
|
Other noncurrent liabilities
|
|
|
32
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
258
|
|
|
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(351
|
)
|
|
|
|
|
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INVESTING ACTIVITIES
|
|
|
|
|
|
|
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Capital expenditures
|
|
|
(24
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)
|
|
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(33
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)
|
Proceeds from sales of assets
|
|
|
3
|
|
|
|
1
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
3
|
|
|
|
6
|
|
Proceeds from related party loans receivable, net
|
|
|
6
|
|
|
|
8
|
|
Net proceeds (outflows) from settlement of derivative instruments
|
|
|
(223
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)
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(235
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)
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt, related parties
|
|
|
3
|
|
|
|
|
|
Principal payments
|
|
|
(12
|
)
|
|
|
(4
|
)
|
Short-term borrowings, net
|
|
|
(33
|
)
|
|
|
313
|
|
Dividends, noncontrolling interest
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(43
|
)
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(20
|
)
|
|
|
(26
|
)
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
9
|
|
|
|
(4
|
)
|
Cash and cash equivalents beginning of period
|
|
|
248
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
237
|
|
|
$
|
296
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
18
|
|
|
$
|
17
|
|
Income taxes paid (refunded)
|
|
$
|
(7
|
)
|
|
$
|
55
|
|
See accompanying notes to the condensed consolidated financial
statements.
4
Novelis
Inc.
(In
millions, except number of shares)
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity of our common shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Income (Loss)
|
|
|
Interests
|
|
|
Equity
|
|
|
Balance as of March 31, 2009
|
|
|
77,459,658
|
|
|
$
|
|
|
|
$
|
3,497
|
|
|
$
|
(1,930
|
)
|
|
$
|
(148
|
)
|
|
$
|
90
|
|
|
$
|
1,509
|
|
Net income attributable to our common shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
143
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
18
|
|
Currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
7
|
|
|
|
60
|
|
Change in fair value of effective portion of hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in pension and other benefits, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Noncontrolling interests cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2009
|
|
|
77,459,658
|
|
|
$
|
|
|
|
$
|
3,497
|
|
|
$
|
(1,787
|
)
|
|
$
|
(86
|
)
|
|
$
|
114
|
|
|
$
|
1,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
5
Novelis
Inc.
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
|
Attributable to
|
|
|
Attributable to
|
|
|
|
|
|
Attributable to
|
|
|
Attributable to
|
|
|
|
|
|
|
Our Common
|
|
|
Noncontrolling
|
|
|
|
|
|
Our Common
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shareholder
|
|
|
Interests
|
|
|
Total
|
|
|
Shareholder
|
|
|
Interests
|
|
|
Total
|
|
|
Net income
|
|
$
|
143
|
|
|
$
|
18
|
|
|
$
|
161
|
|
|
$
|
24
|
|
|
$
|
2
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
50
|
|
|
|
7
|
|
|
|
57
|
|
|
|
10
|
|
|
|
(2
|
)
|
|
|
8
|
|
Change in fair value of effective portion of hedges, net
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
|
|
19
|
|
|
|
|
|
|
|
19
|
|
Postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in pension and other benefits
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before income tax effect
|
|
|
64
|
|
|
|
7
|
|
|
|
71
|
|
|
|
29
|
|
|
|
(2
|
)
|
|
|
27
|
|
Income tax provision related to items of other comprehensive
income (loss)
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
62
|
|
|
|
7
|
|
|
|
69
|
|
|
|
21
|
|
|
|
(2
|
)
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
205
|
|
|
$
|
25
|
|
|
$
|
230
|
|
|
$
|
45
|
|
|
$
|
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
6
|
|
1.
|
BUSINESS
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
References herein to Novelis, the
Company, we, our, or
us refer to Novelis Inc. and its subsidiaries unless
the context specifically indicates otherwise. References herein
to Hindalco refer to Hindalco Industries Limited. In
October 2007, the Rio Tinto Group purchased all the outstanding
shares of Alcan, Inc. References herein to Rio Tinto
Alcan refer to Rio Tinto Alcan Inc.
Description
of Business and Basis of Presentation
Novelis Inc., formed in Canada on September 21, 2004, and
its subsidiaries, is the worlds leading aluminum rolled
products producer based on shipment volume. We produce aluminum
sheet and light gauge products where the end-use destination of
the products includes the beverage and food can, transportation,
construction and industrial, and foil products markets. As of
June 30, 2009, we had operations on four continents: North
America; Europe; Asia and South America, through 31 operating
plants, one research facility and several market-focused
innovation centers in 11 countries. In addition to aluminum
rolled products plants, our South American businesses include
bauxite mining, primary aluminum smelting and power generation
facilities that supply our rolling plants in Brazil.
The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with our audited
consolidated financial statements and accompanying notes in our
Annual Report on
Form 10-K
for the year ended March 31, 2009 filed with the United
States Securities and Exchange Commission (SEC) on June 29,
2009. Management believes that all adjustments necessary for the
fair presentation of results, consisting of normally recurring
items, have been included in the unaudited condensed
consolidated financial statements for the interim periods
presented. Further, in connection with the preparation of the
condensed consolidated financial statements and in accordance
with the recently issued FASB Statement No. 165
Subsequent Events (FASB 165), the Company evaluated
subsequent events after the balance sheet date of June 30,
2009 through August 3, 2009, the date these financial
statements were issued.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(GAAP) requires management to make estimates 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 period. Actual results could
differ from those estimates. The principal areas of judgment
relate to (1) the fair value of derivative financial
instruments; (2) impairment of goodwill;
(3) impairments of long lived assets, intangible assets and
equity investments; (4) actuarial assumptions related to
pension and other postretirement benefit plans; (5) income
tax reserves and valuation allowances and (6) assessment of
loss contingencies, including environmental and litigation
reserves.
Acquisition
of Novelis Common Stock
On May 15, 2007, the Company was acquired by Hindalco
through its indirect wholly-owned subsidiary pursuant to a plan
of arrangement (the Arrangement) at a price of $44.93 per share.
The aggregate purchase price for all of the Companys
common shares was $3.4 billion and Hindalco also assumed
$2.8 billion of Novelis debt for a total transaction
value of $6.2 billion. Subsequent to completion of the
Arrangement on May 15, 2007, all of our common shares were
indirectly held by Hindalco.
Recently
Adopted Accounting Standards
The following accounting standards have been adopted by us
during the three months ended June 30, 2009.
We adopted FASB Statement No. 160, Noncontrolling
Interests in Consolidated Financial Statements (FASB 160).
FASB 160 establishes accounting and reporting standards that
require: (i) the ownership interest
7
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
in subsidiaries held by parties other than the parent to be
clearly identified and presented in the condensed consolidated
balance sheet within shareholders equity, but separate
from the parents equity; (ii) the amount of condensed
consolidated net income attributable to the parent and the
noncontrolling interest to be clearly identified and presented
on the face of the condensed consolidated statement of
operations and (iii) changes in a parents ownership
interest while the parent retains its controlling financial
interest in its subsidiary to be accounted for consistently. We
adopted FASB 160 effective April 1, 2009, and applied this
standard prospectively, except for the presentation and
disclosure requirements, which have been applied
retrospectively. The adoption of FASB 160 did not have a
significant impact on our condensed consolidated financial
statements.
We adopted FASB Staff Position
No. FAS 142-3,
Determination of Useful Life of Intangible Assets (FSP
FAS 142-3).
FSP
FAS 142-3
amends the factors that should be considered in developing the
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under FASB 142. FSP
FAS 142-3
also requires expanded disclosure related to the determination
of intangible asset useful lives. This standard will have no
impact on our consolidated financial position, results of
operations and cash flows.
We adopted FASB Staff Position
No. 107-1
(FSP
FAS 107-1)
and APB Opinion
28-1 (APB
28-1),
Interim Disclosures about Fair Value of Financial
Instruments. FSP
FAS 107-1
and APB 28-1
amends FASB 107 and APB Opinion No. 28, Interim
Financial Reporting, to require disclosures about the fair
value of financial instruments for interim reporting periods.
This standard had no impact on our consolidated financial
position, results of operations and cash flows.
We adopted FASB Staff Position
No. 157-4,
Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (FSP
FAS 157-4).
FSP
FAS 157-4
provides additional guidance in accordance with FASB
No. 157, Fair Value Measurements, when the volume
and level of activity for the asset or liability has
significantly decreased. This standard had no impact on our
consolidated financial position, results of operations and cash
flows.
We adopted FASB Staff Position
No. 115-2
(FSP
FAS 115-2)
and FASB Staff Position
No. 124-2
(FSP
FAS 124-2),
Recognition of
Other-than-Temporary-Impairments.
FSP
FAS No. 115-2
and FSP
FAS No. 124-2
amends the
other-than-temporary
impairment guidance in GAAP for debt and equity securities. This
standard had no impact on our consolidated financial position,
results of operations and cash flows.
We adopted FASB Statement No. 141 (Revised), Business
Combinations (FASB 141(R)) which establishes principles and
requirements for how the acquirer in a business combination
(i) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree, (ii) recognizes
and measures the goodwill acquired in the business combination
or a gain from a bargain purchase, and (iii) determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. FASB 141(R) also requires acquirers to
estimate the acquisition-date fair value of any contingent
consideration and to recognize any subsequent changes in the
fair value of contingent consideration in earnings. We will
apply this new standard prospectively to business combinations
occurring after March 31, 2009, with the exception of the
accounting for valuation allowances on deferred taxes and
acquired tax contingencies. FASB 141(R) amends certain
provisions of FASB 109 such that adjustments made to valuation
allowances on deferred taxes and acquired tax contingencies
associated with acquisitions that closed prior to the effective
date of FASB 141(R) would also apply the provisions of FASB
141(R). This standard had no impact on our consolidated
financial position, results of operations and cash flows.
We adopted FASB Staff Position No. 141(R)-1, Accounting
for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies (FSP
FAS No. 141(R)-1). This pronouncement amends FASB
141(R) to clarify the initial and subsequent recognition,
subsequent accounting, and disclosure
8
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
of assets and liabilities arising from contingencies in a
business combination. FSP SFAS No. 141(R)-1 requires
that assets acquired and liabilities assumed in a business
combination that arise from contingencies be recognized at fair
value, as determined in accordance with FASB 157, if the
acquisition-date fair value can be reasonably estimated. If the
acquisition-date fair value of an asset or liability cannot be
reasonably estimated, the asset or liability would be measured
at the amount that would be recognized in accordance with FASB
Statement No. 5, Accounting for Contingencies, and
FASB Interpretation No. 14, Reasonable Estimation of the
Amount of a Loss. As the provisions of FSP
FAS No. 141(R)-1 are applied prospectively to business
combinations with an acquisition date on or after the guidance
became effective, the impact on condensed consolidated financial
position, results of operations and cash flows cannot be
determined until the transactions occur.
We adopted the Emerging Issues Task Force (EITF) Issue
No. 08-06,
Equity Method Investment Accounting Considerations
(EITF 08-06).
EITF 08-6
address questions that have arisen about the application of the
equity method of accounting for investments acquired after the
effective date of both FASB 141(R) and FASB Statement
No. 160, Non-controlling Interests in Consolidated
Financial Statements.
EITF 08-06
clarifies how to account for certain transactions involving
equity method investments.
EITF 08-6
is effective on a prospective basis. This standard had no impact
on our consolidated financial position, results of operations
and cash flows.
Recently
Issued Accounting Standards
The following new accounting standards have been issued, but
have not yet been adopted by us as of June 30, 2009, as
adoption is not required until future reporting periods.
In June 2009, the FASB issued statement No. 167,
Amendments to FASB Interpretation No. 46(R)
(FASB 167). FASB 167 is intended to (1) address the
effects on certain provisions of FASB Interpretation No. 46
(revised December 2003), Consolidation of Variable Interest
Entities (FIN 46(R)), as a result of the elimination of
the qualifying special-purpose entity concept in FASB Statement
No. 166, Accounting for Transfers of Financial
Assets, and (2) clarify questions about the application
of certain key provisions of FIN 46(R), including those in
which the accounting and disclosures under FIN 46(R) do not
always provided timely and useful information about an
enterprises involvement in a variable interest entity.
FASB 167 will be effective for fiscal years ending after
November 15, 2009. We do not anticipate this standard will
have any impact on our consolidated financial position, results
of operations and cash flows.
In December 2008, the FASB issued FSP No. 132(R)-1,
Employers Disclosures about Pensions and Other
Postretirement Benefits (FSP No. 132(R)-1). FSP
No. 132(R)-1 requires that an employer disclose the
following information about the fair value of plan assets:
(1) how investment allocation decisions are made, including
the factors that are pertinent to understanding of investment
policies and strategies; (2) the major categories of plan
assets; (3) the inputs and valuation techniques used to
measure the fair value of plan assets; (4) the effect of
fair value measurements using significant unobservable inputs on
changes in plan assets for the period; and (5) significant
concentrations of risk within plan assets. FSP No. 132(R)-1
will be effective for fiscal years ending after
December 15, 2009, with early application permitted. At
initial adoption, application of FSP No. 132(R)-1 would not
be required for earlier periods that are presented for
comparative purposes. This standard will have no impact on our
consolidated financial position, results of operations and cash
flows.
We have determined that all other recently issued accounting
standards will not have a material impact on our consolidated
financial position, results of operations or cash flows, or do
not apply to our operations.
9
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
|
|
2.
|
RESTRUCTURING
PROGRAMS
|
There were no new restructuring actions initiated during the
three months ended June 30, 2009. Restructuring charges,
net of $3 million on the condensed consolidated statement
of operations for the three months ended June 30, 2009
consisted of the following (1) $2 million write down
of parts and supplies related to our Rogerstone facility and
(2) approximately $1 million in other items at other
European facilities. The $2 million write down is not
included in the table below as it was reflected as a reduction
to the appropriate balance sheet accounts. The following table
summarizes our restructuring accrual activity by region (in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
South
|
|
|
|
|
|
Restructuring
|
|
|
|
Europe
|
|
|
America
|
|
|
Asia
|
|
|
America
|
|
|
Corporate
|
|
|
Reserves
|
|
|
Balance as of March 31, 2009
|
|
$
|
61
|
|
|
$
|
16
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
80
|
|
Three Months Ended June 30, 2009 Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions (recoveries), net
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Cash payments
|
|
|
(13
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(17
|
)
|
Adjustments other(A)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2009
|
|
$
|
56
|
|
|
$
|
13
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Consists of the impact of exchange rates on restructuring
balances. |
Europe
Restructuring charges for the three months ended June 30,
2009 consist of approximately $1 million in additional
severance and other exit costs for our plants in Rogerstone,
Rugles and Ohle plants. For the quarter ended June 30,
2009, we made $8 million in severance payments,
$4 million in payments for environmental remediation and
approximately $1 million of other payments related
primarily to contract terminations.
North
America
For the quarter ended June 30, 2009, we made
$3 million in severance payments related to the voluntary
and involuntary separation programs initiated in the third
quarter of fiscal 2009.
South
America
For the quarter ended June 30, 2009, we made
$1 million in severance payments.
Inventories consist of the following (in millions).
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
Finished goods
|
|
$
|
203
|
|
|
$
|
215
|
|
Work in process
|
|
|
326
|
|
|
|
296
|
|
Raw materials
|
|
|
199
|
|
|
|
207
|
|
Supplies
|
|
|
88
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
816
|
|
|
|
797
|
|
Allowances
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
813
|
|
|
$
|
793
|
|
|
|
|
|
|
|
|
|
|
10
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
|
|
4.
|
CONSOLIDATION
OF VARIABLE INTEREST ENTITIES
|
We have a variable interest in the Logan Aluminum, Inc. (Logan).
Based upon a previous restructuring program, Novelis acquired
the right to use the excess capacity at Logan. To utilize this
capacity, we installed and have sole ownership of a cold mill at
the Logan facility which enabled us to have the ability to take
the majority share of production and costs. These facts qualify
Novelis as Logans primary beneficiary. As a result, this
entity is consolidated pursuant to FASB Interpretation
No. 46 (Revised), Consolidation of Variable Interest
Entities (FIN 46(R)) in all periods presented. All
significant intercompany transactions and balances have been
eliminated.
The following table summarizes the carrying value and
classification on our condensed consolidated balance sheets of
assets and liabilities owned by the Logan joint venture and
consolidated under FIN 46(R) (in millions). There are
significant other assets used in the operations of Logan that
are not part of the joint venture.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
Current assets
|
|
$
|
66
|
|
|
$
|
64
|
|
Total assets
|
|
$
|
126
|
|
|
$
|
124
|
|
Current liabilities
|
|
$
|
(34
|
)
|
|
$
|
(35
|
)
|
Total liabilities
|
|
$
|
(137
|
)
|
|
$
|
(135
|
)
|
Net carrying value
|
|
$
|
(11
|
)
|
|
$
|
(11
|
)
|
|
|
5.
|
INVESTMENT
IN AND ADVANCES TO NON-CONSOLIDATED AFFILIATES AND RELATED PARTY
TRANSACTIONS
|
The following table summarizes the condensed results of
operations of our equity method affiliates (on a 100% basis, in
millions) on a historical basis of accounting. These results do
not include the incremental depreciation and amortization
expense that we record in our equity method accounting, which
arises as a result of the amortization of fair value adjustments
we made to our investments in non-consolidated affiliates due to
the Arrangement.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net sales
|
|
$
|
113
|
|
|
$
|
157
|
|
Costs, expenses and provisions for taxes on income
|
|
|
116
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3
|
)
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
We recognized $8 million and $9 million of incremental
depreciation and amortization expense, net of tax on our equity
method investments due to the Arrangement for the three months
ended June 30, 2009 and 2008, respectively. We recorded a
tax benefit of $4 million and $5 million associated
with the incremental depreciation and amortization for the three
months ended June 30, 2009 and 2008, respectively.
Included in the accompanying condensed consolidated financial
statements are transactions and balances arising from business
we conduct with these non-consolidated affiliates, which we
classify as related party transactions and balances. We earned
less than $1 million of interest income on a loan due from
Aluminium
11
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
Norf GmbH during each of the periods presented in the table
below. The following table describes the nature and amounts of
significant transactions that we had with these non-consolidated
affiliates (in millions).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Purchases of tolling services and electricity
|
|
|
|
|
|
|
|
|
Aluminium Norf GmbH(A)
|
|
$
|
56
|
|
|
$
|
74
|
|
Consorcio Candonga(B)
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total purchases from related parties
|
|
$
|
57
|
|
|
$
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
We purchase tolling services from Aluminium Norf GmbH. |
|
(B) |
|
We obtain electricity from Consorcio Candonga for our operations
in South America. |
The following table describes the period-end account balances
that we have with these non-consolidated affiliates, shown as
related party balances in the accompanying condensed
consolidated balance sheets (in millions). We have no other
material related party balances with these non-consolidated
affiliates.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
Accounts receivable(A)
|
|
$
|
19
|
|
|
$
|
25
|
|
Other long-term receivables(A)
|
|
$
|
23
|
|
|
$
|
23
|
|
Accounts payable(B)
|
|
$
|
52
|
|
|
$
|
48
|
|
|
|
|
(A) |
|
The balances represent current and non-current portions of a
loan due from Aluminium Norf GmbH. |
|
(B) |
|
We purchase tolling services from Aluminium Norf GmbH and
electricity from Consorcio Candonga. |
12
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
Debt consists of the following (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
March 31, 2009
|
|
|
|
|
|
|
|
|
|
Unamortized
|
|
|
|
|
|
|
|
|
Unamortized
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
Rates(A)
|
|
|
Principal
|
|
|
Adjustments(B)
|
|
|
Value
|
|
|
Principal
|
|
|
Adjustments(B)
|
|
|
Value
|
|
|
Third party debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term borrowings
|
|
|
2.81
|
%
|
|
$
|
237
|
|
|
$
|
|
|
|
$
|
237
|
|
|
$
|
264
|
|
|
$
|
|
|
|
$
|
264
|
|
Novelis Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.25% Senior Notes, due February 2015
|
|
|
7.25
|
%
|
|
|
1,124
|
|
|
|
45
|
|
|
|
1,169
|
|
|
|
1,124
|
|
|
|
47
|
|
|
|
1,171
|
|
Floating rate Term Loan Facility, due July 2014
|
|
|
2.60
|
%(C)
|
|
|
294
|
|
|
|
|
|
|
|
294
|
|
|
|
295
|
|
|
|
|
|
|
|
295
|
|
Novelis Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate Term Loan Facility, due July 2014
|
|
|
2.60
|
%(C)
|
|
|
865
|
|
|
|
(52
|
)
|
|
|
813
|
|
|
|
867
|
|
|
|
(54
|
)
|
|
|
813
|
|
Novelis Switzerland S.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation, due December 2019 (Swiss francs (CHF)
50 million)
|
|
|
7.50
|
%
|
|
|
46
|
|
|
|
(3
|
)
|
|
|
43
|
|
|
|
45
|
|
|
|
(3
|
)
|
|
|
42
|
|
Capital lease obligation, due August 2011 (CHF 2 million)
|
|
|
2.49
|
%
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Novelis Korea Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loan, due October 2010
|
|
|
4.09
|
%
|
|
|
100
|
|
|
|
|
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
100
|
|
Bank loan, due February 2010 (Korean won (KRW) 50 billion)
|
|
|
3.76
|
%
|
|
|
39
|
|
|
|
|
|
|
|
39
|
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
Bank loan, due May 2009 (KRW 10 billion)
|
|
|
7.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt, due December 2011 through December 2012
|
|
|
1.00
|
%
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt third parties
|
|
|
|
|
|
|
2,708
|
|
|
|
(10
|
)
|
|
|
2,698
|
|
|
|
2,742
|
|
|
|
(10
|
)
|
|
|
2,732
|
|
Less: Short term borrowings
|
|
|
|
|
|
|
(237
|
)
|
|
|
|
|
|
|
(237
|
)
|
|
|
(264
|
)
|
|
|
|
|
|
|
(264
|
)
|
Current portion of long tern debt
|
|
|
|
|
|
|
(54
|
)
|
|
|
9
|
|
|
|
(45
|
)
|
|
|
(59
|
)
|
|
|
8
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion third
parties:
|
|
|
|
|
|
$
|
2,417
|
|
|
$
|
(1
|
)
|
|
$
|
2,416
|
|
|
$
|
2,419
|
|
|
$
|
(2
|
)
|
|
$
|
2,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Novelis Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured credit facility related party, due January
2015
|
|
|
13.00
|
%
|
|
$
|
94
|
|
|
$
|
|
|
|
$
|
94
|
|
|
$
|
91
|
|
|
$
|
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Interest rates are as of June 30, 2009 and exclude the
effects of accretion/amortization of fair value adjustments as a
result of the Arrangement and the debt exchange completed in the
fourth quarter of fiscal 2009. |
|
(B) |
|
Debt existing at the time of the Arrangement was recorded at
fair value. Additional floating rate Term Loan with a face value
of $220 million issued in March 2009 was recorded at a fair
value of $165 million. |
|
(C) |
|
Excludes the effect of related interest rate swaps and the
effect of accretion of fair value. |
13
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
Senior
Secured Credit Facilities
Our senior secured credit facilities consist of (1) a
$1.16 billion seven year term loan facility maturing July
2014 (Term Loan facility) and (2) a $800 million
five-year multi-currency asset-backed revolving credit line and
letter of credit facility (ABL Facility). The senior secured
credit facilities include customary affirmative and negative
covenants. Under the ABL Facility, if our excess availability,
as defined under the borrowing, is less than $80 million,
we are required to maintain a minimum fixed charge coverage
ratio of 1 to 1. As of June 30, 2009, our fixed charge
coverage ratio is less than 1 to 1, resulting in a reduction of
availability under the ABL Facility of $80 million.
Substantially all of our assets are pledged as collateral under
the senior secured credit facilities.
Short-Term
Borrowings and Lines of Credit
As of June 30, 2009, our short-term borrowings were
$237 million consisting of (1) $226 million of
short-term loans under the ABL Facility, (2) a
$7 million short-term loan in Italy and
(3) $4 million in bank overdrafts. As of June 30,
2009, $31 million of the ABL Facility was utilized for
letters of credit and we had $299 million in remaining
availability under the ABL Facility before covenant related
restrictions. The weighted average interest rate on our total
short-term borrowings was 2.81% and 2.75% as of June 30,
2009 and March 31, 2009, respectively.
As of June 30, 2009, we had an additional $71 million
outstanding under letters of credit in Korea not included in the
ABL Facility.
Interest
Rate Swaps
As of June 30, 2009, we have interest rate swaps to fix the
variable LIBOR interest rate on $920 million of our
floating rate Term Loan facility. We are still obligated to pay
any applicable margin, as defined in our senior secured credit
facilities. Interest rates swaps related to $400 million at
an effective weighted average interest rate of 4.0% expire
March 31, 2010. In January 2009, we entered into two
interest rate swaps to fix the variable LIBOR interest rate on
an additional $300 million of our floating Term Loan
facility at a rate of 1.49%, plus any applicable margin. These
interest rate swaps are effective from March 31, 2009
through March 31, 2011. In April 2009, we entered into an
additional $220 million interest rate swap at a rate of
1.97%, which is effective through April 30, 2012.
As of June 30, 2009, we have an interest rate swap in Korea
on our $100 million bank loan through a 5.44% fixed rate
KRW 92 billion ($92 million) loan. The interest rate
swap expires in October 2010.
As of June 30, 2009 approximately 79% of our debt was fixed
rate and approximately 21% was variable rate.
|
|
7.
|
SHARE-BASED
COMPENSATION
|
Total compensation expense related to share-based awards was
less than $1 million for both the three months ended
June 30, 2009 and 2008.
Novelis
Long-Term Incentive Plan
In June 2009, our board of directors authorized the Novelis
Long-Term Incentive Plan FY 2010 FY 2013 (2010 LTIP)
covering the performance period from April 1, 2009 through
March 31, 2013. The terms of the 2010 LTIP are the same as
the Novelis Long-Term Incentive Plan FY 2009 FY 2012
(2009 LTIP) approved in June 2008. Under the 2010 LTIP, phantom
stock appreciation rights (SARs) are to be granted to certain of
our executive officers and key employees. The SARs will vest at
the rate of 25% per year, subject to performance criteria (see
below) and expire seven years from their grant date. Each SAR is
to be settled in
14
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
cash based on the difference between the market value of one
Hindalco share on the date of grant compared to the date of
exercise, converted from Indian rupees to U.S. dollars at
the time of exercise. The amount of cash paid would be limited
to (i) 2.5 times the target payout if exercised within one
year of vesting or (ii) 3 times the target payout if
exercised after one year of vesting. The SARs do not transfer
any shareholder rights in Hindalco to a participant. As of
June 30, 2009, no SARs have been awarded under the 2010
LTIP.
The performance criterion for vesting is based on the actual
overall Novelis operating earnings before interest, taxes,
depreciation and amortization, as adjusted (adjusted Operating
EBITDA) compared to the target adjusted Operating EBITDA
established and approved each fiscal year. The minimum threshold
for vesting each year is 75% of each annual target adjusted
Operating EBITDA, at which point 75% of the SARs for that period
would vest, with an equal pro rata amount of SARs vesting
through 100% achievement of the target.
|
|
8.
|
POSTRETIREMENT
BENEFIT PLANS
|
Our pension obligations relate to funded defined benefit pension
plans in the U.S., Canada, Switzerland and the U.K., unfunded
pension plans in Germany, and unfunded lump sum indemnities in
France, South Korea, Malaysia and Italy. Our other
postretirement obligations (Other Benefits, as shown in certain
tables below) include unfunded healthcare and life insurance
benefits provided to retired employees in Canada, the
U.S. and Brazil.
Components of net periodic benefit cost for all of our
significant postretirement benefit plans are shown in the tables
below (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit Plans
|
|
|
Other Benefits
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Service cost
|
|
$
|
8
|
|
|
$
|
10
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Interest cost
|
|
|
14
|
|
|
|
15
|
|
|
|
3
|
|
|
|
3
|
|
Expected return on assets
|
|
|
(10
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
Amortization (gains) losses
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment/settlement losses
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
15
|
|
|
$
|
13
|
|
|
$
|
5
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected long-term rate of return on plan assets is 6.7% in
fiscal 2010.
Employer
Contributions to Plans
For pension plans, our policy is to fund an amount required to
provide for contractual benefits attributed to service to date,
and amortize unfunded actuarial liabilities typically over
periods of 15 years or less. We also participate in savings
plans in Canada and the U.S., as well as defined contribution
pension plans in the U.S., U.K., Canada, Germany, Italy,
Switzerland, Malaysia and Brazil. We contributed the following
amounts to all plans, including the Rio Tinto Alcan plans that
cover our employees (in millions).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Funded pension plans
|
|
$
|
3
|
|
|
$
|
4
|
|
Unfunded pension plans
|
|
|
4
|
|
|
|
4
|
|
Savings and defined contribution pension plans
|
|
|
3
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total contributions
|
|
$
|
10
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
15
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
During the remainder of fiscal 2010, we expect to contribute an
additional $42 million to our funded pension plans,
$10 million to our unfunded pension plans and
$12 million to our savings and defined contribution plans.
|
|
9.
|
CURRENCY
(GAINS) LOSSES
|
The following currency (gains) losses are included in the
accompanying condensed consolidated statements of operations (in
millions).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net gain on change in fair value of currency derivative
instruments(A)
|
|
$
|
(22
|
)
|
|
$
|
(32
|
)
|
Net (gain) loss on remeasurement of monetary assets and
liabilities(B)
|
|
|
(4
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(26
|
)
|
|
$
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Included in (Gain) loss on change in fair value of derivative
instruments, net. |
|
(B) |
|
Included in Other (income) expenses, net. |
The following currency gains (losses) are included in
Accumulated other comprehensive income (loss) (AOCI), net of
tax. (in millions).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
|
June 30, 2009
|
|
|
March 31, 2009
|
|
|
Cumulative currency translation adjustment beginning
of period
|
|
$
|
(78
|
)
|
|
$
|
85
|
|
Effect of changes in exchange rates
|
|
|
60
|
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
Cumulative currency translation adjustment end of
period
|
|
$
|
(18
|
)
|
|
$
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
16
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
|
|
10.
|
FINANCIAL
INSTRUMENTS AND COMMODITY CONTRACTS
|
The fair values of our financial instruments and commodity
contracts as of June 30, 2009 and March 31, 2009 are
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Net Fair Value
|
|
|
|
Current
|
|
|
Noncurrent
|
|
|
Current
|
|
|
Noncurrent(A)
|
|
|
Assets/(Liabilities)
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency exchange contracts
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
(23
|
)
|
|
$
|
(24
|
)
|
Interest rate swaps
|
|
|
|
|
|
|
3
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
(11
|
)
|
Electricity swap
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
|
3
|
|
|
|
(19
|
)
|
|
|
(25
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum forward contracts
|
|
|
86
|
|
|
|
27
|
|
|
|
(268
|
)
|
|
|
(7
|
)
|
|
|
(162
|
)
|
Currency exchange contracts
|
|
|
25
|
|
|
|
28
|
|
|
|
(44
|
)
|
|
|
(4
|
)
|
|
|
5
|
|
Energy contracts
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
111
|
|
|
|
55
|
|
|
|
(319
|
)
|
|
|
(11
|
)
|
|
|
(164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative fair value
|
|
$
|
111
|
|
|
$
|
58
|
|
|
$
|
(338
|
)
|
|
$
|
(36
|
)
|
|
$
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Net Fair Value
|
|
|
|
Current
|
|
|
Noncurrent
|
|
|
Current
|
|
|
Noncurrent(A)
|
|
|
Assets/(Liabilities)
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency exchange contracts
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(11
|
)
|
|
$
|
(11
|
)
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(13
|
)
|
Electricity swap
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(12
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
(23
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum contracts
|
|
|
99
|
|
|
|
41
|
|
|
|
(532
|
)
|
|
|
(13
|
)
|
|
|
(405
|
)
|
Currency exchange contracts
|
|
|
20
|
|
|
|
31
|
|
|
|
(77
|
)
|
|
|
(12
|
)
|
|
|
(38
|
)
|
Energy contracts
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
119
|
|
|
|
72
|
|
|
|
(621
|
)
|
|
|
(25
|
)
|
|
|
(455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative fair value
|
|
$
|
119
|
|
|
$
|
72
|
|
|
$
|
(640
|
)
|
|
$
|
(48
|
)
|
|
$
|
(497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The noncurrent portions of derivative liabilities are included
in Other long-term liabilities in the accompanying condensed
consolidated balance sheets. |
17
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
Net
Investment Hedges
We use cross-currency swaps to manage our exposure to
fluctuating exchange rates arising from our loans to and
investments in our European operations. The effective portion of
gain or loss on the fair value of the derivative is included in
Other comprehensive income (loss) (OCI). The effective portion
of the derivatives is included in Currency translation
adjustments. The ineffective portion of gain or loss on
derivatives is included in (Gain) loss on change in fair value
of derivative instruments, net. We had cross-currency swaps of
Euro 135 million against the U.S. dollar
outstanding as of both June 30, 2009 and March 31,
2009.
We recognized a $16 million loss and a $28 million
gain in OCI for the three months ended June 30, 2009 and
2008, respectively, for our currency exchange contracts
designated as net investment hedges.
Cash Flow
Hedges
We own an interest in an electricity swap which we have
designated as a cash flow hedge against our exposure to
fluctuating electricity prices. The effective portion of gain or
loss on the derivative is included in OCI and reclassified when
settled into (Gain) loss on change in fair value of derivatives,
net in our accompanying condensed consolidated statements of
operations. As of June 30, 2009, the outstanding portion of
this swap includes 1.9 million megawatt hours through 2017.
We use interest rate swaps to manage our exposure to changes in
the benchmark LIBOR interest rate arising from our variable-rate
debt. We have designated these as cash flow hedges. The
effective portion of gain or loss on the derivative is included
in OCI and reclassified when settled into Interest expense and
amortization of debt issuance costs in our accompanying
condensed consolidated statements of operations. We had
$910 million and $690 million of outstanding interest
rate swaps designated as cash flow hedges as of June 30,
2009 and March 31, 2009, respectively.
For all derivatives designated as cash flow hedges, gains or
losses representing hedge ineffectiveness are recognized in
(Gain) loss on change in fair value of derivative instruments,
net in our current period earnings. If at any time during the
life of a cash flow hedge relationship we determine that the
relationship is no longer effective, the derivative will be no
longer be designated as a cash flow hedge. This could occur if
the underlying hedged exposure is determined to no longer be
probable, or if our ongoing assessment of hedge effectiveness
determines that the hedge relationship no longer meets the
measures we have established at the inception of the hedge.
Gains or losses recognized to date in AOCI would be immediately
reclassified into current period earnings, as would any
subsequent changes in the fair value of any such derivative.
During the next twelve months we expect to realize
$11 million in effective net losses from our cash flow
hedges. The maximum period over which we have hedged our
exposure to cash flow variability is through 2017.
The following table summarizes the impact on AOCI and earnings
of derivative instruments designated as cash flow hedges (in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (Loss)
|
|
|
|
|
|
|
|
|
|
Recognized in Income
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
(Ineffective Portion and Amount
|
|
|
|
Gain (Loss)
|
|
|
Reclassified from
|
|
|
Excluded from
|
|
|
|
Recognized in OCI
|
|
|
AOCI into Income
|
|
|
Effectiveness Testing)
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
Energy contracts
|
|
$
|
9
|
|
|
$
|
(1
|
)
|
|
$
|
2
|
|
Interest rate swaps
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
18
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (Loss)
|
|
|
|
|
|
|
|
|
|
Recognized in Income
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
(Ineffective Portion and Amount
|
|
|
|
Gain (Loss)
|
|
|
Reclassified from
|
|
|
Excluded from
|
|
|
|
Recognized in OCI
|
|
|
AOCI into Income
|
|
|
Effectiveness Testing)
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2008
|
|
|
June 30, 2008
|
|
|
June 30, 2008
|
|
|
Energy contracts
|
|
$
|
10
|
|
|
$
|
(3
|
)
|
|
$
|
|
|
Interest rate swaps
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
|
|
Derivative
Instruments Not Designated as Hedges
While each of these derivatives is intended to be effective in
helping us manage risk, they have not been designated as hedging
instruments under FASB 133. The change in fair value of these
derivative instruments is included in (Gain) loss on change in
fair value of derivative instruments, net in the accompanying
condensed consolidated statement of operations.
We use aluminum forward contracts and options to hedge our
exposure to changes in the London Metal Exchange (LME) price of
aluminum. These exposures arise from firm commitments to sell
aluminum in future periods at fixed or capped prices, the
forecasted output of our smelter operations in South America and
the forecasted metal price lag associated with firm commitments
to sell aluminum in future periods at prices based on the LME.
In addition, transactions with certain customers meet the
definition of a derivative under FASB 133 and are recognized as
assets or liabilities at fair value on the accompanying
condensed consolidated balance sheets. As of June 30, 2009
and March 31, 2009, we had 362 kilotonnes (kt) and 294 kt,
respectively, of outstanding aluminum contracts not designated
as hedges.
We recognize a derivative position which arises from a
contractual relationship with a customer that entitles us to
pass-through the economic effect of trading positions that we
take with other third parties on our customers behalf.
We use foreign exchange forward contracts and cross-currency
swaps to manage our exposure to changes in exchange rates. These
exposures arise from recorded assets and liabilities, firm
commitments and forecasted cash flows denominated in currencies
other than the functional currency of certain of our operations.
As of June 30, 2009 and March 31, 2009, we had
outstanding currency exchange contracts with a total notional
amount of $1.3 billion and $1.4 billion, respectively,
not designated as hedges.
We use interest rate swaps to manage our exposure to fluctuating
interest rates associated with variable-rate debt. As of
June 30, 2009 and March 31, 2009, we had
$10 million and $10 million, respectively, of
outstanding interest rate swaps that were not designated as
hedges.
We use heating oil swaps and natural gas swaps to manage our
exposure to fluctuating energy prices in North America. As of
June 30, 2009 and March 31, 2009, we had
3.3 million gallons and 3.4 million gallons,
respectively, of heating oil swaps and 2.8 million MMBTUs
and 3.8 million MMBTUs, respectively, of natural gas that
were not designated as hedges. One MMBTU is the equivalent of
one decatherm, or one million British Thermal Units.
19
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
The following table summarizes the gains (losses) recognized in
current period earnings (in millions).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Derivative Instruments Not Designated as Hedges
|
|
|
|
|
|
|
|
|
Aluminum contracts
|
|
$
|
48
|
|
|
$
|
22
|
|
Currency exchange contracts
|
|
|
22
|
|
|
|
32
|
|
Energy contracts
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized
|
|
|
70
|
|
|
|
61
|
|
Derivative Instruments Designated as Cash Flow Hedges
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
Electricity swap
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on change in fair value of derivative instruments,
net
|
|
$
|
72
|
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
FAIR
VALUE MEASUREMENTS
|
The following is a description of valuation methodologies used
for assets and liabilities recorded at fair value and for
estimating fair value for financial instruments not recorded at
fair value under FASB 107, Disclosure about Fair Value of
Financial Instruments (FASB 107).
FASB
157 Instruments
The following table presents our assets and liabilities that are
measured and recognized at fair value on a recurring basis
classified under the appropriate level of the fair value
hierarchy as of June 30, 2009 and March 31, 2009 (in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Level 1(A)
|
|
|
Level 2(B)
|
|
|
Level 3(C)
|
|
|
Total
|
|
|
Assets Derivative instruments
|
|
$
|
|
|
|
$
|
169
|
|
|
$
|
|
|
|
$
|
169
|
|
Liabilities Derivative instruments
|
|
$
|
|
|
|
$
|
(347
|
)
|
|
$
|
(27
|
)
|
|
$
|
(374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Level 1(A)
|
|
|
Level 2(B)
|
|
|
Level 3(C)
|
|
|
Total
|
|
|
Assets Derivative instruments
|
|
$
|
|
|
|
$
|
191
|
|
|
$
|
|
|
|
$
|
191
|
|
Liabilities Derivative instruments
|
|
$
|
|
|
|
$
|
(644
|
)
|
|
$
|
(44
|
)
|
|
$
|
(688
|
)
|
|
|
|
(A) |
|
Level 1 Unadjusted quoted prices in active
markets for identical, unrestricted assets or liabilities that
we have the ability to access at the measurement date. |
|
(B) |
|
Level 2 Inputs other than quoted prices
included within Level 1 that are observable for the asset
or liability, either directly or indirectly. |
|
(C) |
|
Level 3 Unobservable inputs for which there is
little or no market data, which require us to develop our own
assumptions based on the best information available as what
market participants would use in pricing the asset or liability. |
For certain of our derivative contracts whose fair values are
based upon trades in liquid markets, such as aluminum forward
contracts and options, valuation model inputs can generally be
verified and valuation
20
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
techniques do not involve significant judgment. The fair values
of such financial instruments are generally classified within
Level 2 of the fair value hierarchy.
The majority of our derivative contracts are valued using
industry-standard models that use observable market inputs as
their basis, such as time value, forward interest rates,
volatility factors, and current (spot) and forward market prices
for foreign exchange rates. We generally classify these
instruments within Level 2 of the valuation hierarchy. Such
derivatives include interest rate swaps, cross-currency swaps,
foreign currency forward contracts and certain energy-related
forward contracts (e.g., natural gas).
We classify derivative contracts that are valued based on models
with significant unobservable market inputs as Level 3 of
the valuation hierarchy. These derivatives include certain of
our energy-related forward contracts (e.g., electricity) and
certain foreign currency forward contracts. Models for these
fair value measurements include inputs based on estimated future
prices for periods beyond the term of the quoted prices.
FASB 157 requires that for Level 2 and 3 of the fair value
hierarchy, where appropriate, valuations are adjusted for
various factors such as liquidity, bid/offer spreads and credit
considerations (nonperformance risk).
Financial instruments classified as Level 3 in the fair
value hierarchy represent derivative contracts (primarily
energy-related and certain foreign currency forward contracts)
in which at least one significant unobservable input is used in
the valuation model. We incurred unrealized losses of
$26 million related to Level 3 financial instruments
that were still held as of June 30, 2009. These unrealized
losses are included in (Gain) loss on change in fair value of
derivative instruments, net.
The following table presents a reconciliation of fair value
activity for Level 3 derivative contracts on a net basis
(in millions).
|
|
|
|
|
|
|
Level 3
|
|
|
|
Derivative
|
|
|
|
Instruments(A)
|
|
|
Balance as of March 31, 2009
|
|
$
|
(44
|
)
|
Net realized/unrealized gains included in earnings(B)
|
|
|
10
|
|
Net realized/unrealized gains included in Other comprehensive
income(C)
|
|
|
5
|
|
Net purchases, issuances and settlements
|
|
|
2
|
|
Net transfers in and/or (out) of Level 3
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2009
|
|
$
|
(27
|
)
|
|
|
|
|
|
|
|
|
(A) |
|
Represents derivative assets net of derivative liabilities. |
|
(B) |
|
Included in (Gain) loss on change in fair value of derivative
instruments, net. |
|
(C) |
|
Included in Change in fair value of effective portion of hedges,
net. |
FASB
107 Instruments
Our estimates of fair value are based on (1) quoted market
price (applicable to our 7.25% Senior Notes) and
(2) discounted cash flow model with a discount rate
commensurate with the risk inherent in the projected cash flows
and reflects the rate of return required by an investor in the
current economic situation (applicable to our Floating rate Term
Loan facility, unsecured credit facility, capital lease
obligations and Novelis Korea Limited Bank loans). We determined
that carrying amounts for our long-term receivables from related
parties and our other debt approximates fair value. The fair
value of our letters of credit is based on the availability
under such credit agreements.
21
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
The table below is a summary of fair value estimates as of
June 30, 2009 and March 31, 2009, for financial
instruments, as defined by FASB 107, excluding short-term
financial assets and liabilities, for which carrying amounts
approximate fair value, and excluding financial instruments
recorded at fair value on a recurring basis (FASB 157
instruments) (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
March 31, 2009
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term receivables from related parties
|
|
$
|
23
|
|
|
$
|
22
|
|
|
$
|
23
|
|
|
$
|
21
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Novelis Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.25% Senior Notes, due February 2015
|
|
|
1,169
|
|
|
|
859
|
|
|
|
1,171
|
|
|
|
454
|
|
Floating rate Term Loan facility, due July 2014
|
|
|
294
|
|
|
|
243
|
|
|
|
295
|
|
|
|
200
|
|
Unsecured credit facility related party, due January
2015
|
|
|
94
|
|
|
|
107
|
|
|
|
91
|
|
|
|
93
|
|
Novelis Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate Term Loan facility, due July 2014
|
|
|
813
|
|
|
|
710
|
|
|
|
813
|
|
|
|
584
|
|
Novelis Switzerland S.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation, due December 2019 (CHF 50 million)
|
|
|
43
|
|
|
|
40
|
|
|
|
42
|
|
|
|
36
|
|
Capital lease obligation, due August 2011 (CHF 2 million)
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
Novelis Korea Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loan, due October 2010
|
|
|
100
|
|
|
|
90
|
|
|
|
100
|
|
|
|
83
|
|
Bank loan, due February 2010 (KRW 50 billion)
|
|
|
39
|
|
|
|
37
|
|
|
|
37
|
|
|
|
33
|
|
Bank loan, due May 2009 (KRW 10 billion)
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
7
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt, due April 2009 through December 2012
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Financial commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
134
|
|
|
|
12.
|
OTHER
(INCOME) EXPENSES, NET
|
Other (income) expenses, net is comprised of the following (in
millions).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Exchange (gains) losses, net
|
|
$
|
(4
|
)
|
|
$
|
20
|
|
Impairment charges on long-lived assets
|
|
|
|
|
|
|
1
|
|
Gain on disposal of property, plant and equipment, net
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Gain on tax litigation settlement in Brazil
|
|
|
(6
|
)
|
|
|
|
|
Other, net
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Other (income) expenses, net
|
|
$
|
(13
|
)
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
22
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
A reconciliation of the Canadian statutory tax rates to our
effective tax rates is as follows (in millions, except
percentages).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Pre-tax income before equity in net loss of non-consolidated
affiliates
|
|
$
|
283
|
|
|
$
|
63
|
|
|
|
|
|
|
|
|
|
|
Canadian statutory tax rate
|
|
|
30
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
Provision at the Canadian statutory rate
|
|
|
85
|
|
|
|
20
|
|
Increase (decrease) for taxes on income (loss) resulting from:
|
|
|
|
|
|
|
|
|
Exchange translation items
|
|
|
12
|
|
|
|
9
|
|
Exchange remeasurement of deferred income taxes
|
|
|
23
|
|
|
|
20
|
|
Change in valuation allowances
|
|
|
1
|
|
|
|
3
|
|
Expense (income) items not subject to tax
|
|
|
1
|
|
|
|
(4
|
)
|
Tax rate differences on foreign earnings
|
|
|
(11
|
)
|
|
|
(14
|
)
|
Uncertain tax positions
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
$
|
112
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
40
|
%
|
|
|
56
|
%
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009, we had a net deferred tax liability of
$365 million, including deferred tax assets of
approximately $417 million for net operating loss and tax
credit carryforwards. The carryforwards begin expiring in 2010
with some amounts being carried forward indefinitely. As of
June 30, 2009, valuation allowances of $142 million
had been recorded against net operating loss carryforwards and
tax credit carryforwards, where it appeared more likely than not
that such benefits will not be realized. Realization is
dependent on generating sufficient taxable income prior to
expiration of the tax attribute carryforwards. Although
realization is not assured, management believes it is more
likely than not that all the remaining net deferred tax assets
will be realized. In the near term, the amount of deferred tax
assets considered realizable could be reduced if we do not
generate sufficient taxable income in certain jurisdictions.
|
|
14.
|
COMMITMENTS
AND CONTINGENCIES
|
Legal
Proceedings
Coca-Cola
Lawsuit. A lawsuit was commenced against Novelis
Corporation on February 15, 2007 by
Coca-Cola
Bottlers Sales and Services Company LLC (CCBSS) in Georgia
state court. CCBSS is a consortium of
Coca-Cola
bottlers across the United States, including
Coca-Cola
Enterprises Inc. CCBSS alleges that Novelis Corporation breached
an aluminum can stock supply agreement between the parties, and
seeks monetary damages in an amount to be determined at trial
and a declaration of its rights under the agreement. The
agreement includes a most favored nations provision
regarding certain pricing matters. CCBSS alleges that Novelis
Corporation breached the terms of the most favored
nations provision. The dispute will likely turn on the
facts that are presented to the court by the parties and the
courts finding as to how certain provisions of the
agreement ought to be interpreted. If CCBSS were to prevail in
this litigation, the amount of damages would likely be material.
Novelis Corporation has filed its answer and the parties are
proceeding with discovery.
23
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
Environmental
Matters
The following describes certain environmental matters relating
to our business.
We are involved in proceedings under the U.S. Comprehensive
Environmental Response, Compensation, and Liability Act, also
known as CERCLA or Superfund, or analogous state provisions
regarding liability arising from the usage, storage, treatment
or disposal of hazardous substances and wastes at a number of
sites in the United States, as well as similar proceedings under
the laws and regulations of the other jurisdictions in which we
have operations, including Brazil and certain countries in the
European Union. Many of these jurisdictions have laws that
impose joint and several liability, without regard to fault or
the legality of the original conduct, for the costs of
environmental remediation, natural resource damages, third party
claims, and other expenses. In addition, we are, from time to
time, subject to environmental reviews and investigations by
relevant governmental authorities.
As described further in the following paragraph, we have
established procedures for regularly evaluating environmental
loss contingencies, including those arising from such
environmental reviews and investigations and any other
environmental remediation or compliance matters. We believe we
have a reasonable basis for evaluating these environmental loss
contingencies, and we believe we have made reasonable estimates
of the costs that are likely to be borne by us for these
environmental loss contingencies. Accordingly, we have
established reserves based on our reasonable estimates for the
currently anticipated costs associated with these environmental
matters. We estimate that the undiscounted remaining
clean-up
costs related to all of our known environmental matters as of
June 30, 2009 will be approximately $52 million. Of
this amount, $40 million is included in Other long-term
liabilities, with the remaining $12 million included in
Accrued expenses and other current liabilities in our condensed
consolidated balance sheet as of June 30, 2009. Management
has reviewed the environmental matters, including those for
which we assumed liability as a result of our spin-off from Rio
Tinto Alcan. As a result of this review, management has
determined that the currently anticipated costs associated with
these environmental matters will not, individually or in the
aggregate, materially impair our operations or materially
adversely affect our financial condition, results of operations
or liquidity.
With respect to environmental loss contingencies, we record a
loss contingency whenever such contingency is probable and
reasonably estimable. The evaluation model includes all asserted
and unasserted claims that can be reasonably identified. Under
this evaluation model, the liability and the related costs are
quantified based upon the best available evidence regarding
actual liability loss and cost estimates. Except for those loss
contingencies where no estimate can reasonably be made, the
evaluation model is fact-driven and attempts to estimate the
full costs of each claim. Management reviews the status of, and
estimated liability related to, pending claims and civil actions
on a quarterly basis. The estimated costs in respect of such
reported liabilities are not offset by amounts related to
cost-sharing between parties, insurance, indemnification
arrangements or contribution from other potentially responsible
parties (PRPs) unless otherwise noted.
Brazil
Tax Matters
Primarily as a result of legal proceedings with Brazils
Ministry of Treasury regarding certain taxes in South America,
as of June 30, 2009 and March 31, 2009, we had cash
deposits aggregating approximately $38 million and
$30 million, respectively, in judicial depository accounts
pending finalization of the related cases. The depository
accounts are in the name of the Brazilian government and will be
expended towards these legal proceedings or released to us,
depending on the outcome of the legal cases. These deposits are
included in Other long-term assets third parties in
our accompanying condensed consolidated balance sheets. In
addition, we are involved in several disputes with Brazils
Ministry of Treasury about various forms of manufacturing taxes
and social security contributions, for which we have made no
judicial deposits but for which we have established reserves
ranging from $7 million to $108 million as of
June 30, 2009. In total, these reserves approximate
$128 million as of June 30, 2009 and are included in
Other long-term liabilities in our accompanying condensed
consolidated balance sheet.
24
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
On May 28, 2009, the Brazilian government passed a law
allowing taxpayers to settle certain federal tax disputes with
the Brazilian tax authorities, including disputes relating to a
Brazilian national tax on manufactured products, through an
installment program. Pursuant to the installment plan, companies
can elect to (a) pay the principal amount of the disputed
tax amounts over a near-term period (e.g., 1-60 monthly
installments) and receive a
35-45%
discount on the interest and
80-100%
discount on the penalties owed, (b) pay the principal and
interest over a medium-term period (e.g.,
60-120 monthly
installments) and receive a
30-35%
discount on the interest and
70-80%
discount on the penalties owed, or (c) pay the full amount
of the disputed tax amounts, including interest and penalties,
over a longer-term period (e.g.,
120-180 monthly
installments) and receive a
25-30%
discount on the interest and
60-70%
discount on the penalties owed. Novelis has already joined the
installment plan. The Ministry of Treasury enacted final
installment plan regulations on July 23, 2009. The term for
joining the installment plan will begin on August 17, 2009
and end on November 30, 2009. When we formally join the
installment plan, we will elect (a) the amount of the tax
disputes that will be settled and (b) the number of
installments elected.
Guarantees
of Indebtedness
We have issued guarantees on behalf of certain of our
subsidiaries and non-consolidated affiliates, including certain
of our wholly-owned subsidiaries and Aluminium Norf GmbH, which
is a fifty percent (50%) owned joint venture that does not meet
the requirements for consolidation under FIN 46(R).
In the case of our wholly-owned subsidiaries, the indebtedness
guaranteed is for trade accounts payable to third parties. Some
of the guarantees have annual terms while others have no
expiration and have termination notice requirements. Neither we
nor any of our subsidiaries or non-consolidated affiliates holds
any assets of any third parties as collateral to offset the
potential settlement of these guarantees.
Since we consolidate wholly-owned and majority-owned
subsidiaries in our condensed consolidated financial statements,
all liabilities associated with trade payables and short-term
debt facilities for these entities are already included in our
condensed consolidated balance sheets.
The following table discloses information about our obligations
under guarantees of indebtedness of others as of June 30,
2009 (in millions). We did not have any obligations under
guarantees of indebtedness related to our majority-owned
subsidiaries as of June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
Liability
|
|
|
|
Potential
|
|
|
Carrying
|
|
Type of Entity
|
|
Future Payment
|
|
|
Value
|
|
|
Wholly-owned subsidiaries
|
|
$
|
45
|
|
|
$
|
7
|
|
Aluminium Norf GmbH
|
|
$
|
14
|
|
|
$
|
|
|
We have no retained or contingent interest in assets transferred
to an unconsolidated entity or similar entity or similar
arrangement that serves as credit, liquidity or market risk
support to that entity for such assets.
|
|
15.
|
SEGMENT,
MAJOR CUSTOMER AND MAJOR SUPPLIER INFORMATION
|
Segment
Information
Due in part to the regional nature of supply and demand of
aluminum rolled products and in order to best serve our
customers, we manage our activities on the basis of geographical
areas and are organized under four operating segments: North
America, Europe, Asia and South America. Corporate and Other
includes functions that are managed directly from our corporate
office, which focuses on strategy development and oversees
governance, policy, legal compliance, human resources and
finance matters. These expenses have not been allocated to the
regions. It also includes consolidating and other elimination
accounts.
25
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
Adjustment to Eliminate Proportional
Consolidation. The financial information for our
segments includes the results of our non-consolidated affiliates
on a proportionately consolidated basis, which is consistent
with the way we manage our business segments. However, under
GAAP, these non-consolidated affiliates are accounted for using
the equity method of accounting. Therefore, in order to
reconcile the financial information for the segments shown in
the tables below to the relevant GAAP-based measures, we must
remove our proportional share of each line item that we included
in the segment amounts. See Note 5 Investment
in and Advances to Non-Consolidated Affiliates and Related Party
Transactions for further information about these
non-consolidated affiliates.
We measure the profitability and financial performance of our
operating segments, based on Segment income, in accordance with
FASB Statement No. 131, Disclosure About the Segments of
an Enterprise and Related Information. Segment income
provides a measure of our underlying segment results that is in
line with our portfolio approach to risk management. We define
Segment income as earnings before (a) depreciation and
amortization; (b) interest expense and amortization of debt
issuance costs; (c) interest income; (d) unrealized
gains (losses) on change in fair value of derivative
instruments, net; (e) impairment of goodwill;
(f) impairment charges on long-lived assets (other than
goodwill); (g) gain on extinguishment of debt;
(h) noncontrolling interests share;
(i) adjustments to reconcile our proportional share of
Segment income from non-consolidated affiliates to income as
determined on the equity method of accounting;
(k) restructuring charges, net; (k) gains or losses on
disposals of property, plant and equipment and businesses, net;
(l) other costs, net; (m) litigation settlement, net
of insurance recoveries; (n) sale transaction fees;
(o) provision or benefit for taxes on income (loss) and
(p) cumulative effect of accounting change, net of tax.
Additionally, management changed how Segment income is defined
beginning with the quarter ended June 30, 2009. Total
segment income now includes corporate selling, general and
administrative costs, realized gains (losses) on corporate
derivatives and certain other costs. The prior period has been
recast herein to reflect this change in definition.
The tables below show selected segment financial information (in
millions).
Selected
Segment Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Corporate
|
|
|
Proportional
|
|
|
|
|
Total Assets
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
and Other
|
|
|
Consolidation
|
|
|
Total
|
|
|
June 30, 2009
|
|
$
|
2,808
|
|
|
$
|
2,793
|
|
|
$
|
817
|
|
|
$
|
1,341
|
|
|
$
|
38
|
|
|
$
|
(217
|
)
|
|
$
|
7,580
|
|
March 31, 2009
|
|
$
|
2,973
|
|
|
$
|
2,750
|
|
|
$
|
732
|
|
|
$
|
1,296
|
|
|
$
|
50
|
|
|
$
|
(234
|
)
|
|
$
|
7,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Corporate
|
|
|
Proportional
|
|
|
|
|
Three Months Ended June 30, 2009
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
and Other
|
|
|
Consolidation
|
|
|
Total
|
|
|
Net sales
|
|
$
|
767
|
|
|
$
|
665
|
|
|
$
|
326
|
|
|
$
|
204
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
1,960
|
|
Segment income
|
|
|
57
|
|
|
|
33
|
|
|
|
38
|
|
|
|
11
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
124
|
|
Depreciation and amortization
|
|
|
41
|
|
|
|
48
|
|
|
|
11
|
|
|
|
18
|
|
|
|
1
|
|
|
|
(19
|
)
|
|
|
100
|
|
Capital expenditures
|
|
|
6
|
|
|
|
11
|
|
|
|
3
|
|
|
|
7
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
24
|
|
26
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Corporate
|
|
|
Proportional
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
and Other
|
|
|
Consolidation
|
|
|
Total
|
|
|
Net sales
|
|
$
|
1,083
|
|
|
$
|
1,219
|
|
|
$
|
511
|
|
|
$
|
295
|
|
|
$
|
|
|
|
$
|
(5
|
)
|
|
$
|
3,103
|
|
Segment income
|
|
|
42
|
|
|
|
111
|
|
|
|
31
|
|
|
|
47
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
218
|
|
Depreciation and amortization
|
|
|
42
|
|
|
|
63
|
|
|
|
15
|
|
|
|
17
|
|
|
|
1
|
|
|
|
(22
|
)
|
|
|
116
|
|
Capital expenditures
|
|
|
7
|
|
|
|
19
|
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
33
|
|
The following table shows the reconciliation from total Segment
income to Net income attributable to our common shareholder (in
millions).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Total Segment income
|
|
$
|
124
|
|
|
$
|
218
|
|
Depreciation and amortization
|
|
|
(100
|
)
|
|
|
(116
|
)
|
Interest expense and amortization of debt issuance costs
|
|
|
(43
|
)
|
|
|
(45
|
)
|
Interest income
|
|
|
3
|
|
|
|
5
|
|
Unrealized gains on change in fair value of derivative
instruments, net(A)
|
|
|
299
|
|
|
|
20
|
|
Impairment charges on long-lived assets
|
|
|
|
|
|
|
(1
|
)
|
Adjustment to eliminate proportional consolidation
|
|
|
(16
|
)
|
|
|
(18
|
)
|
Restructuring recoveries (charges), net
|
|
|
(3
|
)
|
|
|
1
|
|
Other costs, net
|
|
|
9
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
273
|
|
|
|
61
|
|
Income tax provision
|
|
|
112
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
161
|
|
|
|
26
|
|
Net income attributable to noncontrolling interests
|
|
|
18
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to our common shareholder
|
|
$
|
143
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Unrealized gains (losses) on change in fair value of derivative
instruments, net represents the portion of gains (losses) that
were not settled in cash during the period. Total realized and
unrealized gains (losses) are shown in the table below and are
included in the aggregate each period in (Gain) loss on change
in fair value of derivative instruments, net on our condensed
consolidated statements of operations. |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Gains (losses) on change in fair value of derivative
instruments, net:
|
|
|
|
|
|
|
|
|
Realized gains (losses) included in Segment income
|
|
$
|
(228
|
)
|
|
$
|
45
|
|
Realized gains on corporate derivative instruments
|
|
|
1
|
|
|
|
|
|
Unrealized gains
|
|
|
299
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Gains on change in fair value of derivative instruments, net
|
|
$
|
72
|
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
|
27
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
Information
about Major Customers and Primary Supplier
The table below shows our net sales to Rexam Plc (Rexam) and
Anheuser-Busch Companies (Anheuser-Busch), our two largest
customers, as a percentage of total Net sales.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Rexam
|
|
|
20
|
%
|
|
|
16
|
%
|
Anheuser-Busch
|
|
|
12
|
%
|
|
|
7
|
%
|
Rio Tinto Alcan is our primary supplier of metal inputs,
including prime and sheet ingot. During the three months ended
June 30, 2009 and 2008, purchases from Rio Tinto Alcan as a
percentage of total combined prime and sheet ingot purchases (in
kt) was 43% and 35%, respectively, in each period.
|
|
16.
|
SUPPLEMENTAL
GUARANTOR INFORMATION
|
In connection with the issuance of our Senior Notes, certain of
our wholly-owned subsidiaries provided guarantees of the Senior
Notes. These guarantees are full and unconditional as well as
joint and several. The guarantor subsidiaries (the Guarantors)
are comprised of the majority of our businesses in Canada, the
U.S., the U.K., Brazil, Portugal, Luxembourg and Switzerland, as
well as certain businesses in Germany. Certain Guarantors may be
subject to restrictions on their ability to distribute earnings
to Novelis Inc. (the Parent). The remaining subsidiaries (the
Non-Guarantors) of the Parent are not guarantors of the Senior
Notes.
The following information presents condensed consolidating
statements of operations, balance sheets and statements of cash
flows of the Parent, the Guarantors, and the Non-Guarantors.
Investments include investment in and advances to
non-consolidated affiliates as well as investments in net assets
of divisions included in the Parent, and have been presented
using the equity method of accounting.
28
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
NOVELIS
INC.
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
168
|
|
|
$
|
1,534
|
|
|
$
|
551
|
|
|
$
|
(293
|
)
|
|
$
|
1,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
156
|
|
|
|
1,214
|
|
|
|
456
|
|
|
|
(293
|
)
|
|
|
1,533
|
|
Selling, general and administrative expenses
|
|
|
10
|
|
|
|
56
|
|
|
|
12
|
|
|
|
|
|
|
|
78
|
|
Depreciation and amortization
|
|
|
1
|
|
|
|
78
|
|
|
|
21
|
|
|
|
|
|
|
|
100
|
|
Research and development expenses
|
|
|
5
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Interest expense and amortization of debt issuance costs
|
|
|
26
|
|
|
|
30
|
|
|
|
3
|
|
|
|
(16
|
)
|
|
|
43
|
|
Interest income
|
|
|
(15
|
)
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
16
|
|
|
|
(3
|
)
|
(Gain) loss on change in fair value of derivative instruments,
net
|
|
|
(2
|
)
|
|
|
(61
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
(72
|
)
|
Restructuring charges, net
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
(147
|
)
|
|
|
10
|
|
|
|
|
|
|
|
147
|
|
|
|
10
|
|
Other (income) expenses, net
|
|
|
(7
|
)
|
|
|
7
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
1,337
|
|
|
|
469
|
|
|
|
(146
|
)
|
|
|
1,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
141
|
|
|
|
197
|
|
|
|
82
|
|
|
|
(147
|
)
|
|
|
273
|
|
Income tax provision (benefit)
|
|
|
(2
|
)
|
|
|
101
|
|
|
|
13
|
|
|
|
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
143
|
|
|
|
96
|
|
|
|
69
|
|
|
|
(147
|
)
|
|
|
161
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to our common shareholder
|
|
$
|
143
|
|
|
$
|
96
|
|
|
$
|
51
|
|
|
$
|
(147
|
)
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
NOVELIS
INC.
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
395
|
|
|
$
|
2,582
|
|
|
$
|
836
|
|
|
$
|
(710
|
)
|
|
$
|
3,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
387
|
|
|
|
2,377
|
|
|
|
777
|
|
|
|
(710
|
)
|
|
|
2,831
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
62
|
|
|
|
22
|
|
|
|
|
|
|
|
84
|
|
Depreciation and amortization
|
|
|
6
|
|
|
|
89
|
|
|
|
21
|
|
|
|
|
|
|
|
116
|
|
Research and development expenses
|
|
|
8
|
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
12
|
|
Interest expense and amortization of debt issuance costs
|
|
|
28
|
|
|
|
34
|
|
|
|
8
|
|
|
|
(25
|
)
|
|
|
45
|
|
Interest income
|
|
|
(21
|
)
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
25
|
|
|
|
(5
|
)
|
(Gain) loss on change in fair value of derivative instruments,
net
|
|
|
|
|
|
|
(61
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
(65
|
)
|
Restructuring charges, net
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
(31
|
)
|
|
|
2
|
|
|
|
|
|
|
|
31
|
|
|
|
2
|
|
Other (income) expenses, net
|
|
|
(7
|
)
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
370
|
|
|
|
2,515
|
|
|
|
836
|
|
|
|
(679
|
)
|
|
|
3,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
25
|
|
|
|
67
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
61
|
|
Income tax provision (benefit)
|
|
|
1
|
|
|
|
33
|
|
|
|
1
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
24
|
|
|
|
34
|
|
|
|
(1
|
)
|
|
|
(31
|
)
|
|
|
26
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to our common shareholder
|
|
$
|
24
|
|
|
$
|
34
|
|
|
$
|
(3
|
)
|
|
$
|
(31
|
)
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
NOVELIS
INC.
CONDENSED
CONSOLIDATING BALANCE SHEET
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7
|
|
|
$
|
142
|
|
|
$
|
88
|
|
|
$
|
|
|
|
$
|
237
|
|
Accounts receivable, net of allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
16
|
|
|
|
817
|
|
|
|
321
|
|
|
|
|
|
|
|
1,154
|
|
related parties
|
|
|
502
|
|
|
|
199
|
|
|
|
42
|
|
|
|
(724
|
)
|
|
|
19
|
|
Inventories
|
|
|
34
|
|
|
|
543
|
|
|
|
236
|
|
|
|
|
|
|
|
813
|
|
Prepaid expenses and other current assets
|
|
|
4
|
|
|
|
32
|
|
|
|
14
|
|
|
|
|
|
|
|
50
|
|
Fair value of derivative instruments
|
|
|
3
|
|
|
|
124
|
|
|
|
7
|
|
|
|
(23
|
)
|
|
|
111
|
|
Deferred income tax assets
|
|
|
|
|
|
|
109
|
|
|
|
16
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
566
|
|
|
|
1,966
|
|
|
|
724
|
|
|
|
(747
|
)
|
|
|
2,509
|
|
Property, plant and equipment, net
|
|
|
156
|
|
|
|
2,126
|
|
|
|
513
|
|
|
|
|
|
|
|
2,795
|
|
Goodwill
|
|
|
|
|
|
|
571
|
|
|
|
11
|
|
|
|
|
|
|
|
582
|
|
Intangible assets, net
|
|
|
|
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
|
781
|
|
Investments in and advances to non-consolidated affiliates
|
|
|
1,823
|
|
|
|
739
|
|
|
|
1
|
|
|
|
(1,823
|
)
|
|
|
740
|
|
Fair value of derivative instruments, net of current portion
|
|
|
3
|
|
|
|
32
|
|
|
|
26
|
|
|
|
(3
|
)
|
|
|
58
|
|
Deferred income tax assets
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Other long-term assets
|
|
|
1,014
|
|
|
|
211
|
|
|
|
92
|
|
|
|
(1,207
|
)
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,563
|
|
|
$
|
6,430
|
|
|
$
|
1,367
|
|
|
$
|
(3,780
|
)
|
|
$
|
7,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
39
|
|
|
$
|
|
|
|
$
|
45
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
227
|
|
|
|
10
|
|
|
|
|
|
|
|
237
|
|
related parties
|
|
|
17
|
|
|
|
356
|
|
|
|
23
|
|
|
|
(396
|
)
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
39
|
|
|
|
456
|
|
|
|
290
|
|
|
|
|
|
|
|
785
|
|
related parties
|
|
|
37
|
|
|
|
233
|
|
|
|
107
|
|
|
|
(325
|
)
|
|
|
52
|
|
Fair value of derivative instruments
|
|
|
9
|
|
|
|
277
|
|
|
|
75
|
|
|
|
(23
|
)
|
|
|
338
|
|
Accrued expenses and other current liabilities
|
|
|
58
|
|
|
|
366
|
|
|
|
85
|
|
|
|
(2
|
)
|
|
|
507
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
163
|
|
|
|
1,918
|
|
|
|
629
|
|
|
|
(746
|
)
|
|
|
1,964
|
|
Long-term debt, net of current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1,461
|
|
|
|
854
|
|
|
|
101
|
|
|
|
|
|
|
|
2,416
|
|
related parties
|
|
|
222
|
|
|
|
963
|
|
|
|
117
|
|
|
|
(1,208
|
)
|
|
|
94
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
476
|
|
|
|
19
|
|
|
|
|
|
|
|
495
|
|
Accrued postretirement benefits
|
|
|
29
|
|
|
|
361
|
|
|
|
127
|
|
|
|
|
|
|
|
517
|
|
Other long-term liabilities
|
|
|
63
|
|
|
|
291
|
|
|
|
5
|
|
|
|
(3
|
)
|
|
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,938
|
|
|
|
4,863
|
|
|
|
998
|
|
|
|
(1,957
|
)
|
|
|
5,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
3,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,497
|
|
Retained earnings/(accumulated deficit)/owners net
investment
|
|
|
(1,786
|
)
|
|
|
1,615
|
|
|
|
378
|
|
|
|
(1,994
|
)
|
|
|
(1,787
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(86
|
)
|
|
|
(48
|
)
|
|
|
(123
|
)
|
|
|
171
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity of our common shareholder
|
|
|
1,625
|
|
|
|
1,567
|
|
|
|
255
|
|
|
|
(1,823
|
)
|
|
|
1,624
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,625
|
|
|
|
1,567
|
|
|
|
369
|
|
|
|
(1,823
|
)
|
|
|
1,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
3,563
|
|
|
$
|
6,430
|
|
|
$
|
1,367
|
|
|
$
|
(3,780
|
)
|
|
$
|
7,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
NOVELIS
INC.
CONDENSED
CONSOLIDATING BALANCE SHEET
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3
|
|
|
$
|
175
|
|
|
$
|
70
|
|
|
$
|
|
|
|
$
|
248
|
|
Accounts receivable, net of allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
21
|
|
|
|
761
|
|
|
|
267
|
|
|
|
|
|
|
|
1,049
|
|
related parties
|
|
|
411
|
|
|
|
183
|
|
|
|
32
|
|
|
|
(601
|
)
|
|
|
25
|
|
Inventories
|
|
|
31
|
|
|
|
523
|
|
|
|
239
|
|
|
|
|
|
|
|
793
|
|
Prepaid expenses and other current assets
|
|
|
4
|
|
|
|
31
|
|
|
|
16
|
|
|
|
|
|
|
|
51
|
|
Fair value of derivative instruments
|
|
|
|
|
|
|
145
|
|
|
|
7
|
|
|
|
(33
|
)
|
|
|
119
|
|
Deferred income tax assets
|
|
|
|
|
|
|
192
|
|
|
|
24
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
470
|
|
|
|
2,010
|
|
|
|
655
|
|
|
|
(634
|
)
|
|
|
2,501
|
|
Property, plant and equipment, net
|
|
|
162
|
|
|
|
2,146
|
|
|
|
491
|
|
|
|
|
|
|
|
2,799
|
|
Goodwill
|
|
|
|
|
|
|
570
|
|
|
|
12
|
|
|
|
|
|
|
|
582
|
|
Intangible assets, net
|
|
|
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
|
787
|
|
Investments in and advances to non-consolidated affiliates
|
|
|
1,647
|
|
|
|
719
|
|
|
|
|
|
|
|
(1,647
|
)
|
|
|
719
|
|
Fair value of derivative instruments, net of current portion
|
|
|
|
|
|
|
46
|
|
|
|
28
|
|
|
|
(2
|
)
|
|
|
72
|
|
Deferred income tax assets
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Other long-term assets
|
|
|
1,028
|
|
|
|
207
|
|
|
|
96
|
|
|
|
(1,228
|
)
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,308
|
|
|
$
|
6,488
|
|
|
$
|
1,282
|
|
|
$
|
(3,511
|
)
|
|
$
|
7,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
44
|
|
|
$
|
|
|
|
$
|
51
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
231
|
|
|
|
33
|
|
|
|
|
|
|
|
264
|
|
related parties
|
|
|
7
|
|
|
|
330
|
|
|
|
22
|
|
|
|
(359
|
)
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
33
|
|
|
|
458
|
|
|
|
234
|
|
|
|
|
|
|
|
725
|
|
related parties
|
|
|
41
|
|
|
|
157
|
|
|
|
90
|
|
|
|
(240
|
)
|
|
|
48
|
|
Fair value of derivative instruments
|
|
|
7
|
|
|
|
540
|
|
|
|
126
|
|
|
|
(33
|
)
|
|
|
640
|
|
Accrued expenses and other current liabilities
|
|
|
34
|
|
|
|
395
|
|
|
|
90
|
|
|
|
(3
|
)
|
|
|
516
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
125
|
|
|
|
2,115
|
|
|
|
639
|
|
|
|
(635
|
)
|
|
|
2,244
|
|
Long-term debt, net of current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1,464
|
|
|
|
852
|
|
|
|
101
|
|
|
|
|
|
|
|
2,417
|
|
related parties
|
|
|
223
|
|
|
|
976
|
|
|
|
120
|
|
|
|
(1,228
|
)
|
|
|
91
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
459
|
|
|
|
10
|
|
|
|
|
|
|
|
469
|
|
Accrued postretirement benefits
|
|
|
27
|
|
|
|
346
|
|
|
|
122
|
|
|
|
|
|
|
|
495
|
|
Other long-term liabilities
|
|
|
50
|
|
|
|
288
|
|
|
|
5
|
|
|
|
(1
|
)
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,889
|
|
|
|
5,036
|
|
|
|
997
|
|
|
|
(1,864
|
)
|
|
|
6,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
3,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,497
|
|
Retained earnings/(accumulated deficit)/owners net
investment
|
|
|
(1,930
|
)
|
|
|
1,533
|
|
|
|
325
|
|
|
|
(1,858
|
)
|
|
|
(1,930
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(148
|
)
|
|
|
(81
|
)
|
|
|
(130
|
)
|
|
|
211
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity of our common shareholder
|
|
|
1,419
|
|
|
|
1,452
|
|
|
|
195
|
|
|
|
(1,647
|
)
|
|
|
1,419
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,419
|
|
|
|
1,452
|
|
|
|
285
|
|
|
|
(1,647
|
)
|
|
|
1,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
3,308
|
|
|
$
|
6,488
|
|
|
$
|
1,282
|
|
|
$
|
(3,511
|
)
|
|
$
|
7,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
NOVELIS
INC.
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
3
|
|
|
$
|
131
|
|
|
$
|
151
|
|
|
$
|
(27
|
)
|
|
$
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1
|
)
|
|
|
(18
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
(24
|
)
|
Proceeds from sales of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Proceeds from loans receivable, net related parties
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Net proceeds from settlement of derivative instruments
|
|
|
(1
|
)
|
|
|
(179
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(2
|
)
|
|
|
(188
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt related party
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Principal payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
(12
|
)
|
related parties
|
|
|
(9
|
)
|
|
|
5
|
|
|
|
(59
|
)
|
|
|
63
|
|
|
|
|
|
Short-term borrowings, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
(8
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
(33
|
)
|
related parties
|
|
|
10
|
|
|
|
26
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
Dividends noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
3
|
|
|
|
20
|
|
|
|
(93
|
)
|
|
|
27
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
4
|
|
|
|
(37
|
)
|
|
|
13
|
|
|
|
|
|
|
|
(20
|
)
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
|
|
|
|
4
|
|
|
|
5
|
|
|
|
|
|
|
|
9
|
|
Cash and cash equivalents beginning of period
|
|
|
3
|
|
|
|
175
|
|
|
|
70
|
|
|
|
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
7
|
|
|
$
|
142
|
|
|
$
|
88
|
|
|
$
|
|
|
|
$
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
NOVELIS
INC.
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
4
|
|
|
$
|
(313
|
)
|
|
$
|
(7
|
)
|
|
$
|
(35
|
)
|
|
$
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1
|
)
|
|
|
(25
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
(33
|
)
|
Proceeds from sales of property, plant and equipment
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Proceeds from loans receivable net
related parties
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Net proceeds from settlement of derivative instruments
|
|
|
|
|
|
|
21
|
|
|
|
13
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(1
|
)
|
|
|
11
|
|
|
|
6
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(4
|
)
|
related parties
|
|
|
|
|
|
|
5
|
|
|
|
(30
|
)
|
|
|
25
|
|
|
|
|
|
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
288
|
|
|
|
25
|
|
|
|
|
|
|
|
313
|
|
related parties
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(1
|
)
|
|
|
286
|
|
|
|
(11
|
)
|
|
|
35
|
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2
|
|
|
|
(16
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
(26
|
)
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Cash and cash equivalents beginning of period
|
|
|
12
|
|
|
|
177
|
|
|
|
137
|
|
|
|
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
14
|
|
|
$
|
161
|
|
|
$
|
121
|
|
|
$
|
|
|
|
$
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
FORWARD
LOOKING STATEMENTS
The following information should be read together with our
unaudited condensed consolidated financial statements and
accompanying notes included elsewhere in this quarterly report
for a more complete understanding of our financial condition and
results of operations. The following discussion contains
forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results could differ materially from those
discussed in these forward-looking statements. Factors that
could cause or contribute to these differences include, but are
not limited to, those discussed below, particularly in
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND
MARKET DATA.
OVERVIEW
AND REFERENCES
Novelis is the worlds leading aluminum rolled products
producer based on shipment volume. We produce aluminum sheet and
light gauge products for the beverage and food can,
transportation, construction and industrial, and foil products
markets. As of June 30, 2009, we had operations on four
continents: North America; South America; Asia and Europe,
through 31 operating plants, one research facility and several
market-focused
innovation centers in 11 countries. In addition to aluminum
rolled products plants, our South American businesses include
bauxite mining, primary aluminum smelting and power generation
facilities that supply our rolling plants in Brazil. We are the
only company of our size and scope focused solely on aluminum
rolled products markets and capable of local supply of
technologically sophisticated products in all of these
geographic regions.
References herein to Novelis, the
Company, we, our, or
us refer to Novelis Inc. and its subsidiaries unless
the context specifically indicates otherwise. References herein
to Hindalco refer to Hindalco Industries Limited. In
October 2007, the Rio Tinto Group purchased all the outstanding
shares of Alcan, Inc. References herein to Rio Tinto
Alcan refer to Rio Tinto Alcan Inc.
All tonnages are stated in metric tonnes. One metric tonne is
equivalent to 2,204.6 pounds. One kilotonne (kt) is 1,000 metric
tonnes. One MMBTU is the equivalent of one decatherm, or one
million British Thermal Units.
References to our
Form 10-K
made throughout this document refer to our Annual Report on
Form 10-K
for the year ended March 31, 2009, filed with the United
States Securities and Exchange Commission (SEC) on June 29,
2009.
On May 15, 2007, the Company was acquired by Hindalco
through its indirect wholly-owned subsidiary pursuant to a plan
of arrangement (the Arrangement) at a price of $44.93 per share.
The aggregate purchase price for all of the Companys
common shares was $3.4 billion and Hindalco also assumed
$2.8 billion of Novelis debt for a total transaction
value of $6.2 billion. Subsequent to completion of the
Arrangement on May 15, 2007, all of our common shares were
indirectly held by Hindalco.
HIGHLIGHTS
Significant factors that impacted our business for each of the
three months ended June 30, 2009 and 2008 are presented
briefly below. Each is discussed in further detail throughout
the Managements Discussion and Analysis and Segment Review.
|
|
|
|
|
We reported pre-tax income of $273 million for the first
quarter of fiscal 2010, as compared to pre-tax income of
$61 million for the first quarter of fiscal 2009. Results
include $299 million of unrealized gains on derivatives as
compared to $20 million in the prior year first quarter.
The $299 million of unrealized gains includes a
$224 million reversal of previously recognized losses upon
settlement of derivatives and $75 million of unrealized
gains relating to mark to market adjustments on metal and
currency derivatives.
|
|
|
|
Shipments of flat rolled products decreased 16% in the current
quarter to 650 kt from 777 kt in the prior year quarter.
Shipments in North America and Asia increased in the first
quarter as compared to the fourth quarter of fiscal 2009, with
signs of economic recovery evident in Asia where shipments were
up more than 50%.
|
35
|
|
|
|
|
Shipments to construction, automotive and industrial companies
continued to be impacted by the global economic downturn in the
first quarter of fiscal 2010, while can sheet shipments remain
stable in most regions.
|
|
|
|
|
|
We continue to effectively manage inventory levels. Metal
inventories as of June 30, 2009 totaled 307 kt.
|
BUSINESS
AND INDUSTRY CLIMATE
Global economic trends impact the Company, and there is a large
amount of uncertainty with regard to economic trends and the
timing of recovery from the current economic recession. On an
overall basis, markets in North America, Europe and Asia
experienced significant economic downturns in the past year. We
have begun to see signs of recovery in Asia and North America,
with shipments in the first quarter of fiscal 2010 exceeding
shipments in the fourth quarter of fiscal 2009. However,
shipments in all regions remain below prior year levels. The
impact of reduced demand for flat rolled products varies for
each region based upon the nature of the industry sectors in
which we operate. In general, can shipments have remained
relatively stable while construction, automotive and other
industrial production markets experienced significant declines
in demand.
Business
Model and Key Concepts
Most of our business is conducted under a conversion model,
which allows us to pass through increases or decreases in the
price of aluminum to our customers. Nearly all of our products
have a price structure with two components: (i) a
pass-through aluminum price based on the London Metal Exchange
(LME) plus local market premiums and (ii) a
conversion premium price on the conversion cost to
produce the rolled product which reflects, among other factors,
the competitive market conditions for that product.
A key component of our conversion model is the use of derivative
instruments on projected aluminum requirements to preserve our
conversion margin. We enter into forward metal purchases
simultaneous with the sales contracts that contain fixed metal
prices. These forward metal purchases directly hedge the
economic risk of future metal price fluctuation associated with
these contracts. We also enter into forward metal purchases,
aluminum futures and options to hedge our exposure to rising
metal prices and sales contracts with metal price ceilings.
Additionally, we sell short-term LME futures contracts to reduce
the cash flow volatility of fluctuating metal prices associated
with the metal price lag.
The average and closing prices based upon the LME for aluminum
for the quarters ended June 30, 2009 and 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Aluminum (per metric tonne, and presented in U.S. dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing cash price as of March 31, 2009 and 2008
|
|
$
|
1,365
|
|
|
$
|
2,935
|
|
|
|
(53
|
)%
|
Average cash price during period
|
|
$
|
1,488
|
|
|
$
|
2,940
|
|
|
|
(49
|
)%
|
Closing cash price as of June 30, 2009 and 2008
|
|
$
|
1,616
|
|
|
$
|
3,075
|
|
|
|
(47
|
)%
|
LME prices for aluminum (LME prices) have significantly declined
since the high point in July 2008. Prices closed at $1,616 per
tonne on June 30, 2009, after hitting a low of $1,254 per
tonne in February 2009. Rapidly declining LME prices had the
following impacts on our business:
|
|
|
|
|
Our products have a price structure based upon the LME price.
Increases or decreases in the LME price have a direct impact on
net sales, cost of goods sold and working capital.
|
|
|
|
We pay cash to brokers to settle derivative contracts in advance
of billing and collecting cash from our customers, which
negatively impacts our liquidity position. The lag between
derivative settlement and customer collection typically ranges
from 30 to 60 days, which temporarily reduces our liquidity
in periods following declines in LME. During the first quarter
of fiscal 2010, we had net outflows of $223 million for
payments related to the settlement of derivatives.
|
36
LME prices have increased 18% from the March 31, 2009
closing price of $1,365 per tonne to $1,616 per tonne at
June 30, 3009 which resulted in $47 million of gains
on change in fair value of derivatives during the first quarter
of fiscal 2010.
Metal
Price Ceilings
We have one remaining sales contract which contains a ceiling
over which metal prices cannot be contractually passed through
to a certain customer. This negatively impacts our margins and
operating cash flows when the price we pay for metal is above
the ceiling price contained in this contract. We calculate and
report this difference to be approximately the difference
between the quoted purchase price on the LME (adjusted for any
local premiums and for any price lag associated with purchasing
or processing time) and the metal price ceiling in our
contracts. Cash flows from operations are negatively impacted by
the same amounts, adjusted for any timing difference between
customer receipts and vendor payments, and offset partially by
reduced income taxes.
For the three months ended June 30, 2009, we did not incur
any sales subject to the ceiling. For the three months ended
June 30, 2008, we were unable to pass through approximately
$78 million of metal purchase costs associated with sales
under this contract. Based upon current LME price levels, no
further unfavorable revenue impact is expected through
December 31, 2009 when this contract expires.
To manage and mitigate the risks associated with metal price
ceilings and rising prices that we could not pass through to
certain customers:
|
|
|
|
|
We maximize the amount of our internally supplied metal inputs
from our smelting, refining and mining operations in Brazil and
rely on output from our recycling operations which utilize used
beverage cans (UBCs). Both of these sources of aluminum supply
have historically provided an offsetting benefit to the metal
price ceiling contracts. We refer to these two sources as
internal hedges.
|
|
|
|
We entered into derivative instruments to hedge projected
aluminum volume requirements above our assumed internal hedge
position, mitigating our exposure to further increases in LME
prices. As a result of these instruments, we will continue to
incur cash losses related to these contracts even if LME prices
remain below the ceiling price. As of June 30, 2009 the
fair value of the liability associated with these derivative
instruments was $67 million.
|
In connection with the allocation of the purchase price paid by
Hindalco, we established reserves totaling $655 million as
of May 15, 2007 to record these sales contracts at fair
value. These reserves are being accreted into net sales over the
remaining lives of the underlying contracts. This accretion has
no impact on cash flow. For the quarters ended June 30,
2009 and 2008, we recorded accretion of $55 million and
$64 million, respectively. As of June 30, 2009, the
balance of these reserves is approximately $97 million
which will be amortized into net sales during the second and
third quarters of fiscal 2010.
Metal
Price Lag
On certain sales contracts we experience timing differences on
the pass through of changing aluminum prices from our suppliers
to our customers. Additional timing differences occur in the
flow of metal costs through moving average inventory cost values
and cost of goods sold. In periods of declining prices, our
earnings are negatively impacted by this timing difference while
the opposite is true in periods of rising prices. We refer to
this timing difference as metal price lag. We sell
short-term LME forward contracts to help mitigate our exposure
to metal price lag.
Certain of our sales contracts, most notably in Europe, contain
fixed metal prices for periods of time ranging from four to
thirty-six months. We typically enter into forward metal
purchases simultaneous with these sales contracts.
37
Foreign
Exchange Impact
Fluctuations in foreign exchange rates also impact our operating
results. The following tables present the exchange rates as of
the beginning and end of each period as well as the average
exchange rates for the three months ended June 30, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate as of
|
|
|
Average Exchange Rate
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
Three Months Ended
|
|
|
|
2009
|
|
|
2009
|
|
|
June 30, 2009
|
|
|
U.S. dollar per Euro
|
|
|
1.403
|
|
|
|
1.328
|
|
|
|
1.379
|
|
Brazilian real per U.S. dollar
|
|
|
1.960
|
|
|
|
2.301
|
|
|
|
2.036
|
|
South Korean won per U.S. dollar
|
|
|
1,285
|
|
|
|
1,377
|
|
|
|
1,302
|
|
Canadian dollar per U.S. dollar
|
|
|
1.161
|
|
|
|
1.258
|
|
|
|
1.149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Rate as of
|
|
|
Average Exchange Rate
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
Three Months Ended,
|
|
|
|
2008
|
|
|
2008
|
|
|
June 30, 2008
|
|
|
U.S. dollar per Euro
|
|
|
1.575
|
|
|
|
1.581
|
|
|
|
1.563
|
|
Brazilian real per U.S. dollar
|
|
|
1.594
|
|
|
|
1.744
|
|
|
|
1.638
|
|
South Korean won per U.S. dollar
|
|
|
1,043
|
|
|
|
992
|
|
|
|
1,027
|
|
Canadian dollar per U.S. dollar
|
|
|
1.019
|
|
|
|
1.028
|
|
|
|
1.007
|
|
The U.S. dollar weakened as compared to the local currency
in all regions during the quarter ended June 30, 2009. In
Europe and Asia, the weakening of the U.S. dollar resulted
in foreign exchange gains as these operations are recorded in
local currency. In Brazil, where the U.S. dollar is the
functional currency due to predominantly U.S. dollar
selling prices and local currency operating costs, we incurred
foreign exchange losses as the U.S. dollar weakened. See
Segment Review for the additional discussion of the impact of
foreign exchange on the results of each region.
RESULTS
OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2009 COMPARED TO
THE QUARTER ENDED JUNE 30, 2008
For the quarter ended June 30, 2009, we reported net income
attributable to our common shareholder of $143 million on
net sales of $2.0 billion, compared to the quarter ended
June 30, 2008 when we reported net income attributable to
our common shareholder of $24 million on net sales of
$3.1 billion. The reduction in sales is due to 49% lower
average LME prices as well as lower demand for flat rolled
products primarily in Europe and North America.
Costs of goods sold decreased $1.3 billion, or 46%, which
reflects the decrease in metal costs along with the benefit of
our previously announced restructuring actions, shown in part
through reductions in conversion costs for each region. Selling,
general and administrative expenses decreased $6 million,
or 7%, primarily due to reductions in selling costs and
professional fees.
The first quarter of fiscal 2010 was impacted by
$299 million in unrealized gains on derivative instruments,
as compared to $20 million in the first quarter of fiscal
2009. We also recorded an income tax provision of
$112 million in the first quarter of fiscal 2010, as
compared to a $35 million income tax provision in the prior
year. These items are discussed in further detail below.
Segment
Review
Due in part to the regional nature of supply and demand of
aluminum rolled products and in order to best serve our
customers, we manage our activities on the basis of geographical
areas and are organized under four operating segments: North
America, Europe, Asia and South America. Corporate and Other
includes functions that are managed directly from our corporate
office, which focuses on strategy development and oversees
governance, policy, legal compliance, human resources and
finance matters. These expenses have not been allocated to the
regions. It also includes consolidating and other elimination
accounts.
38
We measure the profitability and financial performance of our
operating segments, based on Segment income, in accordance with
FASB Statement No. 131, Disclosure About the Segments of
an Enterprise and Related Information. Segment income
provides a measure of our underlying segment results that is in
line with our portfolio approach to risk management. We define
Segment income as earnings before (a) depreciation and
amortization; (b) interest expense and amortization of debt
issuance costs; (c) interest income; (d) unrealized
gains (losses) on change in fair value of derivative
instruments, net; (e) impairment of goodwill;
(f) impairment charges on long-lived assets (other than
goodwill); (g) gain on extinguishment of debt;
(h) noncontrolling interests share;
(i) adjustments to reconcile our proportional share of
Segment income from non-consolidated affiliates to income as
determined on the equity method of accounting;
(k) restructuring charges, net; (k) gains or losses on
disposals of property, plant and equipment and businesses, net;
(l) other costs, net; (m) litigation settlement, net
of insurance recoveries; (n) sale transaction fees;
(o) provision or benefit for taxes on income (loss) and
(p) cumulative effect of accounting change, net of tax.
Additionally, management changed how Segment income is defined
beginning with the quarter ended June 30, 2009. Total
Segment income now includes corporate selling, general and
administrative costs, realized gains (losses) on corporate
derivatives and certain other costs. The prior period has been
recast herein to reflect this change in definition.
The tables below show selected segment financial information (in
millions, except shipments which are in kt). For additional
financial information related to our operating segments, see
Note 15 Segment, Major Customer and Major
Supplier Information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2009
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Eliminations
|
|
|
Total
|
|
|
Net sales
|
|
$
|
767
|
|
|
$
|
665
|
|
|
$
|
326
|
|
|
$
|
204
|
|
|
$
|
(2
|
)
|
|
$
|
1,960
|
|
Shipments (kt)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products
|
|
|
254
|
|
|
|
185
|
|
|
|
130
|
|
|
|
81
|
|
|
|
|
|
|
|
650
|
|
Ingot products
|
|
|
7
|
|
|
|
27
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
261
|
|
|
|
212
|
|
|
|
130
|
|
|
|
88
|
|
|
|
|
|
|
|
691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Eliminations
|
|
|
Total
|
|
|
Net sales
|
|
$
|
1,083
|
|
|
$
|
1,218
|
|
|
$
|
510
|
|
|
$
|
295
|
|
|
$
|
(3
|
)
|
|
$
|
3,103
|
|
Shipments (kt)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products
|
|
|
286
|
|
|
|
271
|
|
|
|
133
|
|
|
|
87
|
|
|
|
|
|
|
|
777
|
|
Ingot products
|
|
|
8
|
|
|
|
28
|
|
|
|
7
|
|
|
|
5
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
294
|
|
|
|
299
|
|
|
|
140
|
|
|
|
92
|
|
|
|
|
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles changes in Segment income for the
quarter ended June 30, 2008 to the quarter ended
June 30, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Corporate
|
|
|
|
|
Changes in Segment Income
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
and Other
|
|
|
Total
|
|
|
Segment income three months ended June 30, 2008
|
|
$
|
42
|
|
|
$
|
111
|
|
|
$
|
31
|
|
|
$
|
47
|
|
|
$
|
(13
|
)
|
|
$
|
218
|
|
Volume:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products
|
|
|
(24
|
)
|
|
|
(81
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(110
|
)
|
Other
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
1
|
|
Conversion premium and product mix
|
|
|
9
|
|
|
|
46
|
|
|
|
14
|
|
|
|
6
|
|
|
|
|
|
|
|
75
|
|
Conversion costs(A)
|
|
|
21
|
|
|
|
5
|
|
|
|
11
|
|
|
|
3
|
|
|
|
|
|
|
|
40
|
|
Metal price lag
|
|
|
10
|
|
|
|
(44
|
)
|
|
|
(24
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
(68
|
)
|
Foreign exchange
|
|
|
2
|
|
|
|
9
|
|
|
|
9
|
|
|
|
(4
|
)
|
|
|
2
|
|
|
|
18
|
|
Other changes(B)
|
|
|
(3
|
)
|
|
|
(12
|
)
|
|
|
(1
|
)
|
|
|
(30
|
)
|
|
|
(4
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income three months ended June 30, 2009
|
|
$
|
57
|
|
|
$
|
33
|
|
|
$
|
38
|
|
|
$
|
11
|
|
|
$
|
(15
|
)
|
|
$
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
(A) |
|
Conversion costs include expenses incurred in production such as
direct and indirect labor, energy, freight, scrap usage, alloys
and hardeners, coatings, alumina and melt loss. Fluctuations in
this component reflect cost efficiencies during the period as
well as cost inflation (deflation). |
|
(B) |
|
Other changes include selling, general &
administrative costs and research and development for all
segments and certain other items which impact one or more
regions, including such items as the impact of purchase
accounting and metal price ceiling contracts. Significant
fluctuations in these items are discussed below. |
North
America
As of June 30, 2009, North America manufactured aluminum
sheet and light gauge products through 11 plants, including two
dedicated recycling facilities. Important end-use applications
include beverage cans, containers and packaging, automotive and
other transportation applications, building products and other
industrial applications.
North America experienced a reduction in demand in the second
half of fiscal 2009 as all industry sectors were impacted by the
economic downturn. While shipments in the first quarter of
fiscal 2010 were higher than the fourth quarter of fiscal 2009,
they have not yet returned to historical levels, with shipments
down 11% as compared to the first quarter of fiscal 2009. Net
sales for the first quarter of fiscal 2010 were down
$316 million, or 29%, as compared to the first quarter of
fiscal 2009 due to a lower average LME price as well as the
demand decreases. The can business remains relatively stable,
but shipments of most other products are below the prior year
level.
Segment income for the first quarter of fiscal 2010 period was
$57 million, up $15 million as compared to the prior
year period. Reductions in conversion costs, and improved
conversion premiums and net favorable metal price lag all had a
positive impact on segment income, more than offsetting volume
reductions. Conversion cost improvements primarily relate to
reduction in energy, melt loss, labor costs and repairs and
maintenance as compared to the prior year period. Other changes
include a $9 million reduction to the net favorable impact
of acquisition related fair value adjustments, partially offset
by a $5 million reduction in selling, general and
administrative expenses.
Europe
As of June 30, 2009, our European segment provided European
markets with value-added sheet and light gauge products through
12 aluminum rolled products facilities and one dedicated
recycling facility. Europe serves a broad range of aluminum
rolled product end-use markets in various applications including
can, automotive, lithographic, foil products and painted
products.
Europe has also experienced a significant reduction in demand in
all industry sectors with flat rolled shipments and net sales
down 32% and 45%, respectively, compared to the prior year. The
volume reduction had a $63 million unfavorable impact on
net sales, with the remaining decrease reflecting the impact of
lower LME prices. Flat rolled products in Europe are essentially
flat from the fourth quarter of fiscal 2009, but at continued
low levels.
Segment income for the first quarter of fiscal 2010 was
$33 million, down from $111 million in the comparative
period of the prior year. Volume and metal price lag unfavorably
impacted segment income but these impacts were partially offset
by favorable conversion premiums, conversion costs and foreign
exchange remeasurement. The favorable impact of conversion costs
relates to decreases in labor and energy costs, as well as a
reduction in repair and maintenance expense and freight as
compared to the prior year period. Other changes reflect an
unfavorable impact of $12 million from fixed forward priced
contracts.
In the fourth quarter of fiscal 2009, we announced a number of
restructuring actions across Europe, including the closure of
our plant in Rogerstone, United Kingdom, which closed in April
2009.
40
Asia
As of June 30, 2009, Asia operated three manufacturing
facilities with production balanced between foil, construction
and industrial, and beverage and food can end-use applications.
We have begun to see a recovery in demand in Asia, driven mostly
from China and Korea, with flat rolled shipments only down 2% as
compared to the prior year period. Shipments for the first
quarter of fiscal 2010 are up 51% as compared to the fourth
quarter of fiscal 2009. We expect customer demand to continue at
these levels for the next few months. Net sales decreased
$184 million, or 36%, reflecting the impact of lower LME
prices.
Segment income increased from $31 million for the first
quarter of fiscal 2009 to $38 million for the first quarter
of fiscal 2010 due to improvements in conversion premiums,
conversion costs and foreign exchange remeasurement, partially
offset by volume reductions and metal price lag.
South
America
Our operations in South America manufacture various aluminum
rolled products for the beverage and food can, construction and
industrial and transportation end-use markets. Our South
American operations included two rolling plants in Brazil along
with two smelters, bauxite mines and power generation facilities
as of June 30, 2009. In light of the current alumina and
aluminum pricing environment, we are evaluating our primary
aluminum business. We ceased the production of commercial grade
alumina at our Ouro Preto facility effective May 2009 as the
sustained decline in alumina prices has made alumina production
economically unfeasible. For the foreseeable future, the plant
will purchase alumina through third parties.
Total shipments decreased 4% over the prior year period, with
rolled products shipments down 7%, while net sales decreased 31%
as compared to the prior year due to lower LME prices, partially
offset by higher conversion premiums. While flat rolled
shipments in South America for the first quarter of fiscal 2010
were down approximately 6% as compared to the fourth quarter of
fiscal 2009, can production has been stable with shipments
constant year over year. Can shipments represent more than 85%
of our flat rolled shipments in South America.
Segment income for South America decreased $36 million as
compared to the prior year period due to the unfavorable impacts
of metal price lag and foreign exchange remeasurement. Other
changes reflect a $29 million decrease in the smelter
benefit compared to the prior year period. The benefits from our
smelter operations in South America decline as average LME
prices decrease.
Corporate
and Other
Corporate and other costs include corporate selling, general and
administrative expenses, foreign exchange impacting our
corporate functions, realized gains and losses on corporate
derivative instruments and research and development costs. Our
corporate support functions reported a segment loss of
$15 million for the first quarter of fiscal 2010 as
compared to a segment loss of $13 million for the first
quarter of fiscal 2009. This was due to a $3 million
increase in selling, general and administrative costs, partially
offset by $2 million improvement in foreign exchange.
41
Reconciliation
of Segment Income to Net Income
Costs such as depreciation and amortization, interest expense
and unrealized gains (losses) on changes in the fair value of
derivatives are not utilized by our chief operating decision
maker in evaluating segment performance. The table below
reconciles total Segment income to Net income attributable to
our common shareholder for the quarter ended June 30, 2009
and 2008 (in millions).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Total Segment income
|
|
$
|
124
|
|
|
$
|
218
|
|
Depreciation and amortization
|
|
|
(100
|
)
|
|
|
(116
|
)
|
Interest expense and amortization of debt issuance costs
|
|
|
(43
|
)
|
|
|
(45
|
)
|
Interest income
|
|
|
3
|
|
|
|
5
|
|
Unrealized gains on change in fair value of derivative
instruments, net
|
|
|
299
|
|
|
|
20
|
|
Impairment charges on long-lived assets
|
|
|
|
|
|
|
(1
|
)
|
Adjustment to eliminate proportional consolidation(A)
|
|
|
(16
|
)
|
|
|
(18
|
)
|
Restructuring recoveries (charges), net
|
|
|
(3
|
)
|
|
|
1
|
|
Other costs, net
|
|
|
9
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
273
|
|
|
|
61
|
|
Income tax provision
|
|
|
112
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
161
|
|
|
|
26
|
|
Net income attributable to noncontrolling interests
|
|
|
18
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to our common shareholder
|
|
$
|
143
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Our financial information for our segments (including Segment
income) includes the results of our non-consolidated affiliates
on a proportionately consolidated basis, which is consistent
with the way we manage our business segments. However, under
GAAP, these non-consolidated affiliates are accounted for using
the equity method of accounting. Therefore, in order to
reconcile total Segment income to Net income attributable to our
common shareholder, the proportional Segment income of these
non-consolidated affiliates is removed from total Segment
income, net of our share of their net after-tax results, which
is reported as Equity in net loss of non-consolidated affiliates
on our condensed consolidated statements of operations. See
Note 5 Investment in and Advances to
Non-Consolidated Affiliates and Related Party Transactions for
further information about these non-consolidated affiliates. |
Depreciation and amortization decreased $16 million from
the prior year period due to the reductions in depreciation on
fixed assets, primarily in Europe. Certain fair value
adjustments recorded in connection with the Arrangement were
fully amortized in the first quarter of fiscal 2010.
Interest expense and amortization of debt issuance costs
decreased primarily due to lower average interest rates on our
variable rate debt. Approximately 21% of our debt was variable
rate as of June 30, 2009.
Unrealized gains on the change in fair value of derivative
instruments represent the mark to market accounting for changes
in the fair value of our derivatives that do not receive hedge
accounting treatment. In the quarter ended June 30, 2009,
the $299 million of unrealized gains for the first quarter
of fiscal 2010 consists of (1) $224 million reversal
of previously recognized losses upon settlement of these
derivatives and (2) $75 million of unrealized gains
relating to mark to market adjustments.
The $20 million of unrealized gains for the first quarter
of fiscal 2009 consists of (1) $24 million reversal of
previously recognized gains upon settlement of these derivatives
and (2) $44 million of unrealized gains relating to
mark to market adjustments including $20 million of
unrealized gains related to the change in the average price of
aluminum.
42
Adjustment to eliminate proportional consolidation of
$16 million for the first quarter for fiscal 2010 was flat
as compared to $18 million in the first quarter of fiscal
2009. This adjustment primarily relates to depreciation and
amortization and income taxes at our Aluminium Norf GmbH joint
venture. Income taxes related to our equity method investments
are reflected in the carrying value of the investment and not in
our consolidated income tax provision.
Restructuring charges in the first quarter of fiscal 2009 relate
to additional expenses associated with previously announced
restructuring actions in Europe. See Note 2
Restructuring Programs.
We have experienced significant fluctuations in income tax
expense and the corresponding effective tax rate. The primary
factors contributing to the effective tax rate differing from
the statutory Canadian rate include:
|
|
|
|
|
Our functional currency in Canada and Brazil is the
U.S. dollar and the company holds significant
U.S. dollar denominated debt in these locations. As the
value of the local currencies strengthens and weakens against
the U.S. dollar, unrealized gains or losses are created in
those locations for tax purposes, while the underlying gains or
losses are not recorded in our income statement.
|
During the year ended March 31, 2009, Canadian legislation
was enacted allowing us to elect to determine our Canadian
taxable income in U.S. dollars. Our election was effective
April 1, 2008, and such U.S. dollar taxable gains and
losses no longer exist in Canada as of that date.
|
|
|
|
|
We have significant net deferred tax liabilities in Brazil that
are remeasured to account for currency fluctuations as the taxes
are payable in local currency.
|
|
|
|
Our income is taxed at various statutory tax rates in varying
jurisdictions. Applying the corresponding amounts of income and
loss to the various tax rates results in differences when
compared to our Canadian statutory tax rate.
|
For the three months ended June 30, 2009, we recorded a
$112 million income tax provision on our pre-tax income of
$283 million, before our equity in net loss of
non-consolidated affiliates and noncontrolling interests, which
represented an effective tax rate of 40%. Our effective tax rate
differs from the Canadian statutory rate primarily due to the
following factors: (1) $12 million expense for
(a) pre-tax foreign currency gains or losses with no tax
effect and (b) the tax effect of U.S. dollar
denominated currency gains or losses with no pre-tax effect,
(2) a $23 million expense for exchange remeasurement
of deferred income taxes and (3) an $11 million
benefit from differences between the Canadian statutory and
foreign effective tax rates applied to entities in different
jurisdictions.
For the three months ended June 30, 2008, we recorded a
$35 million income tax provision on our pre-tax income of
$63 million, before our equity in net loss of
non-consolidated affiliates and noncontrolling interests, which
represented an effective tax rate of 56%. Our effective tax rate
differs from the Canadian statutory rate primarily due to the
following factors: (1) $9 million expense for
(a) pre-tax foreign currency gains or losses with no tax
effect and (b) the tax effect of U.S. dollar
denominated currency gains or losses with no pre-tax effect,
(2) $20 million expense for exchange remeasurement of
deferred income taxes and (3) a $14 million benefit
for differences between the Canadian statutory and foreign
effective tax rates applied to entities in different
jurisdictions.
LIQUIDITY
AND CAPITAL RESOURCES
We believe we have adequate liquidity to meet our operational
and capital requirements for the foreseeable future. Our primary
sources of liquidity are cash and cash equivalents, borrowing
availability under our revolving credit facility and cash
generated by operating activities. During the first three months
of fiscal 2010, our liquidity position increased
$56 million despite continued low levels of demand and net
cash outflows to settle derivative positions. This reflects our
continued efforts to preserve liquidity through cost and capital
spending controls and effective management of working capital.
Risks associated with supplier terms, customer credit and broker
hedging capacity, while still present to some degree, have been
managed successfully to date with minimal negative impact on our
business. We expect our liquidity position to continue to
improve during fiscal 2010 primarily due to reduced cash
outflows for metal derivatives and cash savings from
restructuring programs.
43
Significant declines in the price of aluminium in the second
half of fiscal 2009 had a negative impact on our liquidity
position and increased the effect of timing issues related to
the settlement of aluminium forward contracts versus cash
collections from our customers. We enter into derivative
instruments to hedge forecasted purchases and sales of
aluminium. Based on the aluminium price forward curve as of
June 30, 2009, we forecast approximately $114 million
of cash outflow related to the settlement of metal derivative
instruments through the remainder of fiscal 2010. Except for
approximately $75 million of cash outflows related to
hedges of our exposure to metal price ceilings, we expect all of
these outflows will be recovered through collection of customer
accounts receivable, typically on a 30 to 60 day lag.
We have an existing beverage can sheet umbrella agreement with
certain North American bottlers (BCS agreement). Pursuant to the
BCS agreement, an agent for the bottlers directs the can
fabricators to source a percentage of their requirements for
beverage can body, end and tab stock from us.
Under the BCS agreement, the bottlers agent has the right
to request that we hedge the exposure to the price the bottlers
will ultimately pay for aluminum. We treat this arrangement as a
derivative for accounting purposes under FAS 133. Upon
receiving such requests, we enter into corresponding derivative
instruments indexed to the LME price of aluminum with third
party brokers. We settle the positions with the brokers at
maturity and net settle the economic benefit or loss arising
from the pricing requests, which may not occur for up to
13 months.
As of June 30, 2009, we had settled $123 million of
net derivative losses for which we had not yet been reimbursed
under the BCS agreement. Based on the current aluminum price
forward curve, we do not anticipate any further negative impact
on our liquidity as a result of this arrangement. We believe
that collection on these receivables is reasonably certain based
on the credit worthiness of the bottlers.
Available
Liquidity
Our estimated liquidity as of June 30, 2009 and
March 31, 2009 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
Cash and cash equivalents
|
|
$
|
237
|
|
|
$
|
248
|
|
Overdrafts
|
|
|
(10
|
)
|
|
|
(11
|
)
|
Gross availability under the ABL Facility
|
|
|
299
|
|
|
|
233
|
|
Borrowing availability limitation due to fixed charge coverage
ratio
|
|
|
(80
|
)
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
Total estimated liquidity
|
|
$
|
446
|
|
|
$
|
390
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2009, we had cash and cash equivalents of
$237 million. Additionally, we had $299 million in
remaining availability under our revolving credit line and
letter of credit facility (ABL Facility), before covenant
restrictions. Borrowings under the ABL Facility are generally
based on 85% of eligible accounts receivable and 65 to 70% of
eligible inventories. Under the ABL Facility, if our excess
availability, as defined under the borrowing, is less than
$80 million, we are required to maintain a minimum fixed
charge coverage ratio of 1 to 1. As of June 30, 2009, our
fixed charge coverage ratio is less than 1 to 1, resulting in a
reduction of availability under our ABL Facility of
$80 million.
The cash and cash equivalents balance above includes cash held
in foreign countries in which we operate. These amounts are
generally available on a short-term basis, subject to regulatory
requirements, in the form of a dividend or inter-company loan.
Operating
Activities
Free cash flow (which is a non-GAAP measure) consists of:
(a) Net cash provided by (used in) operating activities;
(b) plus net cash provided by (used in) investing
activities, less (c) proceeds from sales of assets.
Management believes that Free cash flow is relevant to investors
as it provides a measure of the cash generated internally that
is available for debt service and other value creation
opportunities. However, Free cash flow does not necessarily
represent cash available for discretionary activities, as
certain debt service
44
obligations must be funded out of Free cash flow. Our method of
calculating Free cash flow may not be consistent with that of
other companies.
The following table shows the Free cash flow for each of the
three months ended June 30, 2009 and 2008, the change
between periods as well as the ending balances of cash and cash
equivalents (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
258
|
|
|
$
|
(351
|
)
|
|
$
|
609
|
|
Net cash provided by (used in) investing activities
|
|
|
(235
|
)
|
|
|
16
|
|
|
|
(251
|
)
|
Less: Proceeds from sales of assets
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
20
|
|
|
$
|
(336
|
)
|
|
$
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
237
|
|
|
$
|
296
|
|
|
$
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities for the first quarter
of fiscal 2010 significantly improved as compared to net cash
used in the first quarter of fiscal 2009 due to higher net
income in first quarter of fiscal 2010 and significant cash
outflows associated with the working capital increases in the
first quarter of fiscal 2009.
In our discussion of Metal Price Ceilings, we disclosed that a
customer contract contains a fixed metal price ceiling beyond
which the cost of aluminum cannot be passed through to the
customer. For the three months ended June 30, 2008, we were
unable to pass through approximately $78 million of metal
purchase costs associated with sales under this contract. Net
cash provided by operating activities was negatively impacted by
the same amount, adjusted for timing difference between customer
receipts and vendor payments and offset partially by reduced
income taxes. Based on current LME price levels and reduced
global demand for aluminum, no sales were incurred under the
ceiling for the three months ended June 30, 2009 and no
further unfavorable revenue or cash flow impacts are expected
through December 31, 2009 when this contract expires.
However, we previously entered into derivative instruments to
hedge our exposure to increases in LME. As a result of these
instruments, we will continue to incur cash outflows related to
these contracts even if LME remains below the ceiling price. As
of June 30, 2009 and based on an aluminum price of $1,616
per tonne, projected cash outflows associated with these
derivatives instruments was $75 million as of June 30,
2009.
Investing
Activities
The following table presents information regarding our Net cash
provided by (used in) investing activities (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Capital expenditures
|
|
$
|
(24
|
)
|
|
$
|
(33
|
)
|
|
$
|
9
|
|
Proceeds from sales of assets
|
|
|
3
|
|
|
|
1
|
|
|
|
2
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
3
|
|
|
|
6
|
|
|
|
(3
|
)
|
Proceeds from related parties loans receivable, net
|
|
|
6
|
|
|
|
8
|
|
|
|
(2
|
)
|
Net proceeds (outflow) from settlement of derivative instruments
|
|
|
(223
|
)
|
|
|
34
|
|
|
|
(257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
$
|
(235
|
)
|
|
$
|
16
|
|
|
$
|
(251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the overall economic downturn, we reduced our
capital spending in the second half of fiscal 2009. We expect
that our total annual capital expenditures for fiscal 2010 to be
between $90 and $100 million for items necessary to
maintain comparable production, quality and market position
levels (maintenance capital).
45
The settlement of derivative instruments resulted in an outflow
of $223 million in the first quarter of fiscal 2010 as
compared to $34 million in cash contributed in the first
quarter of fiscal 2009. The net outflow for the first quarter of
fiscal 2010 was primarily related to metal derivatives.
The majority of proceeds from asset sales in the first quarter
of fiscal 2010 relate to asset sales in Europe while the first
quarter of fiscal 2009 related to sale of land in Kingston,
Ontario.
Proceeds from loans receivable, net during all periods are
primarily comprised of payments we received related to a loan
due from our non-consolidated affiliate, Aluminium Norf GmbH.
Financing
Activities
The following table presents information regarding our Net cash
provided by financing activities (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Proceeds from issuance of debt, related parties
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
3
|
|
Principal payments
|
|
|
(12
|
)
|
|
|
(4
|
)
|
|
|
(8
|
)
|
Short-term borrowings, net
|
|
|
(33
|
)
|
|
|
313
|
|
|
|
(346
|
)
|
Dividends, noncontrolling interest
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
$
|
(43
|
)
|
|
$
|
309
|
|
|
$
|
(352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009, our short-term borrowings were
$237 million consisting of (1) $226 million of
short-term loans under our ABL Facility, (2) a
$7 million short-term loan in Italy and
(3) $4 million in bank overdrafts. As of June 30,
2009, $31 million of our ABL Facility was utilized for
letters of credit and we had $299 million in remaining
availability under this revolving credit facility before
covenant related restrictions. The weighted average interest
rate on our total short-term borrowings was 2.81% and 2.75% as
of June 30, 2009 and March 31, 2009, respectively.
We reduced our borrowing level in the first quarter of fiscal
2010. During the first quarter of fiscal 2009, we increased our
short-term borrowings under the ABL Facility to provide for
general working capital requirements in a rising aluminum price
environment.
In February 2009, to assist in maintaining adequate liquidity
levels, we entered into an unsecured credit facility of
$100 million (the Unsecured Credit Facility) with a
scheduled maturity date of January 15, 2015 from an
affiliate of the Aditya Birla group. During the first quarter of
fiscal 2010, we drew an additional $3 million on the
Unsecured Credit Facility.
As of June 30, 2009, we had an additional $71 million
outstanding under letters of credit in Korea not included in our
revolving credit facility.
OFF-BALANCE
SHEET ARRANGEMENTS
In accordance with SEC rules, the following qualify as
off-balance sheet arrangements:
|
|
|
|
|
any obligation under certain derivative instruments;
|
|
|
|
any obligation under certain guarantees or contracts;
|
|
|
|
a retained or contingent interest in assets transferred to an
unconsolidated entity or similar entity or similar arrangement
that serves as credit, liquidity or market risk support to that
entity for such assets; and
|
|
|
|
any obligation under a material variable interest held by the
registrant in an unconsolidated entity that provides financing,
liquidity, market risk or credit risk support to the registrant,
or engages in leasing, hedging or research and development
services with the registrant.
|
The following discussion addresses the applicable off-balance
sheet items for our Company.
46
Derivative
Instruments
As of June 30, 2009, we have derivative financial
instruments, as defined by FASB Statement No. 133. See
Note 10 Financial Instruments and Commodity
Contracts.
The fair values of our financial instruments and commodity
contracts as of June 30, 2009 and March 31, 2009 are
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Net Fair Value
|
|
|
|
Current
|
|
|
Noncurrent
|
|
|
Current
|
|
|
Noncurrent(A)
|
|
|
Assets/(Liabilities)
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency exchange contracts
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
(23
|
)
|
|
$
|
(24
|
)
|
Interest rate swaps
|
|
|
|
|
|
|
3
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
(11
|
)
|
Electricity swap
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
|
3
|
|
|
|
(19
|
)
|
|
|
(25
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum forward contracts
|
|
|
86
|
|
|
|
27
|
|
|
|
(268
|
)
|
|
|
(7
|
)
|
|
|
(162
|
)
|
Currency exchange contracts
|
|
|
25
|
|
|
|
28
|
|
|
|
(44
|
)
|
|
|
(4
|
)
|
|
|
5
|
|
Energy contracts
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
111
|
|
|
|
55
|
|
|
|
(319
|
)
|
|
|
(11
|
)
|
|
|
(164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative fair value
|
|
$
|
111
|
|
|
$
|
58
|
|
|
$
|
(338
|
)
|
|
$
|
(36
|
)
|
|
$
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Net Fair Value
|
|
|
|
Current
|
|
|
Noncurrent
|
|
|
Current
|
|
|
Noncurrent(A)
|
|
|
Assets/(Liabilities)
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency exchange contracts
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(11
|
)
|
|
$
|
(11
|
)
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(13
|
)
|
Electricity swap
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(12
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
(23
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum contracts
|
|
|
99
|
|
|
|
41
|
|
|
|
(532
|
)
|
|
|
(13
|
)
|
|
|
(405
|
)
|
Currency exchange contracts
|
|
|
20
|
|
|
|
31
|
|
|
|
(77
|
)
|
|
|
(12
|
)
|
|
|
(38
|
)
|
Energy contracts
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
119
|
|
|
|
72
|
|
|
|
(621
|
)
|
|
|
(25
|
)
|
|
|
(455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative fair value
|
|
$
|
119
|
|
|
$
|
72
|
|
|
$
|
(640
|
)
|
|
$
|
(48
|
)
|
|
$
|
(497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The noncurrent portions of derivative liabilities are included
in Other long-term liabilities in the accompanying condensed
consolidated balance sheets. |
47
Net
Investment Hedges
We use cross-currency swaps to manage our exposure to
fluctuating exchange rates arising from our loans to and
investments in our European operations. The effective portion of
gain or loss on the fair value of the derivative is included in
Other comprehensive income (loss) (OCI). The effective portion
of the derivatives is included in Currency translation
adjustments. The ineffective portion of gain or loss on
derivatives is included in (Gain) loss on change in fair value
of derivative instruments, net. We had cross-currency swaps of
Euro 135 million against the U.S. dollar
outstanding as of both June 30, 2009 and March 31,
2009.
We recognized a $16 million loss and a $28 million
gain in OCI for the three months ended June 30, 2009 and
2008, respectively, for our currency exchange contracts
designated as net investment hedges.
Cash Flow
Hedges
We own an interest in an electricity swap which we have
designated as a cash flow hedge against our exposure to
fluctuating electricity prices. The effective portion of gain or
loss on the derivative is included in OCI and reclassified when
settled into (Gain) loss on change in fair value of derivatives,
net in our accompanying condensed consolidated statements of
operations. As of June 30, 2009, the outstanding portion of
this swap includes 1.9 million megawatt hours through 2017.
We use interest rate swaps to manage our exposure to changes in
the benchmark LIBOR interest rate arising from our variable-rate
debt. We have designated these as cash flow hedges. The
effective portion of gain or loss on the derivative is included
in OCI and reclassified when settled into Interest expense and
amortization of debt issuance costs in our accompanying
condensed consolidated statements of operations. We had
$910 million and $690 million of outstanding interest
rate swaps designated as cash flow hedges as of June 30,
2009 and March 31, 2009, respectively.
For all derivatives designated as cash flow hedges, gains or
losses representing hedge ineffectiveness are recognized in
(Gain) loss on change in fair value of derivative instruments,
net in our current period earnings. If at any time during the
life of a cash flow hedge relationship we determine that the
relationship is no longer effective, the derivative will be no
longer be designated as a cash flow hedge. This could occur if
the underlying hedged exposure is determined to no longer be
probable, or if our ongoing assessment of hedge effectiveness
determines that the hedge relationship no longer meets the
measures we have established at the inception of the hedge.
Gains or losses recognized to date in Accumulated other
comprehensive income (AOCI) would be immediately reclassified
into current period earnings, as would any subsequent changes in
the fair value of any such derivative.
During the next twelve months we expect to realize
$11 million in effective net losses from our cash flow
hedges. The maximum period over which we have hedged our
exposure to cash flow variability is through 2017.
The following table summarizes the impact on AOCI and earnings
of derivative instruments designated as cash flow hedge (in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (Loss)
|
|
|
|
|
|
|
|
|
|
Recognized in Income
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
(Ineffective Portion and Amount
|
|
|
|
Gain (Loss)
|
|
|
Reclassified from
|
|
|
Excluded from
|
|
|
|
Recognized in OCI
|
|
|
AOCI into Income
|
|
|
Effectiveness Testing)
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
Energy contracts
|
|
$
|
9
|
|
|
$
|
(1
|
)
|
|
$
|
2
|
|
Interest rate swaps
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (Loss)
|
|
|
|
|
|
|
|
|
|
Recognized in Income
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
(Ineffective Portion and Amount
|
|
|
|
Gain (Loss)
|
|
|
Reclassified from
|
|
|
Excluded from
|
|
|
|
Recognized in OCI
|
|
|
AOCI into Income
|
|
|
Effectiveness Testing)
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2008
|
|
|
June 30, 2008
|
|
|
June 30, 2008
|
|
|
Energy contracts
|
|
$
|
10
|
|
|
$
|
(3
|
)
|
|
$
|
|
|
Interest rate swaps
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
|
|
Derivative
Instruments Not Designated as Hedges
We use aluminum forward contracts and options to hedge our
exposure to changes in the LME price of aluminum. These
exposures arise from firm commitments to sell aluminum in future
periods at fixed or capped prices, the forecasted output of our
smelter operations in South America and the forecasted metal
price lag associated with firm commitments to sell aluminum in
future periods at prices based on the LME. In addition,
transactions with certain customers meet the definition of a
derivative under FASB 133 and are recognized as assets or
liabilities at fair value on the accompanying condensed
consolidated balance sheets. As of June 30, 2009 and
March 31, 2009, we had 362 kt and 294 kt, respectively, of
outstanding aluminum contracts not designated as hedges.
We have an embedded derivative which arises from a contractual
relationship with a customer that entitles us to pass-through
the economic effect of trading positions that we take with other
third parties on our customers behalf.
We use foreign exchange forward contracts and cross-currency
swaps to manage our exposure to changes in exchange rates. These
exposures arise from recorded assets and liabilities, firm
commitments and forecasted cash flows denominated in currencies
other than the functional currency of certain of our operations.
As of June 30, 2009 and March 31, 2009, we had
outstanding currency exchange contracts with a total notional
amount of $1.3 billion and $1.4 billion, respectively,
not designated as hedges.
We use interest rate swaps to manage our exposure to fluctuating
interest rates associated with variable-rate debt. As of
June 30, 2009 and March 31, 2009, we had
$10 million and $10 million, respectively, of
outstanding interest rate swaps that were not designated as
hedges.
We use heating oil swaps and natural gas swaps to manage our
exposure to fluctuating energy prices in North America. As of
June 30, 2009 and March 31, 2009, we had
3.3 million gallons and 3.4 million gallons,
respectively, of heating oil swaps and 2.8 million MMBTUs
and 3.8 million MMBTUs, respectively, of natural gas that
were not designated as hedges.
While each of these derivatives is intended to be effective in
helping us manage risk, they have not been designated as hedging
instruments under FASB 133. The change in fair value of these
derivative instruments is included in (Gain) loss on change in
fair value of derivative instruments, net in the accompanying
condensed consolidated statement of operations.
49
The following table summarizes the gains (losses) recognized in
current period earnings (in millions).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Derivative Instruments Not Designated as Hedges
|
|
|
|
|
|
|
|
|
Aluminum contracts
|
|
$
|
48
|
|
|
$
|
22
|
|
Currency exchange contracts
|
|
|
22
|
|
|
|
32
|
|
Energy contracts
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized
|
|
|
70
|
|
|
|
61
|
|
Derivative Instruments Designated as Cash Flow Hedges
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
Electricity swap
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on change in fair value of derivative instruments,
net
|
|
$
|
72
|
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
|
Guarantees
of Indebtedness
We have issued guarantees on behalf of certain of our
subsidiaries and non-consolidated affiliates, including:
|
|
|
|
|
certain of our wholly-owned and majority-owned
subsidiaries; and
|
|
|
|
Aluminium Norf GmbH, which is a fifty percent (50%) owned joint
venture that does not meet the requirements for consolidation
under FASB Interpretation No. 46 (Revised),
Consolidation of Variable Interest Entities.
|
In the case of our wholly-owned subsidiaries, the indebtedness
guaranteed is for trade accounts payable to third parties. Some
have annual terms subject to renewal while others have no
expiration and have termination notice requirements. For our
majority-owned subsidiaries, the indebtedness guaranteed is for
short-term loan, overdraft and other debt facilities with
financial institutions, which are currently scheduled to expire
during the first half of fiscal 2010. Neither Novelis Inc. nor
any of our subsidiaries or non-consolidated affiliates holds any
assets of any third parties as collateral to offset the
potential settlement of these guarantees.
Since we consolidate wholly-owned and majority-owned
subsidiaries in our condensed consolidated financial statements,
all liabilities associated with trade payables and short-term
debt facilities for these entities are already included in our
condensed consolidated balance sheets.
The following table discloses information about our obligations
under guarantees of indebtedness of others as of June 30,
2009 (in millions). We did not have any obligations under
guarantees of indebtedness related to our majority-owned
subsidiaries as of June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
Liability
|
|
|
|
Potential Future
|
|
|
Carrying
|
|
|
|
Payment
|
|
|
Value
|
|
|
Wholly-owned Subsidiaries
|
|
$
|
45
|
|
|
$
|
7
|
|
Aluminium Norf GmbH
|
|
$
|
14
|
|
|
$
|
|
|
We have no retained or contingent interest in assets transferred
to an unconsolidated entity or similar entity or similar
arrangement that serves as credit, liquidity or market risk
support to that entity for such assets.
Other
As part of our ongoing business, we do not participate in
transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities
(SPEs), which would have been established for the purpose of
facilitating off-balance
50
sheet arrangements or other contractually narrow or limited
purposes. As of June 30, 2009 and March 31, 2009, we
are not involved in any unconsolidated SPE transactions.
CONTRACTUAL
OBLIGATIONS
We have future obligations under various contracts relating to
debt and interest payments, capital and operating leases,
long-term purchase obligations, postretirement benefit plans and
uncertain tax positions. During the three months ended
June 30, 2009, there were no significant changes to these
obligations as reported in our Annual Report on
Form 10-K
for the year ended March 31, 2009.
DIVIDENDS
No dividends have been declared since October 26, 2006.
Future dividends are at the discretion of the board of directors
and will depend on, among other things, our financial resources,
cash flows generated by our business, our cash requirements,
restrictions under the instruments governing our indebtedness,
being in compliance with the appropriate indentures and
covenants under the instruments that govern our indebtedness
that would allow us to legally pay dividends and other relevant
factors.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
During the three months ended June 30, 2009, there were no
significant changes to our critical accounting policies and
estimates as reported in our Annual Report on
Form 10-K
for the year ended March 31, 2009.