As filed with the Securities and Exchange Commission on
September 23, 2005
Registration No. 333-127139
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NOVELIS INC.*
(Exact name of registrant as specified in its charter)
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Canada
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3350
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98-0442987
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(State or other jurisdiction of
incorporation or organization)
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(Primary standard industrial
classification code number)
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(I.R.S. Employer
Identification Number)
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3399 Peachtree Road, NE, Suite 1500
Atlanta, Georgia 30326
(404) 814-4200
(Address, including zip code, and telephone number,
including area code, of Registrants principal executive
offices)
Leslie J. Parrette, Jr., Esq.
General Counsel
Novelis Inc.
3399 Peachtree Road, NE, Suite 1500
Atlanta, Georgia 30326
(404) 814-4200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Scott D. Miller, Esq.
Sullivan & Cromwell LLP
1870 Embarcadero Road
Palo Alto, California 94303
(650) 461-5600
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The companies listed on the next page are also included in this
Form S-4 Registration Statement as additional Registrants. |
Approximate date of commencement of proposed sale to
public: As soon as practicable after this Registration
Statement is declared effective.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act
of 1933, please check the following box and list the Securities
Act of 1933 registration statement number of the earlier
effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act of 1933, check the
following box and list the Securities Act of 1933 registration
statement number of the earlier effective registration statement
for the same
offering. o
The Registrants hereby amend this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrants shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
ADDITIONAL REGISTRANTS
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Jurisdiction of |
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IRS Employer |
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Exact Name of Additional Registrants* |
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Formation |
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Identification No. |
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Novelis Corporation
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Texas |
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41-2098321 |
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Eurofoil Inc. (USA)
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New York |
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13-3783544 |
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Novelis PAE Corporation
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Delaware |
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36-4266108 |
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Novelis Cast House Technology Ltd.
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Canada |
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Not applicable |
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4260848 Canada Inc.
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Canada |
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Not applicable |
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4260856 Canada Inc.
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Canada |
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Not applicable |
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Novelis Europe Holdings Ltd.
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United Kingdom |
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Not applicable |
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Novelis UK Ltd.
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United Kingdom |
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Not applicable |
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Novelis do Brasil Ltda.
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Brazil |
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Not applicable |
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Novelis AG
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Switzerland |
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Not applicable |
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Novelis Switzerland S.A.
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Switzerland |
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Not applicable |
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Novelis Technology AG
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Switzerland |
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Not applicable |
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Novelis Aluminium Holding Company
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Ireland |
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Not applicable |
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Novelis Deutschland GmbH
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Germany |
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Not applicable |
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* |
The address for each of the additional Registrants is
c/o Novelis Inc., 3399 Peachtree Rd., N.E.,
Suite 1500, Atlanta, Georgia 30326. The primary standard
industrial classification number for each of the additional
Registrants is 3350. |
The information in
this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state
where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION, DATED
SEPTEMBER 23, 2005
PROSPECTUS
$1,400,000,000
NOVELIS INC.
Offer to Exchange new
71/4% Senior
Notes due 2015 for any and all of its outstanding
71/4% Senior
Notes due 2015.
Subject to the Terms and Conditions described in this
Prospectus
The Exchange Offer will expire at 5:00 p.m. Eastern
Standard Time on
October ,
2005,
unless extended
The Notes
We are offering to exchange, upon the terms and subject to the
conditions of this prospectus and the accompanying letter of
transmittal, up to $1,400,000,000 of our new
71/4% Senior
Notes due 2015 for any and all of our outstanding old
71/4% Senior
Notes due 2015. We refer to our outstanding
71/4% Senior
Notes due 2015 as the old notes and to the new
71/4% Senior
Notes due 2015 issued in this offer as the Notes.
The Notes are substantially identical to the old notes that we
issued on February 3, 2005, except for certain transfer
restrictions and registration rights provisions relating to the
old notes, and will evidence the same continuing indebtedness as
the old notes. The CUSIP numbers for the old notes are
67000XAA4, C6780CAA1 and 67000XAC0.
Material Terms of the Exchange Offer
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You will receive an equal principal amount of Notes for all old
notes that you validly tender and do not validly withdraw. |
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The exchange should not be a taxable exchange for United States
federal income tax purposes. Similarly, the exchange will not
constitute a disposition for Canadian federal income tax
purposes. |
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There has been no public market for the old notes and we cannot
assure you that any public market for the Notes will develop. We
do not intend to list the Notes on any national securities
exchange or any automated quotation system. |
Special Note for Broker-Dealers
Each broker-dealer that receives Notes for its own account
pursuant to this exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of such
Notes. The letter of transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an underwriter within the
meaning of the Securities Act of 1933, as amended, or the
Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer
in connection with resales of Notes received in exchange for
securities where such securities were acquired by such
broker-dealer as a result of market-making activities or other
trading activities. We have agreed that, starting on the
expiration date and ending on the close of business one year
after the expiration date, or such shorter period as will
terminate when (i) all of the Notes covered by the exchange
offer registration statement of which this prospectus forms a
part have been distributed pursuant thereto and (ii) an
exchanging dealer (meaning any holder of the old notes (which
may include the initial purchasers of the old notes) that is a
broker-dealer and elects to exchange for Notes any old notes
that it acquired for its own account as a result of
market-making or other trading activities (but not directly from
us or our affiliates)) is no longer required to deliver a
prospectus in connection with sales of the Notes, we will make
this prospectus available to any broker-dealer for use in
connection with any such resale. See Plan of
Distribution.
Consider carefully the Risk Factors beginning on
page 14 of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined that this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is
September ,
2005.
TABLE OF CONTENTS
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus.
This prospectus is an offer to exchange only the Notes offered
by this prospectus and only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is accurate only as of its date.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus incorporates important business and financial
information about us that is not included in or delivered
herewith. Such information is available without charge to
securityholders upon written or oral request to Investor
Relations, Novelis Inc., 3399 Peachtree Road, NE,
Suite 1500, Atlanta, Georgia 30326, (404) 814-4200.
Securityholders must request such information no later
than ,
2005, which date is five business days before the date on which
they must make their investment decision.
We are subject to the reporting and information requirements of
the Securities Exchange Act of 1934, as amended, or the Exchange
Act, and, as a result, we file periodic reports, proxy
statements and other
information with the Securities and Exchange Commission, or SEC.
We make these filings available on our website, the URL of which
is http://www.novelis.com, as soon as reasonably practicable
after we electronically file such material with, or furnish it
to, the SEC. Information on our website does not constitute part
of this prospectus. The public may read and copy any materials
we file with the SEC at the SECs Public Reference Room at
100 F Street, NE, Washington, DC 20549. You may obtain more
information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC. The address of that
website is http://www.sec.gov. As a foreign private issuer, we
are not currently subject to the proxy requirements under
Section 14 of the Exchange Act and our executive officers,
directors and principal shareholders are not currently subject
to the insider reporting and short swing profit recovery rules
under Section 16 of the Exchange Act.
Additionally, this prospectus contains summaries and other
information that we believe are accurate as of the date hereof
with respect to the terms of specific documents, but we refer to
the actual documents for complete information with respect to
those documents, copies of which will be made available without
charge to you upon request. Statements contained in this
prospectus as to the contents of any contract or other documents
referred to in this prospectus do not purport to be complete.
Where reference is made to the particular provisions of a
contract or other document, the provisions are qualified in all
respects by reference to all of the provisions of the contract
or other document.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET
DATA
This prospectus contains forward-looking statements that are
based on current expectations, estimates, forecasts and
projections about the industry in which we operate and beliefs
and assumptions made by our management. Such statements include,
in particular, statements about our plans, strategies and
prospects under the headings Business and
Managements Discussion and Analysis of Financial
Condition and Results of Operations. Words such as
expect, anticipate, intend,
plan, believe, seek,
estimate, and variations of such words and similar
expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future
performance and involve assumptions and risks and uncertainties
that are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed, implied or
forecasted in such forward-looking statements. We do not intend,
and we disclaim any obligation, to update any forward-looking
statements, whether as a result of new information, future
events or otherwise.
All market position data relating to our company is based on
information from Commodity Research Unit International Limited,
or CRU, and management estimates. This information and these
estimates reflect various assumptions and are not independently
verified. Therefore, they should be considered in this context.
This document contains information concerning our markets and
products generally which is forward-looking in nature and is
based on a variety of assumptions regarding the ways in which
these markets and product categories will develop. These
assumptions have been derived from information currently
available to us and to the third-party industry analysts quoted
herein. This information includes, but is not limited to, data
concerning production capacity, product shipments and share of
production. Actual market results may differ from those
predicted. While we do not know what impact any of these
differences may have on our business, our results of operations,
financial condition and the market price of our securities may
be materially adversely affected. Factors that could cause
actual results or outcomes to differ from the results expressed
or implied by forward-looking statements include, among other
things:
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our separation from Alcan; |
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the level of our indebtedness and our ability to generate cash
following the separation; |
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relationships with, and financial and operating conditions of,
our customers and suppliers; |
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changes in the prices and availability of raw materials we use; |
ii
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fluctuations in the supply of and prices for energy in the areas
in which we maintain production facilities; |
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our ability to access financing for future capital requirements; |
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changes in the relative values of various currencies; |
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factors affecting our operations, such as litigation, labour
relations and negotiations, breakdown of equipment and other
events; |
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economic, regulatory and political factors within the countries
in which we operate or sell our products, including changes in
duties or tariffs; |
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competition from other aluminum rolled products producers as
well as from substitute materials such as steel, glass, plastic
and composite materials; |
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changes in general economic conditions; |
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cyclical demand and pricing within the principal markets for our
products as well as seasonality in certain of our
customers industries; and |
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changes in government regulations, particularly those affecting
environmental, health or safety compliance. |
The above list of factors is not exclusive. Some of these and
other factors are discussed in more detail under
Managements Discussion and Analysis of Financial
Condition and Results of Operations and Risk
Factors.
EXPLANATORY INFORMATION
We were formed as a Canadian corporation on September 21,
2004. On January 6, 2005 (which we refer to as the
separation date), we acquired substantially all of the aluminum
rolled products businesses held by Alcan prior to its
acquisition of Pechiney in 2003, as well as certain alumina and
primary-metal businesses in Brazil formerly owned by Alcan and
four rolling facilities in Europe initially acquired by Alcan
from Pechiney in 2003. As part of the separation, Alcans
capital was reorganized and, on January 6, 2005, our common
shares were distributed to the then-existing shareholders of
Alcan. Throughout this prospectus, we refer to the various steps
pursuant to which we acquired our businesses from Alcan and
distributed our shares to Alcans shareholders as the
reorganization transactions.
We describe in this prospectus the businesses we acquired from
Alcan pursuant to the reorganization transactions, which are now
operated by us, as if they were our businesses for all
historical periods described. References to our shipment totals,
results of operations and cash flows prior to January 1,
2004 do not include shipments from the facilities transferred to
us by Alcan that were initially acquired by Alcan as part of the
acquisition of Pechiney in December 2003.
In connection with the reorganization transactions, we and
certain of our subsidiaries also entered into senior secured
credit facilities providing for aggregate loans of up to
$1.8 billion. These facilities consist of a
$1.3 billion seven-year senior secured Term Loan B
facility, all of which we borrowed upon the consummation of the
reorganization transactions, and a $500 million five-year
multi-currency revolving credit facility, none of which was
borrowed in connection with the reorganization transactions. Our
Korean subsidiary also borrowed an aggregate of
$200 million of term loan bank debt in Korea under separate
credit facilities, which we refer to as the Korean term loans.
In addition to these credit facilities, we issued notes to
Alcan, which we refer to collectively as the Alcan
Note, in the aggregate amount of $1.375 billion in
respect of our debt owing to Alcan, in connection with the
reorganization transactions. The initial borrowings of
$1.3 billion under the senior secured credit facilities,
the Korean term loans, the Alcan Note and the issuance of the
old notes, and the application of the proceeds from the
foregoing, are collectively referred to in this prospectus as
the financing transactions.
iii
The financial information contained in this prospectus is
presented in accordance with U.S. GAAP, unless otherwise
indicated. All figures are unaudited unless otherwise indicated.
All dollar figures are in U.S. dollars unless otherwise
indicated.
As used in this prospectus, total shipments refers
to shipments to third parties of aluminum rolled products as
well as ingot shipments, and references to aluminum rolled
products shipments or shipments do not include
ingot shipments. All tonnages are stated in metric tonnes. One
metric tonne is equivalent to 2,204.6 pounds. One kilotonne, or
kt, is 1,000 metric tonnes. The term aluminum rolled
products as used in this prospectus is synonymous with the
terms flat rolled products and FRP
commonly used by manufacturers and third-party analysts in our
industry.
In this prospectus, unless otherwise specified, the terms
we, our, us,
company, Group, Novelis and
Novelis Group refer to Novelis Inc., a company
incorporated in Canada under the Canadian Business Corporations
Act, or CBCA, and include the businesses transferred to us by
Alcan Inc., or Alcan, pursuant to the reorganization
transactions described below.
EXCHANGE RATE DATA
We prepare our financial statements in U.S. dollars. The
following table sets forth exchange rate information expressed
in terms of Canadian dollars per U.S. dollar at the noon
buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal
Reserve Bank of New York. You should note the rates set forth
below may differ from the actual rates used in our accounting
processes and in the preparation of our financial statements.
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Year Ended December 31, |
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At Period End |
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Average Rate(1) |
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High |
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Low |
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2000
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1.4995 |
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1.4871 |
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1.5600 |
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1.4350 |
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2001
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1.5925 |
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1.5519 |
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1.6023 |
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1.4933 |
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2002
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1.5800 |
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1.5702 |
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1.6128 |
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1.5108 |
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2003
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1.2923 |
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1.3916 |
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1.5750 |
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1.2923 |
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2004
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1.2034 |
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1.2984 |
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1.3970 |
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1.1775 |
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2005 (through September 23)
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1.1668 |
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1.2283 |
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1.2703 |
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1.1749 |
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(1) |
The average of the noon buying rates on the last day of each
month during the period. |
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
We are incorporated in Canada under the CBCA. Our registered
office, as well as a substantial portion of our assets, are
located outside the United States. Also, some of our directors
and officers and some of the experts named in this prospectus
reside in Canada or other jurisdictions outside the
United States and all or a substantial portion of their
assets are located outside the United States. We have agreed in
the indenture under which the Notes will be issued to accept
service of process in New York City, by an agent designated
for such purpose, with respect to any suit, action or proceeding
relating to the indenture or the Notes that is brought in any
federal or state court located in New York City, and to submit
to the jurisdiction of such courts in connection with such
suits, actions or proceedings. However, it may be difficult for
holders of Notes to effect service of process in the United
States on our directors and officers and the experts named in
this prospectus who are not residents of the United States or to
enforce against them in the United States judgments of courts of
the United States predicated upon the civil liability provisions
of the United States federal securities laws. Ogilvy Renault
LLP, our Canadian counsel, has advised us that, in their
opinion, there is doubt as to the enforceability in Canada
against us or against our directors, officers and experts who
are not residents of the United States, in original actions or
in actions for enforcement of judgments of United States courts,
of liabilities predicated solely upon United States federal
securities laws.
iv
SUMMARY
This summary highlights selected information contained in
greater detail elsewhere in this prospectus. This summary may
not contain all of the information that you should consider
before investing in the Notes. You should carefully read the
entire prospectus, including the sections under the headings
Risk Factors and Disclosure Regarding
Forward-Looking Statements and Market Data.
Our Business
We are the worlds leading aluminum rolled products
producer based on shipment volume in 2004, with total aluminum
rolled products shipments of approximately 2,785 kilotonnes
during that year. With operations on four continents comprised
of 36 operating facilities in 11 countries, we are the only
company of our size and scope focused solely on aluminum rolled
products markets and capable of local supply of technically
sophisticated products in all of these geographic regions. We
had sales and operating revenues of $7.8 billion in 2004.
Due in part to the regional nature of supply and demand of
aluminum rolled products, our activities are organized under
four business groups and are managed on the basis of
geographical areas. These business groups are Novelis North
America, Novelis Europe, Novelis Asia, and Novelis South America.
We were formed as a Canadian corporation on September 21,
2004. On January 6, 2005 (which we refer to as the
separation date), we acquired substantially all of the aluminum
rolled products businesses held by Alcan prior to its
acquisition of Pechiney in 2003, as well as certain alumina and
primary metal-related businesses in Brazil formerly owned by
Alcan and four rolling facilities in Europe that Alcan acquired
from Pechiney in 2003. As part of this transaction, Alcans
capital was reorganized and our common shares were distributed
to the then-existing shareholders of Alcan.
Our registered executive offices are located at 70 York Street,
Suite 1510, Toronto, Ontario, M5J 1S9. Our principal
executive offices are located at 3399 Peachtree Road NE,
Suite 1500, Atlanta, Georgia 30326, and our telephone
number is (404) 814-4200. The URL of our website is
http://www.novelis.com. Information on our website does not
constitute part of this prospectus and you should rely only on
the information contained in this prospectus when making a
decision as to whether to exchange your old notes for the Notes.
1
Our Corporate Structure
The following chart shows the borrowers and guarantors of the
senior secured credit facilities, the issuer and guarantors of
the Notes offered hereby, and our other material debt. For a
description of the collateral securing the senior secured
facilities refer to Description of Material
Indebtedness.
2
The Exchange Offer
The exchange offer relates to the exchange of up to
$1,400,000,000 aggregate principal amount of outstanding
71/4% Senior
Notes due 2015, for an equal aggregate principal amount of
Notes. The form and terms of the Notes are identical in all
material respects to the form and terms of the corresponding
outstanding old notes, except that the Notes will be registered
under the Securities Act, and therefore they will not bear
legends restricting their transfer.
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The Exchange Offer |
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We are offering to exchange $1,000 principal amount of our Notes
that we have registered under the Securities Act for each $1,000
principal amount of outstanding old notes. In order for us to
exchange your old notes, you must validly tender them to us and
we must accept them. We will exchange all outstanding old notes
that are validly tendered and not validly withdrawn. |
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Resale of the Notes |
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Based on interpretations by the staff of the SEC set forth in
no-action letters issued to other parties, we believe that you
may offer for resale, resell and otherwise transfer your Notes
without compliance with the registration and prospectus delivery
provisions of the Securities Act if you are not our affiliate,
you acquire the Notes issued in the exchange offer in the
ordinary course of your business, you are not a broker-dealer
that acquired any of its old notes directly from us and you are
not participating, do not intend to participate and have no
arrangement or understanding with any person to participate in
the distribution of the Notes we issue to you in the exchange
offer. |
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Each broker-dealer that receives Notes in the exchange offer for
its own account in exchange for old notes that it acquired as a
result of market-making or other trading activities must
acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale
of the Notes issued in the exchange offer. See Plan of
Distribution. |
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Expiration date |
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The exchange offer will expire at 5:00 p.m., Eastern
Standard Time,
October ,
2005, unless we decide to extend the expiration date. We may
extend the expiration date for any reason. If we fail to
consummate the exchange offer, you will have certain rights
against us under the registration rights agreement we entered
into as part of the offering of the old notes. |
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Special procedures for beneficial owners |
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If you are the beneficial owner of old notes and you registered
your old notes in the name of a broker or other institution, and
you wish to participate in the exchange, you should promptly
contact the person in whose name you registered your old notes
and instruct that person to tender the old notes on your behalf.
If you wish to tender on your own behalf, you must, prior to
completing and executing the letter of transmittal and
delivering your outstanding old notes, either make appropriate
arrangements to register ownership of the outstanding old notes
in your name or obtain a properly completed bond power from the
registered holder. The transfer of record ownership may take
considerable time. |
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Guaranteed delivery procedures |
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If you wish to tender your old notes and time will not permit
your required documents to reach the exchange agent by the
expiration date, or you cannot complete the procedure for
book-entry transfer on time or you cannot deliver your
certificates for registered old notes on time, you may tender
your old notes pursuant to the procedures described in this
prospectus under the heading The Exchange Offer-How to use
the guaranteed delivery procedures if you will not have enough
time to send all documents to us. |
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Withdrawal rights |
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You may withdraw the tender of your old notes at any time prior
to the expiration date. |
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Certain Canadian federal and United States federal income
tax consequences |
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An exchange of old notes for Notes should not be subject to
United States federal income tax. Similarly, the exchange will
not constitute a disposition for Canadian federal income tax
purposes. See Important Canadian Federal and United States
Federal Income Tax Considerations. |
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Use of proceeds |
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We will not receive any proceeds from the issuance of Notes
pursuant to the exchange offer. Old notes that are validly
tendered and exchanged will be retired and canceled. We will pay
all expenses incident to the exchange offer. |
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Exchange agent |
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You can reach The Bank of New York Trust Company, N.A., the
exchange agent, at Corporate Trust Operations,
Reorganization Unit, 101 Barclay Street 7 East, New York, NY
10286, Attention: Randolph Holder. For more information with
respect to the exchange offer, you may call the exchange agent
on (212) 815-5098; the fax number for the exchange agent is
(212) 298-1915 (eligible institutions only). |
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Dissenter or Appraisal Rights |
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Holders of old notes will not have dissenters or appraisal
rights in connection with the exchange offer. |
4
The Notes
The exchange offer applies to $1,400,000,000 aggregate principal
amount of
71/4% Senior
Notes due 2015. The form and terms of the Notes are
substantially identical to the form and terms of the old notes,
except that we will register the Notes under the Securities Act,
and therefore the Notes will not bear legends restricting their
transfer. The Notes will be entitled to the benefits of the
indenture. See Description of the Notes. As used in
this summary of the Notes, subsidiaries refers to
our direct and indirect subsidiaries.
|
|
|
Issuer |
|
Novelis Inc., a Canadian corporation |
|
Securities Offered |
|
$1,400,000,000 aggregate principal amount of
71/4% senior
notes due 2015. |
|
Maturity |
|
The Notes will mature on February 15, 2015. |
|
Interest rate and Payment Dates |
|
The Notes will bear interest at the rate of
71/4% per
annum. Interest on the Notes will be payable semiannually in
arrears on February 15 and August 15 of each year commencing
August 15, 2005. Interest on the Notes will accrue from the
most recent date through which interest has been paid, or if no
interest has been paid, from the date of original issuance of
the old notes. |
|
|
Guarantees |
|
The Notes will be fully and unconditionally guaranteed, jointly
and severally, on a senior unsecured basis, by all of our
existing and future Canadian and U.S. wholly-owned
restricted subsidiaries, certain of our existing foreign
wholly-owned restricted subsidiaries and our other restricted
subsidiaries that guarantee debt in the future under any credit
facilities, provided that the borrower of such debt is our
company or a Canadian or a U.S. subsidiary. In 2004, on a
historical combined basis, our subsidiaries that will not be
guarantors at the consummation of this exchange offer had sales
and operating revenues of $2.1 billion, and, at
June 30, 2005, those subsidiaries had assets of
$1.9 billion and debt and other liabilities of
$1.1 billion (including inter-company balances). |
|
|
Ranking |
|
The Notes will be: |
|
|
|
our senior unsecured obligations; |
|
|
|
|
effectively junior in right of payment to all of our
existing and future secured debt to the extent of the value of
the assets securing that debt, including the $1.1 billion
of secured debt under our senior secured credit facilities as of
June 30, 2005 (and up to an additional $500 million of
revolving credit debt that we may borrow thereunder from time to
time), which debt is secured by our assets and the assets of our
principal subsidiaries; |
|
|
|
|
effectively junior in right of payment to all debt
and other liabilities (including trade payables) of any of our
subsidiaries that do not guarantee the Notes; |
|
|
|
equal in right of payment to all of our existing and
future senior debt; and |
5
|
|
|
|
|
senior in right of payment to all of our future
subordinated debt. |
|
|
|
The guarantees of each guarantor will be: |
|
|
|
senior unsecured obligations of that guarantor; |
|
|
|
effectively junior in right of payment to all
existing and future secured debt of that guarantor to the extent
of the value of the assets securing that debt, including the
debt or guarantee of debt of that guarantor under the senior
secured credit facilities, which debt or guarantee will be
secured by the assets of that guarantor; |
|
|
|
equal in right of payment to all of that
guarantors existing and future senior debt; and |
|
|
|
senior in right of payment to all of that
guarantors future subordinated debt. |
|
|
|
|
At June 30, 2005, Novelis Inc. and the guarantors had
$1.1 billion of secured debt. The indenture governing the
Notes will permit us, subject to specified limitations, to incur
additional debt, some or all of which may be senior debt. |
|
|
Optional Redemption |
|
Prior to February 15, 2010, we may from time to time redeem
all or a portion of the Notes by paying a special
make-whole premium specified in this prospectus
under Description of Notes Optional
Redemption. |
|
|
|
At any time on or after February 15, 2010, we may from time
to time redeem all or a portion of the Notes at the redemption
prices specified in this prospectus under Description of
Notes Optional Redemption. |
|
|
|
In addition, at any time prior to February 15, 2008 we may
also redeem up to 35% of the original aggregate principal amount
of the old notes and the Notes in an amount not to exceed the
amount of proceeds of one or more equity offerings, at a price
equal to 107.250% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the redemption date, provided
that at least 65% of the original aggregate principal amount of
the old notes and the Notes issued remains outstanding after the
redemption. |
|
Additional Amounts and Tax Redemption |
|
Any payments made by us with respect to the Notes will be made
without withholding or deduction, unless required by law. If we
are required by law to withhold or deduct for taxes with respect
to a payment to the holders of Notes, we will, subject to
certain exceptions, pay the additional amount necessary so that
the net amount received by the holder of Notes (other than
certain excluded holders) after the withholding is not less than
the amount they would have received in the absence of the
withholding. |
6
|
|
|
|
|
If we are required to pay additional amounts as a result of
changes in laws applicable to tax-related withholdings or
deductions in respect of payments on the old notes and Notes but
not the guarantees, we will have the option to redeem the old
notes and Notes, in whole but not in part, at a redemption price
equal to 100% of the principal amount of the old notes and
Notes, plus any accrued and unpaid interest to the date of
redemption and any additional amounts that may be then payable. |
|
Covenants |
|
We will issue the Notes under an indenture between us and The
Bank of New York Trust Company, N.A., as trustee, which is the
same indenture under which we issued the old notes. The
indenture governing the Notes will contain covenants that limit
our ability and the ability of our restricted subsidiaries to: |
|
|
|
incur additional debt and provide additional
guarantees; |
|
|
|
pay dividends beyond certain amounts and make other
restricted payments; |
|
|
|
create or permit certain liens; |
|
|
|
make certain asset sales; |
|
|
|
use the proceeds from the sales of assets and
subsidiary stock; |
|
|
|
create or permit restrictions on the ability of our
restricted subsidiaries to pay dividends or make other
distributions to us; |
|
|
|
engage in certain transactions with affiliates; |
|
|
|
enter into sale and leaseback transactions; |
|
|
|
designate subsidiaries as unrestricted
subsidiaries; and |
|
|
|
consolidate, merge or transfer all or substantially
all of our assets and the assets of our restricted subsidiaries. |
|
|
|
During any future period in which either Standard &
Poors Rating Services, a division of the McGraw-Hill
Companies, Inc., or Moodys Investors Service, Inc. have
assigned an investment grade credit rating to the Notes and no
default or event of default under the indenture has occurred and
is continuing, most of the covenants, including our obligation
to repurchase Notes following certain asset sales, will be
suspended. If either of these ratings agencies then withdraws
its ratings or downgrades the ratings assigned to the Notes
below the required investment grade rating, or a default or
event of default occurs and is continuing, the suspended
covenants will again be in effect. If at any time both ratings
agencies have assigned an investment grade rating to the Notes,
those covenants, including our obligation to repurchase Notes
following certain asset sales, will terminate and no longer be
applicable regardless of any subsequent changes in the rating of
those Notes. See Description of the Notes
Certain Covenants Covenant Termination and
Suspension. |
7
|
|
|
|
|
These covenants are subject to a number of important limitations
and exceptions. For more details, see Description of the
Notes Certain Covenants. |
|
Change of Control |
|
Following a change of control, we will be required to offer to
purchase all of the Notes at a purchase price of 101% of their
principal amount, plus accrued and unpaid interest, if any, to
the date of purchase. |
|
Exchange Offer; Registration Rights |
|
Pursuant to a registration agreement among us and the initial
purchasers of the old notes, we agreed to: |
|
|
|
file a registration statement within 180 days
after the issue date of the old notes, relating to the exchange
of the privately placed notes for publicly registered exchange
notes with substantially identical terms evidencing the same
continuing indebtedness; |
|
|
|
use our reasonable best efforts to cause the
registration statement to become effective within 270 days
after the issue date of the old notes; |
|
|
|
keep the exchange offer open for not less than
30 days and not more than 45 days; and |
|
|
|
file a shelf registration statement for the resale
of the old notes if we cannot effect an exchange offer within
the specified time period and in certain other circumstances
described in this prospectus. |
|
|
|
We intend the registration statement relating to this prospectus
to satisfy these obligations. We filed this registration
statement 181 days after the issue date of the old notes.
Accordingly, special interest accrued for one day on the old
notes. If we do not comply with our other obligations under the
registration rights agreement, we will be required to pay
additional special interest on the old notes and/or the Notes
under specific circumstances. See Registration
Rights. |
|
Offering; Transfer Restrictions |
|
The Notes are not being offered for sale and may not be offered
or sold directly or indirectly in Canada except in accordance
with applicable securities laws of the provinces and territories
of Canada. We are not required, and do not intend, to qualify by
prospectus in Canada the Notes, and accordingly, the Notes will
be subject to restrictions on resale in Canada. |
|
Absence of a Public Market for the Notes |
|
The Notes are a new issue of securities, and currently there is
no existing trading market for them. We do not intend to apply
for listing of the Notes on any national securities exchange or
to arrange for quotation of the Notes on any automated dealer
quotation system. The initial purchasers may make a market for
the Notes, but they have no obligation to do so. Accordingly, we
cannot assure you that a liquid market will develop for the
Notes. See Risk Factors Risks Related to the
Notes There is no public market for the Notes and we
do not know if a |
8
|
|
|
|
|
market will ever develop or, if a market does develop, whether
it will be sustained. |
|
Amendments and Waivers |
|
Except for specific amendments, the indenture may be amended and
any existing default or compliance with any provisions of the
indenture may be waived, with the consent of the holders of a
majority of the aggregate principal amount then outstanding of
the old notes and the Notes. |
|
Risk Factors |
|
Investing in the Notes involves substantial risks. You should
carefully consider the information set forth in the section
entitled Risk Factors and the other information
included in this prospectus in deciding whether to tender your
old notes. |
|
Certain Income Tax Considerations |
|
You should carefully read the information under the heading
Important Canadian Federal and United States Federal
Income Tax Considerations. |
9
Summary Historical and Pro Forma Consolidated and Combined
Financial Data
The following table sets forth summary historical and pro forma
consolidated and combined financial data and should be read in
conjunction with our audited combined financial statements, our
unaudited consolidated and combined financial statements and the
accompanying notes, which in each case are included elsewhere in
this prospectus. You should also read Selected
Consolidated and Combined Financial Data, Unaudited
Pro Forma Combined Financial Data and
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
The combined statements of income data for the years ended
December 31, 2004, 2003 and 2002 and the combined balance
sheet data as of December 31, 2004 and 2003 set forth below
are derived from our audited annual combined financial
statements which are included elsewhere in this prospectus. The
combined statements of income data for the year ended
December 31, 2001 and the combined balance sheet data as of
December 31, 2002 set forth below are derived from our
audited annual combined financial statements that are not
included in this prospectus. We derived the unaudited condensed
combined statements of income data for the year ended
December 31, 2000 and the unaudited condensed combined
balance sheet data as of December 31, 2001 and
December 31, 2000 from historical financial information
based on Alcans accounting records. The unaudited
condensed consolidated and combined statements of income data
for the six months ended June 30, 2005 and June 30,
2004 and the unaudited condensed consolidated balance sheet data
as of June 30, 2005 set forth below are derived from our
unaudited interim consolidated and combined financial statements
which are included elsewhere in this prospectus. The unaudited
condensed combined balance sheet data as of June 30, 2004
set forth below is derived from historical financial data based
on Alcans accounting records.
The unaudited consolidated and combined financial statements for
the first six months of 2005 include the results for the period
from January 1 to January 5, 2005 prior to our spin-off
from Alcan, in addition to the results for the period from
January 6 to June 30, 2005, as described below. The
unaudited combined financial results for the period from January
1 to January 5, 2005 represent the operations and cash
flows of the Novelis entities on a carve-out basis. The
unaudited consolidated results as at June 30, 2005 and for
the period from January 6 (the date of the spin-off from Alcan)
to June 30, 2005 represent the operations, cash flows and
financial position of Novelis as a stand-alone entity. All
income earned and cash flows generated by the Novelis entities
as well as the risks and rewards of these businesses from
January 1 to January 5, 2005 were primarily attributed to
us and are included in our unaudited consolidated results for
the period from January 6 to June 30, 2005, with the
exception of mark-to-market losses of $30 million on
derivative contracts primarily with Alcan. These mark-to-market
losses for the period from January 1 to January 5, 2005,
were recorded in the unaudited consolidated statements of income
for the six months ended June 30, 2005, and are reflected
as a decrease in Owners net investment.
Our historical combined financial statements as at and for the
twelve months ended December 31, 2004, 2003, 2002, 2001 and
2000 and for the six months ended June 30, 2004 have been
derived from the accounting records of Alcan using the
historical results of operations and historical basis of assets
and liabilities of the businesses subsequently transferred to
us. Management believes the assumptions underlying the
historical combined financial statements are reasonable.
However, the historical combined financial statements included
herein may not necessarily reflect what our results of
operations, financial position and cash flows would have been
had we been a stand-alone company during the periods presented.
Alcans investment in the Novelis businesses, presented as
Owners net investment in the historical combined financial
statements, includes the accumulated earnings of the businesses
as well as cash transfers related to cash management functions
performed by Alcan.
The unaudited pro forma financial data for the year ended
December 31, 2004 set forth below is unaudited and has been
derived from the historical combined financial statements of the
Novelis Group. The unaudited pro forma combined financial data
reflects our historical combined financial information,
10
adjusted to give effect to the transactions described below as
if they had occurred on January 1, 2004. The following
transactions are reflected in the pro forma financial data:
|
|
|
|
|
the debt incurred in connection with the restructuring and
financing transactions, including the term loans, and the old
notes issued; |
|
|
|
the resulting interest costs on borrowed funds; |
|
|
|
other debt issuance costs and commitment fees incurred in the
restructuring and refinancing transactions; |
|
|
|
the settlement of all loans payable to and advances receivable
from Alcan; |
|
|
|
the repayment of third party borrowings; |
|
|
|
certain interest swap transactions related to third party
borrowings; |
|
|
|
the lease from Alcan of the Sierre North Building and the
machinery and equipment located therein; |
|
|
|
the net tax effects of the transactions described above; and |
|
|
|
other adjustments described in the notes to our unaudited pro
forma combined financial data. |
The unaudited pro forma data below is based upon available
information and assumptions that management believes are
reasonable. The unaudited pro forma financial data is for
illustrative and informational purposes only and is not intended
to represent or be indicative of what our financial condition or
results of operations would have been had the transactions
described above occurred on the dates indicated. The unaudited
pro forma data also is not necessarily indicative of our future
financial condition or results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical(1)(2) |
|
|
|
|
|
|
|
Six Months Ended |
|
|
Years Ended |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ millions, except per share data) |
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
$ |
4,291 |
|
|
$ |
3,739 |
|
|
$ |
7,755 |
|
|
$ |
6,221 |
|
|
$ |
5,893 |
|
|
$ |
5,777 |
|
|
$ |
5,668 |
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and operating expenses, excluding depreciation and
amortization noted below
|
|
|
3,852 |
|
|
|
3,275 |
|
|
|
6,856 |
|
|
|
5,482 |
|
|
|
5,208 |
|
|
|
5,156 |
|
|
|
4,992 |
|
|
Depreciation and amortization
|
|
|
115 |
|
|
|
118 |
|
|
|
246 |
|
|
|
222 |
|
|
|
211 |
|
|
|
217 |
|
|
|
205 |
|
|
Selling, general and administrative expenses
|
|
|
152 |
|
|
|
110 |
|
|
|
268 |
|
|
|
211 |
|
|
|
183 |
|
|
|
209 |
|
|
|
213 |
|
|
Research and development expenses
|
|
|
19 |
|
|
|
28 |
|
|
|
58 |
|
|
|
62 |
|
|
|
67 |
|
|
|
62 |
|
|
|
42 |
|
|
Interest
|
|
|
94 |
|
|
|
38 |
|
|
|
74 |
|
|
|
40 |
|
|
|
42 |
|
|
|
64 |
|
|
|
62 |
|
|
Other expenses (income) net
|
|
|
(3 |
) |
|
|
(14 |
) |
|
|
28 |
|
|
|
|
|
|
|
46 |
|
|
|
222 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,229 |
|
|
|
3,555 |
|
|
|
7,530 |
|
|
|
6,017 |
|
|
|
5,757 |
|
|
|
5,930 |
|
|
|
5,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical(1)(2) |
|
|
|
|
|
|
|
Six Months Ended |
|
|
Years Ended |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ millions, except per share data) |
|
Income (loss) before income tax and other items
|
|
|
62 |
|
|
|
184 |
|
|
|
225 |
|
|
|
204 |
|
|
|
136 |
|
|
|
(153 |
) |
|
|
126 |
|
Income taxes
|
|
|
44 |
|
|
|
66 |
|
|
|
166 |
|
|
|
50 |
|
|
|
77 |
|
|
|
6 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before other items
|
|
|
18 |
|
|
|
118 |
|
|
|
59 |
|
|
|
154 |
|
|
|
59 |
|
|
|
(159 |
) |
|
|
66 |
|
Equity income
|
|
|
4 |
|
|
|
3 |
|
|
|
6 |
|
|
|
6 |
|
|
|
8 |
|
|
|
5 |
|
|
|
6 |
|
Minority interests
|
|
|
(11 |
) |
|
|
(7 |
) |
|
|
(10 |
) |
|
|
(3 |
) |
|
|
8 |
|
|
|
17 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of accounting change
|
|
|
11 |
|
|
|
114 |
|
|
$ |
55 |
|
|
|
157 |
|
|
|
75 |
|
|
|
(137 |
) |
|
|
82 |
|
Cumulative effect of accounting change(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
11 |
|
|
$ |
114 |
|
|
$ |
55 |
|
|
$ |
157 |
|
|
$ |
(9 |
) |
|
$ |
(137 |
) |
|
$ |
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
Basic
|
|
|
.15 |
|
|
|
1.54 |
|
|
|
0.74 |
|
|
|
2.12 |
|
|
|
(0.12 |
) |
|
|
(1.85 |
) |
|
|
1.11 |
|
Net income (loss) per share Diluted
|
|
|
.15 |
|
|
|
1.53 |
|
|
|
0.74 |
|
|
|
2.11 |
|
|
|
(0.13 |
) |
|
|
(1.85 |
) |
|
|
1.10 |
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to consolidated results of Novelis from
January 6 to June 30, 2005 increase to retained
earnings
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to combined results of Novelis from
January 1 to January 5, 2005 decrease to
Owners net investment
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures(4)
|
|
|
56 |
|
|
|
59 |
|
|
|
165 |
|
|
|
189 |
|
|
|
179 |
|
|
|
236 |
|
|
|
261 |
|
Ratio of Earnings to Fixed Charges
|
|
|
1.7 |
x |
|
|
5.4 |
x |
|
|
3.8 |
x |
|
|
5.5 |
x |
|
|
3.7 |
x |
|
|
(i |
) |
|
|
2.8 |
x |
Dividends per share
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) Due to our net loss in 2001, the ratio coverage was
less than 1:1. We would have needed to generate additional
earnings of $68 million to achieve coverage of 1:1.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical(2) |
|
|
|
|
|
|
|
As at June 30, |
|
|
As at December 31, |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ millions) |
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and time deposits
|
|
$ |
129 |
|
|
|
28 |
|
|
$ |
31 |
|
|
$ |
27 |
|
|
|
31 |
|
|
|
17 |
|
|
|
35 |
|
Property, plant and equipment net
|
|
|
2,181 |
|
|
|
2,369 |
|
|
|
2,348 |
|
|
|
2,419 |
|
|
|
2,305 |
|
|
|
2,271 |
|
|
|
2,502 |
|
Total assets
|
|
|
5,341 |
|
|
|
6,920 |
|
|
|
5,954 |
|
|
|
6,316 |
|
|
|
4,558 |
|
|
|
4,390 |
|
|
|
4,943 |
|
Total debt
|
|
|
2,783 |
|
|
|
2,886 |
|
|
|
3,278 |
|
|
|
2,623 |
|
|
|
989 |
|
|
|
959 |
|
|
|
1,082 |
|
Shareholders/Invested equity
|
|
|
391 |
|
|
|
2,036 |
|
|
|
555 |
|
|
|
1,974 |
|
|
|
2,181 |
|
|
|
2,234 |
|
|
|
2,562 |
|
12
|
|
|
|
|
|
|
For the |
|
|
|
Year Ended |
|
|
|
December 31, 2004 |
|
|
|
|
|
|
|
($ millions except |
|
|
|
per share data) |
|
Pro Forma Financial Data:
|
|
|
|
|
Sales and operating revenues
|
|
$ |
7,755 |
|
Net loss
|
|
|
(59 |
) |
Net loss per common share-basic
|
|
|
(0.80 |
) |
Net loss per common share-diluted
|
|
|
(0.80 |
) |
Interest expense(5)
|
|
|
197 |
|
|
|
|
(1) |
Alcan implemented restructuring programs that included certain
businesses we acquired from it in the reorganization
transactions. Restructuring and asset impairment charges of
$(2) million, $2 million, $95 million,
$12 million, $25 million, $208 million and
$26 million were recorded in relation to these programs for
the six months ended June 30, 2005 and 2004, and in the
years ended December 31, 2004, 2003, 2002, 2001 and 2000,
respectively. |
|
|
(2) |
In December 2003, Alcan acquired Pechiney. A portion of the
acquisition cost relating to four plants that are included in
our company was allocated to us and accounted for as additional
invested equity. The net assets of the Pechiney plants are
included in the combined financial statements as at
December 31, 2003 and the results of operations and cash
flows are included in the combined financial statements
beginning January 1, 2004. |
|
(3) |
On January 1, 2002, we adopted SFAS No. 142,
Goodwill and Other Intangible Assets. Under this standard,
goodwill and other intangible assets with an indefinite life are
no longer amortized but are carried at the lower of carrying
value and fair value and are tested for impairment on an annual
basis. An impairment of $84 million was identified in the
goodwill balance as at January 1, 2002, and was charged to
income as a cumulative effect of accounting change in 2002 upon
adoption of the new accounting standard. The amount of goodwill
amortization was $3 million in 2001 and $1 million in
2000. |
|
|
(4) |
Excludes capital expenditures of the unconsolidated Norf joint
venture in which we have a 50% equity interest. Our
proportionate share of the Norf joint ventures total
capital expenditures was $15 million, $16 million,
$12 million, $18 million and $16 million for the
years ended December 31, 2004, 2003, 2002, 2001 and 2000,
respectively and was $5 million and $5 million for the
six months ended June 30, 2005 and 2004, respectively. |
|
|
(5) |
Pro forma interest represents interest calculated based on pro
forma debt using pro forma interest rates, and includes
amortization of debt issuance costs of $6 million. |
13
RISK FACTORS
Before tendering old notes in the exchange offer, you should
carefully consider the risk factors set forth below and all
other information contained in this prospectus. The risks
described below are the most significant risk factors currently
known to us which make an investment in our Notes speculative or
risky. If any of these risks occurs, our business, financial
condition or results of operations could suffer, and you could
lose part or all of your investment.
Risks Related to Separation from Alcan
|
|
|
We have no history operating as an independent company and
we may be unable to make on a timely or cost-effective basis the
changes necessary to operate as an independent company.
|
Prior to the separation, our business was operated by Alcan
primarily within two business groups of its broader corporate
organization rather than as a stand-alone company. Alcan
performed various corporate functions for us, including, but not
limited to, the following:
|
|
|
|
|
treasury administration; |
|
|
|
selected benefits administration functions; |
|
|
|
selected employee compensation functions; |
|
|
|
selected information technology services; and |
|
|
|
metal, energy and currency hedging. |
Following the separation, Alcan has no obligation to provide
these functions to us other than as part of the transitional
services that are provided by Alcan and that are described in
Business Arrangements Between Novelis and
Alcan.
If we do not have in place our own systems and business
functions, we do not have agreements with other providers of
these services or we are not able to make these changes cost
effectively, once our transitional services agreement with Alcan
expires, we may not be able to operate our business effectively,
we may be unable to maintain our market position in the various
markets in which we compete and our profitability may decline.
If Alcan does not continue to perform the transitional services
it has agreed to provide to us effectively, we may not be able
to operate our business effectively after the separation.
Historically we have benefited from Alcans size and
purchasing power in procuring goods, technology and services.
Although we entered into group purchasing arrangements for
certain goods and services with Alcan, we may be unable to
obtain goods, technology and services as a separate, stand-alone
company, at prices and on terms as favourable as those available
to us prior to the separation and we may not have access to
financial and other resources comparable to those available to
us prior to the separation.
|
|
|
A deterioration of our financial position or a downgrade
of our ratings by a credit rating agency could increase our
borrowing costs and our business relationships could be
adversely affected.
|
A deterioration of our financial position or a downgrade of our
ratings for any reason could increase our borrowing costs and
have an adverse effect on our business relationships. We intend,
from time to time, to enter into various forms of hedging
activities against currency or metal price fluctuations and to
trade metal contracts on the London Metal Exchange, or LME.
Financial strength and credit ratings are important to the
pricing of these hedging and trading activities. As a result,
any downgrade of our credit ratings may make it more costly for
us to engage in these activities, and our anticipated level of
indebtedness may make it more costly for us to engage in these
activities than it has been as a part of the Alcan group.
14
|
|
|
Our agreements with Alcan may not reflect what two
unaffiliated parties might have agreed to.
|
The allocation of assets, liabilities, rights, indemnifications
and other obligations between Alcan and us under the separation
and ancillary agreements we entered into with Alcan may not
reflect what two unaffiliated parties might have agreed to. Had
these agreements been negotiated with unaffiliated third
parties, their terms may have been more favourable, or less
favourable, to us.
|
|
|
As a separate company, we have supply agreements with
Alcan for a portion of our raw materials requirements. If Alcan
is unable to deliver sufficient quantities of these materials or
if it terminates these agreements, our ability to manufacture
products on a timely basis could be adversely affected.
|
The manufacture of our products requires sheet ingot that has
historically been, in part, supplied by Alcan. In 2004, we
purchased the majority of our third party sheet ingot
requirements from Alcans primary metal group. In
connection with the separation, we entered into metal supply
agreements with Alcan upon terms and conditions substantially
similar to market terms and conditions for the continued
purchase of sheet ingot from Alcan. If Alcan is unable to
deliver sufficient quantities of this material on a timely basis
or if Alcan terminates one of these agreements, our production
may be disrupted and our sales and profitability could be
materially adversely affected. Although aluminum is traded on
the world markets, developing alternative suppliers for that
portion of our raw material requirements we expect to be
supplied by Alcan could be time consuming and expensive.
Our continuous casting operations at our Saguenay Works, Canada
facility depend upon a local supply of molten aluminum from
Alcan. In 2004, Alcans primary metal group supplied
approximately 173 kilotonnes of such material to us,
representing all of the molten aluminum used at Saguenay Works
in 2004. In connection with the separation, we entered into a
metal supply agreement with Alcan upon terms and conditions
substantially similar to market terms and conditions for the
continued purchase of molten aluminum from Alcan. If this supply
were to be disrupted, our Saguenay Works production could be
interrupted and our sales and profitability materially adversely
affected.
|
|
|
We may lose key rights if a change in control of our
voting shares were to occur.
|
Our separation agreement with Alcan provides that if we
experience a change in control in our voting shares either
within the first year of the date of separation or during the
following four years if the entity acquiring control does not
agree with Alcan not to compete in the plate and aerospace
markets, Alcan may terminate any or all of certain agreements we
have with it. The termination of any of these agreements could
deprive us of key services, resources or rights necessary to the
conduct of our business. Replacement of these assets could be
difficult or impossible, resulting in a material adverse effect
on our business operations, sales and profitability. In
addition, the potential termination of these agreements could
prevent us from entering into future business transactions such
as acquisitions or joint ventures at terms favourable to us or
at all.
|
|
|
We could incur significant tax liability, or be liable to
Alcan, if certain transactions occur which violate tax-free
spin-off rules.
|
Under Section 55 of the Income Tax Act (Canada), we and/or
Alcan will recognize a taxable gain on our spin-off from Alcan
if, among other specified circumstances, (1) within three
years of our spin-off from Alcan, we engage in a subsequent
spin-off or split-up transaction under Section 55,
(2) a shareholder who (together with non-arms length
persons and certain other persons) owns 10% or more of our
common shares or Alcan common shares, disposes to a person
unrelated to such shareholder of any such shares (or property
that derives 10% or more of its value from such shares or
property substituted therefor) as part of the series of
transactions which includes our spin-off from Alcan,
(3) there is a change of control of us or of Alcan that is
part of the series of transactions that includes our spin-off
from Alcan, (4) we sell to a person unrelated to us
(otherwise than in the ordinary course of operations) as part of
the series of transactions that includes our spin-off from
Alcan, property acquired in our spin-off from Alcan that has a
value greater than 10% of the value of all property received in
the spin-off from Alcan, (5) within
15
three years of our spin-off from Alcan, Alcan completes a
split-up (but not spin-off) transaction under Section 55,
(6) Alcan makes certain acquisitions of property before and
in contemplation of our spin-off from Alcan, (7) certain
shareholders of Alcan and certain other persons acquired shares
of Alcan (other than in specified permitted transactions) in
contemplation of our spin-off from Alcan, or (8) Alcan
sells to a person unrelated to it (otherwise than in the
ordinary course of operations) as part of the series of
transactions or events which includes our spin-off from Alcan,
property retained by Alcan on the spin-off that has value
greater than 10% of the value of all property retained by Alcan
on our spin-off from Alcan. We would generally be required to
indemnify Alcan for tax under the tax sharing and disaffiliation
agreement if Alcans tax liability arose because of
(i) a breach of our representations, warranties or
covenants in the tax sharing and disaffiliation agreement,
(ii) certain acts or omissions by us (such as a transaction
described in (1) above), or (iii) an acquisition of
control of us. Alcan would generally be required to indemnify us
for tax under the tax sharing and disaffiliation agreement if
our tax liability arose because of (i) a breach of
Alcans representations, warranties or covenants in the tax
sharing and disaffiliation agreement, or (ii) certain acts
or omissions by Alcan (such as a transaction described in
(5) above). These liabilities and the related indemnity
payments could be significant and could have a material adverse
effect on our financial results.
Our U.S. subsidiary has agreed under the tax sharing and
disaffiliation agreement to certain restrictions that are
intended to preserve the tax-free status of the reorganization
transactions in the United States for United States federal
income tax purposes, and that will, among other things, limit,
generally for two years, our U.S. subsidiarys ability
to issue or sell stock or other equity-related securities, to
sell its assets outside the ordinary course of business, and to
enter into any other corporate transaction that would result in
a person acquiring, directly or indirectly, a majority of our
U.S. subsidiary, including an interest in our
U.S. subsidiary through holding our shares. If we breach
any of these covenants, we generally will be required to
indemnify Alcan Corporation, the intermediate holding company
for Alcans U.S. operations, against the United States
federal income tax resulting from a failure of the
reorganization transactions in the United States to be tax-free
for United States federal income tax purposes. These liabilities
and the related indemnity payments could be significant and
could have a material adverse effect on our financial results.
These potential liabilities could prevent us from entering into
business transactions at favourable terms to us or at all.
|
|
|
We may be required to satisfy certain indemnification
obligations to Alcan, or may not be able to collect on
indemnification rights from Alcan.
|
In connection with the separation, we and Alcan agreed to
indemnify each other for certain liabilities and obligations
related to, in the case of our indemnity, the business
transferred to us, and in the case of Alcans indemnity,
the business retained by Alcan. These indemnification
obligations could be significant. We cannot determine whether we
will have to indemnify Alcan for any substantial obligations
after the separation. We also cannot assure you that if Alcan
has to indemnify us for any substantial obligations, Alcan will
be able to satisfy those obligations.
|
|
|
We may have potential business conflicts of interest with
Alcan with respect to our past and ongoing relationships that
could harm our business operations.
|
A number of our commercial arrangements with Alcan that existed
prior to the reorganization transactions, our separation
arrangements and our post-separation commercial agreements with
Alcan could be the subject of differing interpretation and
disagreement following our separation. These agreements may be
resolved in a manner different from the manner in which disputes
were resolved when we were part of the Alcan group. This could
in turn affect our relationship with Alcan and ultimately harm
our business operations.
16
|
|
|
Our agreement not to compete with Alcan in certain end-use
markets may hinder our ability to take advantage of new business
opportunities.
|
In connection with the separation, we have agreed not to compete
with Alcan for a period of five years in the manufacture,
production and sale of certain products for use in the plate and
aerospace markets. As a result, it may be more difficult for us
to pursue successfully new business opportunities, which could
limit our potential sources of revenue and growth. Please see
Business Arrangements Between Novelis and
Alcan Separation Agreement.
|
|
|
Neither our historical nor our pro forma financial
information may be representative of results we would have
achieved as an independent company or our future results.
|
Certain of the historical financial information we have included
in this prospectus has been derived from Alcans
consolidated financial statements and does not necessarily
reflect what our results of operations, financial position or
cash flows would have been had we been an independent company
during the periods presented. For this reason, as well as the
inherent uncertainties of our business, the historical financial
information does not necessarily indicate what our results of
operations, financial position, cash flows or costs and expenses
will be in the future.
Although our pro forma adjustments reflect certain changes that
have occurred in our capital and cost structure as a result of
our separation from Alcan and other adjustments, they do not
necessarily indicate the actual changes in capital and cost
structure that may occur following our separation from Alcan and
as we operate as a publicly traded, independent company.
|
|
|
We expect to have to spend significant amounts of time and
resources to build a new brand identity.
|
Prior to our separation from Alcan, we marketed our products
under the Alcan name, which has a strong reputation within the
markets we serve. We have now adopted new trademarks and trade
names to reflect our new company name. Although we are
continuing to engage in significant marketing activities and
intend to spend significant amounts of time and resources to
develop a new brand identity, potential customers, business
partners and investors generally may not associate Alcans
reputation and expertise with our products and services.
Furthermore, our name change also may cause difficulties in
recruiting qualified personnel. If we fail to build brand
recognition, we may not be able to maintain the leading market
positions that we have developed while we were part of Alcan,
which could harm our financial results.
|
|
|
As we build our information technology infrastructure and
transition our data to our own systems, we could experience
temporary interruptions in business operations and incur
additional costs.
|
We have created our own, or have engaged third parties to
provide, information technology infrastructure and systems to
support our critical business functions, including accounting
and reporting, in order to replace many of the systems Alcan
provided to us. We may incur temporary interruptions in business
operations if we cannot transition effectively from Alcans
existing operating systems, databases and programming languages
that support these functions to our own systems. Our failure to
implement the new systems and transition our data successfully
and cost-effectively could disrupt our business operations and
have a material adverse effect on our profitability. In
addition, our costs for the operation of these systems may be
higher than the amounts reflected in our historical combined
financial statements.
|
|
|
If we fail to maintain an effective system of disclosure
controls and procedures, we may not be able to accurately report
our financial results in a timely manner.
|
Disclosure controls and procedures are controls and procedures
that are designed to ensure that information that is required to
be disclosed in our periodic reports on Form 10-Q and
Form 10-K as filed with the Securities and Exchange
Commission is recorded, processed, summarized and reported
within the time periods required. In connection with the
preparation of our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2005, our CEO and CFO concluded that
as of June 30, 2005, our disclosure controls and procedures
were not effective at a reasonable assurance level. In reaching
the conclusion that
17
our disclosure controls were not effective, our Chief Executive
Officer and Chief Financial Officer took note of (a) the
determination reflected in our quarterly report on
Form 10-Q for the period ended March 31, 2005 that our
disclosure controls were not effective, (b) a change made
in a press release dated August 12, 2005 (as filed on
Form 8-K on the same date) to the pre-and post-tax
unrealized losses on the change in the market value of
derivatives as disclosed in our second quarter earnings press
release dated August 10, 2005 and (c) a general
concern that delays in the generation of accurate draft
financial information to be included in the earnings release and
quarterly report on Form 10-Q compress the time in which
various internal and external participants in our disclosure
controls process must analyze, review, check and confirm the
financial information, or revise that information if errors are
identified. Senior management, our disclosure committee and
audit committee are reviewing remediation measures to improve
our disclosure controls and procedures. We cannot be certain
that our efforts to improve our disclosure controls and
procedures will be successful or that we will be able to
maintain adequate controls in the future. Any failure to develop
or maintain effective disclosure controls and procedures or
difficulties encountered in their implementation could harm our
ability to report our operating results in a timely manner or
cause us to fail to meet our reporting obligation, which could
also cause investors to lose confidence in our reported
financial information and harm our reputation, which in turn
could affect our ability to access the capital markets.
Risks Related to our Business and the Market Environment
|
|
|
Certain of our customers are significant to our revenues,
and we could be adversely affected by changes in the business or
financial condition of these significant customers or by the
loss of their business.
|
Our ten largest customers accounted for approximately 41% of our
total sales and operating revenues in 2004, with Rexam Plc and
its affiliates representing approximately 11% of our total sales
and operating revenues in that year. A significant downturn in
the business or financial condition of our significant customers
could materially adversely affect our results of operations. In
addition, if our existing relationships with significant
customers materially deteriorate or are terminated in the
future, and we are not successful in replacing business lost
from such customers, our results of operations could be
adversely affected. Some of the longer term contracts under
which we supply our customers, including under umbrella
agreements such as those described under
Business Our Customers, are subject to
renewal, renegotiation or re-pricing at periodic intervals or
upon changes in competitive supply conditions. Our failure to
successfully renew, renegotiate or re-price such agreements
could result in a reduction or loss in customer purchase volume
or revenue, and if we are not successful in replacing business
lost from such customers, our results of operations could be
adversely affected. The markets in which we operate are
competitive and customers may seek to consolidate supplier
relationships or change suppliers to accrue cost savings and
other benefits.
|
|
|
Our profitability could be adversely affected by increases
in the cost or disruptions in the availability of raw
materials.
|
Prices for the raw materials we require are subject to
continuous volatility and may increase from time to time.
Although our sales are generally made on the basis of a
margin over metal price, if prices increase, we may
not be able to pass on the entire cost of the increases to our
customers or offset fully the effects of higher raw material
costs, other than metal, through productivity improvements,
which may cause our profitability to decline. In addition, there
is a potential time lag between changes in prices under our
purchase contracts and the point when we can implement a
corresponding change under our sales contracts with our
customers. As a result, we can be exposed to fluctuations in raw
materials prices, including metal, since, during the time lag
period, we may have to temporarily bear the additional cost of
the change under our purchase contracts, which could have a
material adverse effect on our profitability. Furthermore, sales
contracts currently representing approximately 20% of our total
annual sales provide for a ceiling over which metal prices
cannot contractually be passed through to our customers. These
contracts have in the past and may in the future have a material
adverse effect on our financial results. Although we have
attempted to mitigate this risk through the purchase of metal
options, this hedging policy has not been totally economically
effective and may not be totally economically effective in the
future. For
18
example, the reduction in Regional Income of Novelis North
America of $50 million, or 36%, during the first six months
of 2005 compared to the first six months of 2004 was mainly due
to the adverse effect of metal price increases which impacted
the can price ceiling and metal pass-through differences
totaling $34 million. As metal prices continue to remain
relatively high, these price ceilings will continue to have an
adverse effect on our financial results. In addition, a
sustained material increase in raw materials prices may cause
some of our customers to substitute other materials for our
products.
|
|
|
Our operations consume energy and our profitability may
decline if energy costs were to rise, or if our energy supplies
were interrupted.
|
We consume substantial amounts of energy in our rolling
operations, our cast house operations and our Brazilian smelting
operations. The factors that affect our energy costs and supply
reliability tend to be specific to each of our facilities. A
number of factors could materially adversely affect our energy
position including:
|
|
|
|
|
increases in costs of natural gas; |
|
|
|
significant increases in costs of supplied electricity or fuel
oil related to transportation; |
|
|
|
interruptions in energy supply due to equipment failure or other
causes; and |
|
|
|
the inability to extend energy supply contracts upon expiration
on economical terms. |
If energy costs were to rise, or if energy supplies or supply
arrangements were disrupted, our profitability could decline.
|
|
|
We may not have sufficient cash and may be limited in our
ability to access financing for future capital requirements,
which may prevent us from increasing our manufacturing
capability, improving our technology or addressing any gaps in
our product offerings.
|
Although historically our cash flow from operations has been
sufficient to satisfy working capital, capital expenditure and
research and development requirements, in the future we may need
to incur additional debt or issue equity in order to fund these
requirements as well as to make acquisitions and other
investments. To the extent we are unable to raise new capital,
we may be unable to increase our manufacturing capability,
improve our technology or address any gaps in our product
offerings. If we raise funds through the issuance of debt or
equity, any debt securities or preferred shares issued will have
rights and preferences and privileges senior to those of holders
of our common shares. The terms of the debt securities may
impose restrictions on our operations that have an adverse
impact on our financial condition. If we raise funds through the
issuance of equity, the proportional ownership interests of our
shareholders could be diluted.
|
|
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Adverse changes in currency exchange rates could
negatively affect our financial results and the competitiveness
of our aluminum rolled products relative to other
materials.
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Our businesses and operations are exposed to the effects of
changes in the exchange rates of the U.S. dollar, the euro,
the British pound, the Brazilian real, the Canadian dollar, the
Korean won and other currencies. Currency risk management for
our business was historically considered within Alcans
overall treasury operations. As part of that strategy, Alcan
used financial instruments to reduce its exposure to adverse
movements in currency exchange rates. As an independent company,
we plan to implement a hedging policy that will attempt to
manage currency exchange rate risks to an acceptable level based
on our managements judgment of the appropriate trade-off
between risk, opportunity and cost; however, this hedging policy
may not successfully or completely eliminate the effects of
currency exchange rate fluctuations which could have a material
adverse effect on our financial results.
We prepare our consolidated and combined financial statements in
U.S. dollars, but a portion of our earnings and
expenditures are denominated in other currencies, primarily the
euro, the Korean won and the Brazilian real. Changes in exchange
rates will result in increases or decreases in our reported
costs and earnings, and may also affect the book value of our
assets located outside the United States and the amount of our
equity.
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Primary aluminum and aluminum recyclables represent between 25%
and 85% of the price of our rolled products and these input
materials are purchased based upon LME aluminum trading prices
denominated in U.S. dollars. As a result, and because we
generally sell our rolled products on a margin over
metal price, increases in the relative value of the
U.S. dollar against the local currency in which sales are
made can make aluminum rolled products less attractive to our
customers than substitute materials, such as steel or glass,
whose manufacturing costs may be more closely linked to the
local currency, which in turn could have a material adverse
effect on our financial results.
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Most of our facilities are staffed by a unionized
workforce, and union disputes and other employee relations
issues could materially adversely affect our financial
results.
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Approximately two-thirds of our employees are represented by
labour unions under a large number of collective bargaining
agreements with varying durations and expiration dates. We may
not be able to satisfactorily renegotiate our collective
bargaining agreements when they expire. In addition, existing
collective bargaining agreements may not prevent a strike or
work stoppage at our facilities in the future, and any such work
stoppage could have a material adverse effect on our financial
results.
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Our operations have been and will continue to be exposed
to various business and other risks, changes in conditions and
events beyond our control in countries where we have operations
or sell products.
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We are, and will continue to be, subject to financial,
political, economic and business risks in connection with our
worldwide operations. We have made investments and carry on
production activities in various emerging markets, including
Brazil, Korea and Malaysia, and we market our products in these
countries, as well as China and certain other countries in Asia.
While we anticipate higher growth or attractive production
opportunities from these emerging markets, they also present a
higher degree of risk than more developed markets. In addition
to the business risks inherent in developing and servicing new
markets, economic conditions may be more volatile, legal and
regulatory systems less developed and predictable, and the
possibility of various types of adverse governmental action more
pronounced. In addition, inflation, fluctuations in currency and
interest rates, competitive factors, civil unrest and labour
problems could affect our revenues, expenses and results of
operations. Our operations could also be adversely affected by
acts of war, terrorism or the threat of any of these events as
well as government actions such as controls on imports, exports
and prices, tariffs, new forms of taxation, or changes in fiscal
regimes and increased government regulation in the countries in
which we operate or service customers. Unexpected or
uncontrollable events or circumstances in any of these markets
could have a material adverse effect on our financial results.
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We could be adversely affected by disruptions of our
operations.
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Breakdown of equipment or other events, including catastrophic
events such as war or natural disasters, leading to production
interruptions in our plants could have a material adverse effect
on our financial results. Further, because many of our customers
are, to varying degrees, dependent on planned deliveries from
our plants, customers that have to reschedule their own
production due to our missed deliveries could pursue financial
claims against us. We may incur costs to correct any of these
problems, in addition to facing claims from customers. Further,
our reputation among actual and potential customers may be
harmed, potentially resulting in a loss of business. While we
maintain insurance policies covering, among other things,
physical damage, business interruptions and product liability,
these policies may not cover all of our losses and we could
incur uninsured losses and liabilities arising from such events,
including damage to our reputation, loss of customers and suffer
substantial losses in operational capacity, any of which could
have a material adverse effect on our financial results.
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We may not be able to successfully develop and implement
new technology initiatives in a timely manner.
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We have invested in, and are involved with, a number of
technology and process initiatives. Several technical aspects of
these initiatives are still unproven and the eventual commercial
outcomes cannot be assessed with any certainty. Even if we are
successful with these initiatives, we may not be able to deploy
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them in a timely fashion. Accordingly, the costs and benefits
from our investments in new technologies and the consequent
effects on our financial results may vary from present
expectations.
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Loss of our key management and other personnel, or an
inability to attract such management and other personnel, could
impact our business.
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We depend on our senior executive officers and other key
personnel to run our business. The loss of any of these officers
or other key personnel could materially adversely affect our
operations. Competition for qualified employees among companies
that rely heavily on engineering and technology is intense, and
the loss of qualified employees or an inability to attract,
retain and motivate additional highly skilled employees required
for the operation and expansion of our business could hinder our
ability to improve manufacturing operations, conduct research
activities successfully and develop marketable products.
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We may not be able to adequately protect proprietary
rights to our technology.
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Although we attempt to protect our proprietary technology and
processes and other intellectual property through patents,
trademarks, trade secrets, copyrights, confidentiality and
nondisclosure agreements and other measures, these measures may
not be adequate to protect our intellectual property. Because of
differences in intellectual property laws throughout the world,
our intellectual property may be substantially less protected in
various international markets than it is in the United States
and Canada. Failure on our part to adequately protect our
intellectual property may materially adversely affect our
financial results. Furthermore, we may be subject to claims that
our technology infringes the intellectual property rights of
another. Even if without merit, those claims could result in
costly and prolonged litigation, divert managements
attention and could materially adversely affect our business. In
addition, we may be required to enter into licensing agreements
in order to continue using technology that is important to our
business. However, we may be unable to obtain license agreements
on terms that are acceptable to us or at all.
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Past and future acquisitions or divestitures may adversely
affect our financial condition.
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We have grown partly through the acquisition of other businesses
including businesses acquired by Alcan in its 2000 acquisition
of the Alusuisse Group Ltd. and its 2003 acquisition of
Pechiney, both of which were integrated aluminum companies. As
part of our strategy for growth, we may continue to pursue
acquisitions, divestitures or strategic alliances, which may not
be completed or, if completed, may not be ultimately beneficial
to us. There are numerous risks commonly encountered in business
combinations, including the risk that we may not be able to
complete a transaction that has been announced, effectively
integrate businesses acquired or generate the cost savings and
synergies anticipated. Failure to do so could have a material
adverse effect on our financial results.
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We could be required to make unexpected contributions to
our defined benefit pension plans as a result of adverse changes
in interest rates and the capital markets.
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Most of our pension obligations relate to funded defined benefit
pension plans for our employees in the United States, the United
Kingdom and in Brazil, which was terminated in June 2004,
unfunded pension benefits in Germany, and lump sum indemnities
payable to our employees in France, Korea and Malaysia upon
retirement. Our pension plan assets consist primarily of listed
stocks and bonds. Our estimates of liabilities and expenses for
pensions and other post-retirement benefits incorporate a number
of assumptions, including expected long term rates of return on
plan assets and interest rates used to discount future benefits.
Our results of operations, liquidity or shareholders
equity in a particular period could be adversely affected by
capital market returns that are less than their assumed long
term rate of return or a decline of the rate used to discount
future benefits.
If the assets of our pension plans do not achieve assumed
investment returns for any period, such deficiency could result
in one or more charges against our earnings for that period. In
addition, changing economic conditions, poor pension investment
returns or other factors may require us to make unexpected cash
contributions to the pension plans in the future, preventing the
use of such cash for other purposes.
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In addition to existing defined benefit pension plans, we may
elect in 2005 to assume pension liabilities from pension plans
that we currently share with Alcan. The assumption of such
liabilities would occur by the establishment of new pension
plans and the transfer of assets from Alcan pension plans. The
risks described above will also apply to these plans.
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We face risks relating to certain joint ventures and
subsidiaries that we do not entirely control. Our ability to
generate cash from these entities may be more restricted than if
such entities were wholly owned subsidiaries.
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Some of our activities are, and will in the future be, conducted
through entities that we do not entirely control or wholly own.
These entities include our Norf, Germany and Logan, Kentucky
joint ventures, as well as our majority-owned Korean and
Malaysian subsidiaries. Under the governing documents or
agreements for certain of these joint ventures and subsidiaries,
our ability to fully control certain operational matters may be
limited. In addition, we do not solely determine certain key
matters, such as the timing and amount of cash distributions
from these entities. As a result, our ability to generate cash
from these entities may be more restricted than if they were
wholly owned entities.
Risks Related to Our Industry
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We face significant price and other forms of competition
from other aluminum rolled products producers, which could hurt
our results of operations.
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Generally, the markets in which we operate are highly
competitive. We compete primarily on the basis of our value
proposition, including price, product quality, ability to meet
customers specifications, range of products offered, lead
times, technical support and customer service. Some of our
competitors may benefit from greater capital resources, have
more efficient technologies, or have lower raw material and
energy costs and may be able to sustain longer periods of price
competition.
In addition, our competitive position within the global aluminum
rolled products industry may be affected by, among other things,
the recent trend toward consolidation among our competitors,
exchange rate fluctuations that may make our products less
competitive in relation to the products of companies based in
other countries (despite the U.S. dollar based input cost
and the marginal costs of shipping) and economies of scale in
purchasing, production and sales, which accrue to some of our
competitors.
Increased competition could cause a reduction in our shipment
volumes and profitability or increase our expenditures, any one
of which could have a material adverse effect on our financial
results.
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The end-use markets for certain of our products are highly
competitive and customers are willing to accept substitutes for
our products.
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The end-use markets for certain aluminum rolled products are
highly competitive. Aluminum competes with other materials, such
as steel, plastics, composite materials and glass, among others,
for various applications, including in the beverage/food cans
and automotive end-use markets. In the past, customers have
demonstrated a willingness to substitute other materials for
aluminum. The willingness of customers to accept substitutes for
aluminum products could have a material adverse effect on our
financial results.
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A downturn in the economy could have a material adverse
effect on our financial results.
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Certain end-use markets for aluminum rolled products, such as
the construction and industrial and transportation markets,
experience demand cycles that are highly correlated to the
general economic environment, which is sensitive to a number of
factors outside our control. A recession or a slowing of the
economy in any of the geographic segments in which we operate,
including China where significant economic growth is expected,
or a decrease in manufacturing activity in industries such as
automotive, construction and packaging and consumer goods, could
have a material adverse effect on our financial results. We are
not able to predict the timing, extent and duration of the
economic cycles in the markets in which we operate.
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The seasonal nature of some of our customers
industries could have a material adverse effect on our financial
results.
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The construction industry and the consumption of beer and soda
are sensitive to climatic conditions and as a result, demand for
aluminum rolled products in the construction industry and for
can feedstock is seasonal. Our quarterly financial results could
fluctuate as a result of climatic changes, and a prolonged
series of cold summers in the different areas in which we
conduct our business could have a material adverse effect on our
financial results.
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We are subject to a broad range of environmental, health
and safety laws and regulations in the jurisdictions in which we
operate, and we may be exposed to substantial environmental,
health and safety costs and liabilities.
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We are subject to a broad range of environmental, health and
safety laws and regulations in the jurisdictions in which we
operate. These laws and regulations impose increasingly
stringent environmental, health and safety protection standards
and permitting requirements regarding, among other things, air
emissions, wastewater storage, treatment and discharges, the use
and handling of hazardous or toxic materials, waste disposal
practices, and the remediation of environmental contamination
and working conditions for our employees. The costs of complying
with these laws and regulations, including participation in
assessments and remediation of sites and installation of
pollution control facilities, have been, and in the future could
be, significant. In addition, these laws and regulations may
also result in substantial environmental liabilities, including
liabilities associated with divested assets and past activities.
In certain instances, these costs and liabilities, as well as
related action to be taken by us, could be accelerated or
increased if we were to close or divest of or change the
principal use of certain facilities with respect to which we may
have environmental liabilities or remediation obligations.
Currently, we are involved in a number of compliance efforts,
remediation activities and legal proceedings concerning
environmental matters. We have established reserves for
environmental remediation activities and liabilities where
appropriate. However, environmental matters (including the
timing of any charges related thereto) cannot be predicted with
certainty, and these reserves may not ultimately be adequate,
especially in light of potential changes in environmental
conditions, changing interpretations of laws and regulations by
regulators and courts, the discovery of previously unknown
environmental conditions, the risk of governmental orders to
carry out additional compliance on certain sites not initially
included in remediation in progress, our potential liability to
remediate sites for which provisions have not been previously
established and the adoption of more stringent environmental
laws. Such future developments could result in increased
environmental costs and liabilities and could require
significant capital expenditures, any of which could have a
material adverse effect on our financial condition or results.
Some of our current and potential operations are located or
could be located in or near communities that may regard such
operations as having a detrimental effect on their social and
economic circumstances. Should this occur, the consequences of
such a development may have a material adverse impact upon the
profitability or, in extreme cases, the viability of an
operation. In addition, such developments may adversely affect
our ability to expand or enter into new operations in such
location or elsewhere.
We use a variety of hazardous materials and chemicals in our
rolling processes, as well as in our smelting operations in
Brazil and in connection with maintenance work on our
manufacturing facilities. In the event that any of these
substances or related residues proves to be toxic, we may be
liable for certain costs, including, among others, costs for
health-related claims or removal or retreatment of such
substances. In addition, although we have developed
environmental, health and safety programs for our employees and
conduct regular assessments at our facilities, we are currently,
and in the future may be, involved in claims and litigation
filed on behalf of persons alleging injury predominantly as a
result of occupational exposure to substances at our current or
former facilities. It is not possible to predict the ultimate
outcome of these claims and lawsuits due to the unpredictable
nature of personal injury litigation. If these claims and
lawsuits, individually or in the aggregate, were finally
resolved against us, our results of operations and cash flows
could be adversely affected.
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We may be exposed to significant legal proceedings or
investigations.
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From time to time, we are involved in, or the subject of,
disputes, proceedings and investigations with respect to a
variety of matters, including environmental, health and safety,
product liability, employee, tax, contractual and other matters
as well as other disputes and proceedings that arise in the
ordinary course of business. Certain of these matters are
discussed in the preceding risk factor and certain are discussed
below under Business Legal Proceedings.
Any claims against us or any investigations involving us,
whether meritorious or not, could be costly to defend or comply
with and could divert managements attention as well as
operational resources. Any such dispute, litigation or
investigation, whether currently pending or threatened or in the
future, may have a material adverse effect on our financial
results.
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Product liability claims against us could result in
significant costs or negatively impact our reputation and could
adversely affect our business results and financial
condition.
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We are sometimes exposed to warranty and products liability
claims. There can be no assurance that we will not experience
material product liability losses arising from such claims in
the future and that these will not have a negative impact on our
sales and profitability. We generally maintain insurance against
many product liability risks but there can be no assurance that
this coverage will be adequate for liabilities ultimately
incurred. In addition, there is no assurance that insurance will
continue to be available on terms acceptable to us. A successful
claim that exceeds our available insurance coverage could have a
material adverse effect on our financial results.
Risks Related to the Notes
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Following our separation from Alcan, we have a substantial
amount of indebtedness. Our substantial indebtedness could
adversely affect our business and therefore make it more
difficult for us to fulfill our obligations under the
Notes.
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We have a substantial amount of indebtedness. At June 30,
2005, we had total indebtedness of $2.8 billion, including
the $1.1 billion of secured debt outstanding under the
senior secured credit facilities that we and certain of our
subsidiaries entered into in connection with the reorganization
transactions. Following the reorganization transactions and the
financing transactions, our businesses are operating with
significantly more indebtedness and higher interest expenses
than they did when they were part of Alcan.
Our substantial indebtedness and interest expense could have
important consequences to our company and you, including:
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limiting our ability to borrow additional amounts for working
capital, capital expenditures, debt service requirements,
execution of our growth strategy, or other general corporate
purposes; |
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limiting our ability to use operating cash flow in other areas
of our business because we must dedicate a substantial portion
of these funds to service the debt; |
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increasing our vulnerability to general adverse economic and
industry conditions; |
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placing us at a competitive disadvantage as compared to our
competitors that have less leverage; |
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limiting our ability to capitalize on business opportunities and
to react to competitive pressures and adverse changes in
government regulation; |
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limiting our ability or increasing the costs to refinance
indebtedness; and |
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limiting our ability to enter into marketing, hedging,
optimization and trading transactions by reducing the number of
counterparties with whom we can enter into such transactions as
well as the volume of those transactions. |
Although we are highly leveraged, the indenture relating to the
Notes and the senior secured credit facilities will permit us to
incur substantial additional indebtedness in the future,
including up to an additional $500 million that we or
certain of our subsidiaries may borrow under the revolving
credit facilities that are part of the senior secured credit
facilities. If we or our subsidiaries incur additional debt, the
risks we now face as a result of our leverage could intensify.
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We are a holding company and depend on our subsidiaries to
generate sufficient cash flow to meet our debt service
obligations, including payments on the Notes.
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We are a holding company and a large portion of our assets are
the capital stock of our subsidiaries and joint ventures. As a
holding company, we conduct substantially all of our business
through our subsidiaries and joint ventures. Consequently, our
cash flow and ability to service our debt obligations, including
the Notes, are dependent upon the earnings of our subsidiaries
and joint ventures and the distribution of those earnings to us,
or upon loans, advances or other payments made by these entities
to us. The ability of these entities to pay dividends or make
other loans, advances or payments to us will depend upon their
operating results and will be subject to applicable laws and
contractual restrictions contained in the instruments governing
their debt, and we may not exercise sufficient control to cause
distributions to be made to us. Although our senior secured
credit facilities and the indenture each limit the ability of
our restricted subsidiaries to enter into consensual
restrictions on their ability to pay dividends and make other
payments to us, these limitations do not apply to our existing
joint ventures or unrestricted subsidiaries and the limitations
are also subject to important exceptions and qualifications.
The ability of our subsidiaries to generate sufficient cash flow
from operations to allow us to make scheduled payments on our
debt obligations, including the Notes, will depend on their
future financial performance, which will be affected by a range
of economic, competitive and business factors, many of which are
outside of our control. We cannot assure you that the cash flow
and earnings of our operating subsidiaries and the amount that
they are able to distribute to us as dividends or otherwise will
be adequate for us to service our debt obligations, including
the Notes. If our subsidiaries do not generate sufficient cash
flow from operations to satisfy our debt obligations, including
payments on the Notes, we may have to undertake alternative
financing plans, such as refinancing or restructuring our debt,
selling assets, reducing or delaying capital investments or
seeking to raise additional capital. We cannot assure you that
any such alternative refinancing would be possible, that any
assets could be sold, or, if sold, of the timing of the sales
and the amount of proceeds realized from those sales, that
additional financing could be obtained on acceptable terms, if
at all, or that additional financing would be permitted under
the terms of our various debt instruments then in effect. Our
inability to generate sufficient cash flow to satisfy our debt
obligations, or to refinance our obligations on commercially
reasonable terms, would have an adverse effect on our business,
financial condition and results of operations, as well as on our
ability to satisfy our obligations on the Notes.
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The covenants in the senior secured credit facilities and
the indenture governing the Notes impose significant operating
and financial restrictions on us. If we default under these
covenants, we may not be able to make payments on the
Notes.
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The senior secured credit facilities and the indenture governing
the Notes impose significant operating and financial
restrictions on us. These restrictions limit our ability and the
ability of our restricted subsidiaries, among other things, to:
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incur additional debt and provide additional guarantees; |
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pay dividends beyond certain amounts and make other restricted
payments; |
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create or permit certain liens; |
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make certain asset sales; |
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use the proceeds from the sales of assets and subsidiary stock; |
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create or permit restrictions on the ability of our restricted
subsidiaries to pay dividends or make other distributions to us; |
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engage in certain transactions with affiliates; |
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enter into sale and leaseback transactions; |
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designate subsidiaries as unrestricted subsidiaries; and |
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consolidate, merge or transfer all or substantially all of our
assets or the assets of our restricted subsidiaries. |
The senior secured credit facility also contains various
affirmative covenants, including financial covenants, with which
we are required to comply.
Although we currently expect to be able to comply with these
covenants, operating results substantially below our business
plan or other adverse factors, including a significant increase
in interest rates, could result in our being unable to comply
with our financial covenants. If we do not comply with these
covenants and are unable to obtain waivers from our lenders, we
would be unable to make additional borrowings under these
facilities, our indebtedness under these agreements would be in
default and could be accelerated by our lenders and could cause
a cross-default under our other indebtedness, including the
Notes. If our indebtedness is accelerated, we may not be able to
repay our indebtedness or borrow sufficient funds to refinance
it. In addition, if we incur additional debt in the future, we
may be subject to additional covenants, which may be more
restrictive than those that we are subject to now.
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Most of the covenants in the indenture will be suspended
during any future period that we have an investment grade rating
from one rating agency, and during any such period you will not
have the benefit of those covenants. In addition, certain
covenants will be terminated if we have an investment grade
rating from both rating agencies.
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Most of the covenants in the indenture, as well as our
obligation to offer to repurchase Notes following certain asset
sales, will be suspended if the Notes obtain an investment grade
rating from either one of these two rating agencies and we are
not in default under the indenture. If such a suspension occurs,
the protections afforded to you by the covenants that have been
suspended will not be restored until the investment grade rating
assigned by either Moodys or Standard &
Poors to the Notes should subsequently decline and as a
result the Notes do not carry an investment grade rating from
one rating agency. In addition, most of these covenants, as well
as our obligation to offer to repurchase Notes following certain
asset sales, will be terminated permanently if at any time the
Notes receive an investment grade rating from both Moodys
and Standard & Poors and we are not in default
under the indenture. If this termination occurs, the protections
afforded to you by the terminated covenants will not be later
restored, regardless of any subsequent change in the Notes
ratings. See Description of Notes Certain
Covenants Covenant Termination and Suspension.
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Your right to receive payments on the Notes is effectively
junior in right of payment to all existing and future secured
indebtedness of ours or the guarantors up to the value of the
collateral securing such indebtedness.
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The Notes will be effectively junior to all existing and future
secured indebtedness of ours or the guarantors up to the value
of the collateral securing such indebtedness. For example, the
Notes and the related guarantees will effectively rank junior to
$1.1 billion of secured indebtedness under the senior
secured credit facilities which we and our principal
U.S. subsidiary, Novelis Corporation, have borrowed or
guaranteed in connection with the reorganization transactions
and financing transactions (and up to an additional
$500 million of indebtedness may be borrowed under those
facilities in the future), to the extent of the collateral
securing such indebtedness. Although the indenture contains
restrictions on our ability and the ability of our restricted
subsidiaries to create or incur liens to secure indebtedness,
these restrictions are subject to important limitations and
exceptions that permit us to secure a substantial amount of
additional indebtedness. Accordingly, in the event of a
bankruptcy, liquidation or reorganization affecting us or any
guarantors, your rights to receive payment will be effectively
subordinated to those of secured creditors up to the value of
the collateral securing such indebtedness.
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Your right to receive payments on the Notes could be
adversely affected if any of our non-guarantor subsidiaries
declares bankruptcy, liquidates, or reorganizes.
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Some, but not all of our subsidiaries will guarantee the Notes.
As a result, you will only be creditors of our company and those
of our subsidiaries that do guarantee the Notes. In the case of
subsidiaries that are not guarantors, all the existing and
future liabilities of those subsidiaries, including any claims
of trade creditors, debtholders and preferred stockholders, will
be effectively senior to the Notes and related guarantees.
Subject to limitations in the senior secured credit facilities
and the indenture, non-guarantor subsidiaries may incur
additional indebtedness in the future (and may incur other
liabilities without limitation). In the event of a bankruptcy,
liquidation or reorganization of any of our non-guarantor
subsidiaries, their creditors will generally be entitled to
payment of their claims from the assets of those subsidiaries
before any assets are made available for distribution to us. In
2004, on a historical combined basis, our subsidiaries that will
not be guarantors of the Notes at the consummation of this
exchange offer had sales and operating revenues of
$2.1 billion, and, at June 30, 2005, those
subsidiaries had assets of $1.9 billion and debt and other
liabilities of $1.1 billion (including inter-company
balances).
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We may be unable to repay or repurchase the Notes upon a
change of control or sale of significant assets.
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There is no sinking fund with respect to the Notes, and the
entire outstanding principal amount of the Notes will become due
and payable at their respective maturity dates unless we elect
to redeem the Notes earlier, as described in Description
of the Notes Optional Redemption. If we
experience a change of control, as that term is defined in
Description of the Notes, or if we or our
subsidiaries dispose of significant assets under circumstances
described in Description of Notes Certain
Covenants Limitation on Asset Sales, we may be
required to make an offer to repurchase all of your Notes prior
to maturity. We cannot assure you that we will have sufficient
funds or be able to arrange for additional financing to repay
the Notes at maturity or to repurchase Notes tendered to us
following a change of control or asset sale.
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There is no public market for the Notes and we do not know
if a market will ever develop or, if a market does develop,
whether it will be sustained.
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The Notes are a new issue of securities and there is no existing
trading market for the Notes. Although the initial purchasers
have informed us that they intend to make a market in the Notes,
they have no obligation to do so and may discontinue making a
market at any time without notice. In addition, any market
making activity will be subject to the limits imposed by the
Securities Act of 1933 and the Securities Exchange Act of 1934
and may be limited during the pendency of any registration
statement. As a result, we cannot assure you that a liquid
market will develop for the Notes, that you will be able to sell
your Notes at a particular time or that the prices that you
receive when you sell the Notes will be favorable. If a liquid
market is established, various factors could have a material
adverse effect on the trading of the Notes, including
fluctuations in prevailing interest rates. We do not intend to
apply for listing or quotation of the Notes on any securities
exchange or stock market.
Historically, the market for non-investment grade debt has been
subject to substantial volatility. We cannot assure you that the
market for the Notes will be free from similar volatility.
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In Canada, you may only transfer the Notes in a
transaction exempt from the applicable securities laws of the
provinces or territories of Canada.
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We are relying on exemptions from applicable Canadian provincial
securities laws to offer the Notes. The Notes may not be sold
directly or indirectly in Canada except in accordance with
applicable securities laws of the provinces and territories of
Canada. We are not required, and do not intend, to qualify by
prospectus in Canada the Notes, and accordingly, the Notes will
be subject to restrictions on resale in Canada.
In addition, holders of the Notes who are not residents of the
United States remain subject to any restrictions imposed by the
jurisdictions in which that holder is resident.
27
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Changes in our credit ratings or the financial and credit
markets could adversely affect the market prices of the
Notes.
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The future market prices of the Notes will be affected by a
number of factors, including:
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our ratings with major credit rating agencies; |
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the prevailing interest rates being paid by companies similar to
us; and |
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the overall condition of the financial and credit markets. |
The condition of the financial and credit markets and prevailing
interest rates have fluctuated in the past and are likely to
fluctuate in the future. These fluctuations could have an
adverse effect on the prices of the Notes. In addition, credit
rating agencies continually revise their ratings for companies
that they follow, including us. We cannot assure you that credit
rating agencies will continue to rate the Notes or that they
will maintain their ratings on the Notes. A negative change in
our rating could have an adverse effect on the market prices of
the Notes.
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Fraudulent conveyance laws and other legal restrictions
may permit courts to void or subordinate our subsidiaries
guarantees of the Notes in specific circumstances, which would
prevent or limit payment under the guarantees.
|
Federal, state and foreign statutes may allow courts, under
specific circumstances, to void or subordinate any or all of our
subsidiaries guarantees of the Notes. If any guarantees
are voided or subordinated, our noteholders might be required to
return payments received from our subsidiaries. The criteria for
application of such fraudulent conveyance and other statutes
vary, but, in general, under United States federal
bankruptcy law, comparable provisions of state fraudulent
conveyance laws and applicable Canadian federal or provincial
law, a guarantee could be set aside or subordinated if, among
other things, the guarantor, at the time it provided the
guarantee:
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incurred the guarantee with the intent of hindering, defeating,
delaying or defrauding current or future creditors or of giving
one creditor a preference over others; or |
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received less than reasonably equivalent value or fair
consideration for incurring the guarantee, and |
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was insolvent, on the eve of insolvency, or was rendered
insolvent by reason of the incurrence; |
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was engaged, or about to engage, in a business or transaction
for which the assets remaining with it constituted unreasonably
small capital to carry on such business; |
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intended to incur, or believed that it would incur, debts beyond
its ability to pay as those debts matured; or |
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was a defendant in an action for money damages, or had a
judgment for money damages entered against it, if, in either
case, after final judgment the judgment was unsatisfied. |
Under certain Canadian federal and provincial statutes, a
rebuttable presumption of the guarantors intent to prefer
one creditor or hinder another may arise depending on the period
of time that has elapsed between the assumption of the guarantee
and the date of the guarantors insolvency.
The definition and test for insolvency will vary depending upon
the law of the jurisdiction that is being applied. Generally,
however, a guarantor would be considered insolvent if, at the
time the guarantor provided the guarantee:
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the sum of its debts and liabilities, including contingent
liabilities, was greater than its assets at fair valuation; |
28
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the present fair saleable value of its assets was less than the
amount required to pay the probable liability on its total
existing debts and liabilities, including contingent
liabilities, as they became absolute and matured; or |
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it could not pay its debts generally as they become due. |
The tests for fraudulent conveyance, including the criteria for
insolvency, will vary depending upon the law of the jurisdiction
that is being applied. We cannot be sure which tests and
standards a court would apply to determine whether or not the
guarantors were solvent at the relevant time or, regardless of
the tests and standards, whether the issuance of the guarantee
would be voided or subordinated to the guarantors other
debt.
If a court voids any or all of our subsidiaries guarantees
or holds them unenforceable, you would cease to be a creditor of
the guarantors to the extent such guarantees are voided or held
unenforceable and would instead be a creditor solely of us, and
if the court subordinates the guarantee to other obligations of
the guarantor your ability to recover on the guarantee will be
adversely affected.
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U.S. investors in the Notes may have difficulties
enforcing civil liabilities.
|
We are incorporated in Canada under the CBCA. Our registered
office, as well as a substantial portion of our assets, are
located outside the United States. Also, some of our directors
and officers and some of the experts named in this prospectus
reside in Canada or in other jurisdictions outside the
United States and all or a substantial portion of their
assets are located outside the United States. We have agreed in
the indenture under which the Notes will be issued to accept
service of process in New York City, by an agent designated
for such purpose, with respect to any suit, action or proceeding
relating to the indenture or the Notes that is brought in any
federal or state court located in New York City, and to submit
to the jurisdiction of such courts in connection with such
suits, actions or proceedings. However, it may be difficult for
holders of Notes to effect service of process within the United
States on our directors and officers and the experts named in
this prospectus who are not residents of the United States or to
enforce against them in the United States judgments of courts of
the United States predicated upon the civil liability provisions
of the United States federal securities laws. In addition, there
is doubt as to the enforceability in Canada of liabilities
against us or against our directors, officers and experts who
are not residents of the United States, in original actions or
in actions for enforcement of judgments of United States
courts predicated solely upon United States federal securities
laws.
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Canadian bankruptcy and insolvency laws may impair the
enforcement of remedies under the Notes.
|
The rights of the trustee under the indenture pursuant to which
the Notes will be issued to enforce remedies could be
significantly impaired by the restructuring provisions of
applicable Canadian federal bankruptcy, insolvency and other
restructuring legislation if the benefit of such legislation is
sought with respect to us. For example, both the Bankruptcy and
Insolvency Act (Canada) and the Companies Creditors
Arrangement Act (Canada) contain provisions enabling an
insolvent person to obtain a stay of proceedings against its
creditors and others and to prepare and file a proposal to be
voted on by the various classes of its affected creditors. A
restructuring proposal, if accepted by the requisite majorities
of each affected class of creditors, and if approved by the
relevant Canadian court, would be binding on all creditors
within each affected class that did not vote to accept the
proposal. Moreover, this legislation permits the insolvent
debtor to retain possession and administration of its property,
subject to court oversight, even though it may be in default
under the applicable debt instrument during the period the stay
against proceedings remains in place.
The powers of the court under the Bankruptcy and Insolvency Act
(Canada) and particularly under the Companies Creditors
Arrangement Act (Canada) have been exercised broadly to protect
a restructuring entity from actions taken by creditors and other
parties. Accordingly, we cannot predict whether payments under
the Notes would be made during any proceedings in bankruptcy,
insolvency or other restructuring, whether or when the trustee
for the Notes could exercise its rights under the Notes
indenture or whether, and to what extent, holders of Notes would
be compensated for any delays in payment, if any, of principal,
interest and costs, including the fees and disbursements of the
trustee for the Notes.
29
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations under
the registration rights agreement, dated February 3, 2005,
by and among us, the subsidiary guarantors and the initial
purchasers of the old notes. We will not receive any cash
proceeds from the issuance of the Notes in the exchange offer.
We will receive in exchange for the Notes the old notes in like
principal amount. We will retire and cancel all of the old notes
tendered in the exchange offer.
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows our consolidated ratios of earnings to
fixed charges for the years and the periods indicated:
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Six Months |
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Years Ended December 31, |
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Ended |
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June 30, 2005 |
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2004 |
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2003 |
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2002 |
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2001 |
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2000 |
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Ratio of Earnings to Fixed Charges(1)(2)
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1.7x |
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3.8x |
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5.5x |
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3.7x |
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(3 |
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2.8x |
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(1) |
Earnings consist of income from continuing operations before the
cumulative effect of accounting changes, before fixed charges
(excluding capitalized interest) and income taxes, and
eliminating undistributed income of persons owned less than 50%
by us. Fixed charges consist of interest expenses and
amortization of debt discount and expense and premium and that
portion of rental payments which is considered as being
representative of the interest factor implicit in our operating
leases. The ratios shown above are based on our consolidated and
combined financial information, which was prepared in accordance
with U.S. GAAP. |
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(2) |
Includes restructuring and asset impairment charges for certain
businesses that we acquired from Alcan in the reorganization
transactions of $(2) million, $95 million,
$12 million, $25 million, $208 million and
$26 million which were recorded in relation to these
programs for the six months ended June 30, 2005 and in the
years ended December 31, 2004, 2003, 2002, 2001 and 2000,
respectively. |
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(3) |
Due to our net loss in 2001, the ratio coverage was less than
1:1. We would have needed to generate additional earnings of
$68 million to achieve coverage of 1:1. |
30
CAPITALIZATION
The table below sets forth our capitalization as of
June 30, 2005. You should read the following table in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and the
audited annual combined financial statements, the unaudited
interim consolidated and combined financial statements and the
related accompanying notes included elsewhere in this prospectus.
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As of |
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June 30, |
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2005 |
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($ millions) |
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Cash and time deposits
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$ |
129 |
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Short-term borrowings
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23 |
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Long-term debt
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Term Loan B
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1,125 |
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71/4% Senior
notes
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1,400 |
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Other third party debt
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235 |
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Total debt
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2,783 |
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Shareholders equity
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Common shares at par
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Additional paid-in capital
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434 |
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Retained earnings
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27 |
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Accumulated other comprehensive income (loss)
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(70 |
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Shareholders equity
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391 |
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Total capitalization
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$ |
3,303 |
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Our ability to issue additional equity is constrained because
our issuance of additional shares may cause the distribution to
be taxable to us or to Alcan. Under the separation agreement and
other agreements relating to tax matters, we may be required to
indemnify Alcan against any such tax incurred by it.
31
SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA
You should read the following selected consolidated and combined
financial data in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the audited combined financial statements,
the unaudited consolidated and combined financial statements and
the accompanying notes included elsewhere in this prospectus.
The combined statements of income data for the years ended
December 31, 2004, 2003 and 2002 and the combined balance
sheet data as of December 31, 2004 and 2003 set forth below
are derived from our audited annual combined financial
statements which are included elsewhere in this prospectus. The
combined statements of income data for the year ended
December 31, 2001 and the combined balance sheet data as of
December 31, 2002 set forth below are derived from our
audited annual combined financial statements that are not
included in this prospectus. We derived the unaudited condensed
combined statements of income data for the year ended
December 31, 2000 and the unaudited condensed combined
balance sheet data as of December 31, 2001 and
December 31, 2000 from historical financial information
based on Alcans accounting records. The unaudited
condensed consolidated and combined statements of income data
for the six months ended June 30, 2005 and June 30,
2004 and the unaudited condensed consolidated balance sheet data
as of June 30, 2005 set forth below are derived from our
unaudited interim consolidated and combined financial statements
which are included elsewhere in this prospectus. The unaudited
condensed combined balance sheet data as of June 30, 2004
set forth below is derived from historical financial data based
on Alcans accounting records.
The unaudited consolidated and combined financial statements for
the first quarter of 2005 include the results for the period
from January 1 to January 5, 2005 prior to our spin-off
from Alcan, in addition to the results for the period from
January 6 to June 30, 2005, as described below. The
unaudited combined financial results for the period from January
1 to January 5, 2005 represent the operations and cash
flows of the Novelis entities on a carve-out basis. The
unaudited consolidated results as at June 30, 2005 and for
the period from January 6 (the date of the spin-off from Alcan)
to June 30, 2005 represent the operations, cash flows and
financial position of Novelis as a stand-alone entity. All
income earned and cash flows generated by the Novelis entities
as well as the risks and rewards of these businesses from
January 1 to January 5, 2005 were primarily attributed to
us and are included in our unaudited consolidated results for
the period from January 6 to June 30, 2005, with the
exception of mark-to-market losses of $30 million on
derivative contracts primarily with Alcan. These mark-to-market
losses for the period from January 1 to January 5, 2005,
were recorded in the unaudited consolidated statements of income
for the six months ended June 30, 2005, and are reflected
as a decrease in Owners net investment.
Our historical combined financial statements as at and for the
twelve months ended December 31, 2004, 2003, 2002, 2001 and
2000 and for the six months ended June 30, 2004 have been
derived from the accounting records of Alcan using the
historical results of operations and historical basis of assets
and liabilities of the businesses subsequently transferred to
us. Management believes the assumptions underlying the
historical combined financial statements are reasonable.
However, the historical combined financial statements included
herein may not necessarily reflect what our results of
operations, financial position and cash flows would have been
had we been a stand-alone company during the periods presented.
Alcans investment in the Novelis businesses, presented as
Owners net investment in the historical
32
combined financial statements, includes the accumulated earnings
of the businesses as well as cash transfers related to cash
management functions performed by Alcan.
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At and for the |
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Six Months |
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Ended June 30, |
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At and for the Years Ended December 31, |
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2005 |
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2004 |
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2004 |
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2003 |
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|
2002 |
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2001 |
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2000 |
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($ millions, except per share data) |
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Sales and operating revenues
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|
$ |
4,291 |
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|
$ |
3,739 |
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|
$ |
7,755 |
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$ |
6,221 |
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$ |
5,893 |
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$ |
5,777 |
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$ |
5,668 |
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Net income (loss)
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|
|
11 |
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|
|
114 |
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|
55 |
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|
157 |
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(9 |
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(137 |
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82 |
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Total assets
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5,341 |
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|
6,920 |
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|
5,954 |
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|
6,316 |
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|
|
4,558 |
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|
|
4,390 |
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|
|
4,943 |
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Long-term debt (including current portion)
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|
|
2,760 |
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|
|
1,964 |
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|
|
2,737 |
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|
|
1,659 |
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|
|
623 |
|
|
|
514 |
|
|
|
584 |
|
Other debt
|
|
|
23 |
|
|
|
922 |
|
|
|
541 |
|
|
|
964 |
|
|
|
366 |
|
|
|
445 |
|
|
|
498 |
|
Cash and time deposits
|
|
|
129 |
|
|
|
28 |
|
|
|
31 |
|
|
|
27 |
|
|
|
31 |
|
|
|
17 |
|
|
|
35 |
|
Invested equity/Shareholders equity
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|
|
391 |
|
|
|
2,036 |
|
|
|
555 |
|
|
|
1,974 |
|
|
|
2,181 |
|
|
|
2,234 |
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|
|
2,562 |
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Earnings (loss) per share
|
|
|
|
|
|
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|
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Basic
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Income (loss) before cumulative effect of accounting change
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|
|
0.15 |
|
|
|
1.54 |
|
|
|
0.74 |
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|
|
2.12 |
|
|
|
1.01 |
|
|
|
(1.85 |
) |
|
|
1.11 |
|
|
Cumulative effect of accounting change
|
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|
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|
(1.13 |
) |
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Net income (loss) per share basic
|
|
|
0.15 |
|
|
|
1.54 |
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|
|
0.74 |
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|
|
2.12 |
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|
|
(0.12 |
) |
|
|
(1.85 |
) |
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|
1.11 |
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Diluted
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Income (loss) before effect of accounting change
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|
|
0.15 |
|
|
|
1.53 |
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|
|
0.74 |
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|
|
2.11 |
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|
1.00 |
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(1.85 |
) |
|
|
1.10 |
|
|
Cumulative effect of accounting change
|
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(1.13 |
) |
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Net income (loss) per share diluted
|
|
|
0.15 |
|
|
|
1.53 |
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|
|
0.74 |
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|
|
2.11 |
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|
|
(0.13 |
) |
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|
(1.85 |
) |
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|
1.10 |
|
Dividends per share
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|
|
0.18 |
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In December 2003, Alcan acquired Pechiney. A portion of the
acquisition cost relating to four plants that are included in
our company was allocated to us and accounted for as additional
invested equity. The net assets of the Pechiney plants are
included in the combined financial statements as at
December 31, 2003 and the results of operations and cash
flows are included in the combined financial statements
beginning January 1, 2004.
On January 1, 2002, we adopted SFAS No. 142,
Goodwill and Other Intangible Assets. Under this standard,
goodwill and other intangible assets with an indefinite life are
no longer amortized but are carried at the lower of carrying
value and fair value and are tested for impairment on an annual
basis. An impairment of $84 million was identified in the
goodwill balance as at January 1, 2002, and was charged to
income as a cumulative effect of accounting change in 2002 upon
adoption of the new accounting standard. The amount of goodwill
amortization was $3 million in 2001 and $1 million in
2000.
Alcan implemented restructuring programs that included certain
businesses we acquired from it in the reorganization
transactions. Restructuring and asset impairment charges of
$(2) million, $2 million, $95 million,
$12 million, $25 million, $208 million and
$26 million were recorded in relation to these programs for
the six months ended June 30, 2005 and June 30, 2004
and in the years ended December 31, 2004, 2003, 2002, 2001
and 2000, respectively.
In October 2000, Alcan acquired Alusuisse Group Ltd, or algroup.
A portion of the acquisition cost relating to two plants that
are included in our company was allocated to us and accounted
for as additional invested equity. The net assets of the algroup
plants are included in the combined financial statements as at
October 31, 2000 and the results of operations and cash
flows are included in the combined financial statements
beginning October 1, 2000.
33
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
On January 6, 2005, Alcan and its subsidiaries contributed
to a new public company, Novelis Inc. (the Company or Novelis),
substantially all of the aluminum rolled products businesses
operated by Alcan prior to its 2003 acquisition of Pechiney,
together with some of Alcans alumina and primary
metal-related businesses in Brazil, which are fully integrated
with the rolled products operations there, as well as four
former Pechiney rolling facilities in Europe.
In order to facilitate the separation of the businesses from
Alcan as described above, in early January and February of 2005
we executed substantial and material debt restructuring and
financing transactions, whereby we effectively replaced all of
our financing obligations to Alcan and certain other third
parties with new third party debt aggregating $2.9 billion.
The following is our condensed unaudited pro forma combined
statement of income for the year ended December 31, 2004.
We have not presented a condensed unaudited pro forma balance
sheet at June 30, 2005 as the effects of the restructuring
and financing transactions are already fully reflected in our
unaudited consolidated balance sheet at June 30, 2005. We
have not presented condensed unaudited pro forma consolidated
statements of income for the six months ended June 30, 2005
as the impact of these transactions, on a pro forma basis, would
not materially affect our actual results of operations for the
six months ended June 30, 2005.
In providing this pro forma income statement information for the
year ended December 31, 2004, disclosures of the material
effects on our financial condition, resulting from the
restructuring and financing transactions, are included in the
notes to the tables and disclosures herein.
This data is unaudited and has been derived from the historical
combined financial statements of the Novelis Group. This Group
is comprised of substantially all of the aluminum rolled
products businesses operated by Alcan prior to its 2003
acquisition of Pechiney, together with some of Alcans
alumina and primary metal-related businesses in Brazil and four
former Pechiney rolling facilities in Europe. Included within
the Novelis Group are the assets, liabilities and operations
relating to the portions of the Sierre and Neuhausen facilities
transferred to the Group, as described in this prospectus under
Business Arrangements Between Novelis and
Alcan Sierre Agreements and
Business Arrangements Between Novelis and
Alcan Neuhausen Agreements, respectively. You
should read this data in conjunction with the information under
Managements Discussion and Analysis of Financial
Conditions and Results of Operations, our financial
statements and the related notes which are included in this
prospectus.
The unaudited pro forma financial data reflects our historical
combined financial information, adjusted to give effect to the
transactions described below as if they had occurred as of
January 1, 2004. The following transactions were considered
to derive the unaudited pro forma combined statement of income
as presented and described in the accompanying notes:
|
|
|
|
|
the debt incurred in connection with the restructuring and
financing transactions, including the term loans, and the old
notes issued; |
|
|
|
the resulting interest costs on borrowed funds; |
|
|
|
other debt issuance costs and commitment fees incurred in the
restructuring and refinancing transactions; |
|
|
|
the settlement of all loans payable to and advances receivable
from Alcan; |
|
|
|
the repayment of third party borrowings; |
|
|
|
certain interest swap transactions related to third party
borrowings; |
|
|
|
the lease from Alcan of the Sierre North Building and the
machinery and equipment located therein; |
34
|
|
|
|
|
other adjustments described below; and |
|
|
|
the net tax effects of the transactions described above. |
The unaudited pro forma table is based upon available
information and assumptions that management believes are
reasonable. The unaudited pro forma financial information is for
illustrative and informational purposes only and is not intended
to represent or be indicative of what our results of operations
would have been had the transactions described above occurred on
the dates indicated. The unaudited pro forma data also is not
necessarily indicative of our future results of operations.
General corporate expenses include costs incurred related
primarily to human resources, legal, treasury, insurance,
finance, internal audit, strategy, public affairs and other
services. For the year ended December 31, 2004, Alcan
allocated costs to us relating to general corporate expenses of
$34 million, which is included in the total head office
costs of $54 million for the year. Immediately following
the separation, Novelis assumed responsibility for all of these
services and their related expenses. We expect the total cost of
these services to aggregate approximately $65 million to
$70 million in 2005. In addition to the amounts above, we
expect to incur approximately $30 million of non-recurring
costs associated with the transition to operating as a separate
company, substantially all of which we expect will be incurred
in 2005.
In addition to the pro forma adjustments to our financial
statements, various other factors will have an effect on our
financial condition and results of operations after the
completion and filing of this prospectus, including those
discussed under Risk Factors and
Managements Discussion and Analysis of Financial
Condition and Results of Operations. The level of debt,
including the current and long-term positions of the debt may
vary, as we may need to provide for other cash requirements.
35
NOVELIS INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
|
|
|
|
|
Historical |
|
|
Adjustments |
|
|
Pro Forma |
|
|
|
|
|
|
|
|
|
|
|
|
|
($ millions, except per share data) |
|
Sales and operating revenues
|
|
$ |
7,755 |
|
|
$ |
|
|
|
$ |
7,755 |
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and operating expenses, excluding depreciation and
amortization noted below
|
|
|
6,856 |
|
|
|
|
|
|
|
6,856 |
|
Depreciation and amortization
|
|
|
246 |
|
|
|
|
|
|
|
246 |
|
Selling, administrative and general expenses
|
|
|
268 |
|
|
|
|
|
|
|
268 |
|
Research and development expenses
|
|
|
58 |
|
|
|
|
|
|
|
58 |
|
Interest
|
|
|
74 |
|
|
|
168 |
(a) |
|
|
194 |
|
|
|
|
|
|
|
|
(33 |
)(b) |
|
|
|
|
|
|
|
|
|
|
|
(16 |
)(c) |
|
|
|
|
|
|
|
|
|
|
|
4 |
(h) |
|
|
|
|
|
|
|
|
|
|
|
(3 |
)(i) |
|
|
|
|
Other expenses (income) net
|
|
|
28 |
|
|
|
14 |
(a) |
|
|
64 |
|
|
|
|
|
|
|
|
22 |
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and other items
|
|
|
225 |
|
|
|
(156 |
) |
|
|
69 |
|
Income taxes
|
|
|
166 |
|
|
|
(30 |
)(d) |
|
|
124 |
|
|
|
|
|
|
|
|
(12 |
)(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before other items
|
|
|
59 |
|
|
|
(114 |
) |
|
|
(55 |
) |
Equity income
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
Minority interests
|
|
|
(10 |
) |
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
55 |
|
|
$ |
(114 |
) |
|
$ |
(59 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share basic
|
|
$ |
0.74 |
|
|
|
|
(f) |
|
$ |
(0.80 |
) |
Net income (loss) per common share diluted
|
|
$ |
0.74 |
|
|
|
|
(g) |
|
$ |
(0.80 |
) |
Average number of shares used in calculating earnings per
share basic (in millions)
|
|
|
73.989 |
|
|
|
|
(f) |
|
|
73.989 |
|
Average number of shares used in calculating earnings per
share diluted (in millions)
|
|
|
74.432 |
|
|
|
|
(g) |
|
|
73.989 |
|
36
NOVELIS INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) Reflects the pro forma interest expense for the full
year ended December 31, 2004 associated with net new
borrowings of $2.769 billion, resulting in total borrowings
from third parties aggregating $2.9 billion. These total
new borrowings consist of:
|
|
|
|
|
On January 10, 2005, we obtained two seven-year senior
secured term loans aggregating $1.3 billion at a variable
interest rate (three-month LIBOR plus 1.75%), which would have
been 3.42% for the year ended December 31, 2004, using
historical average LIBOR rates. Between January 14 and
March 1, 2005, a total of $310 million of these loans
was swapped for fixed rate debt at 5.5%. |
|
|
|
Also on January 10, 2005, we obtained a $500 million
revolving credit facility (not included in the $2.9 billion
as no amounts were drawn upon establishment). |
|
|
|
On February 3, 2005, we sold $1.4 billion aggregate
ten-year notes (also referred to as the old notes) bearing
interest at 7.25%; |
|
|
|
In February, we obtained a $50 million Korean floating rate
term loan which was subsequently swapped for a 5.3% fixed rate
KRW51 billion loan; and |
|
|
|
In February, we obtained a $19 million Korean floating rate
one-year term loan which was repaid before March 31, 2005. |
In addition, we swapped interest payments on three Korean
floating rate term loans aggregating $131 million (already
in place at December 31, 2004 and included in the
historical balance) in exchange for fixed interest payments,
including $70 million of U.S. dollar denominated
Korean term loans in exchange for Korean won denominated debt.
Following these swaps, the effective weighted average fixed rate
on the three Korean term loans is 4.60% The effective weighted
average variable rate on the Korean floating rate debt of
$19 million is 3.48% (based on the historical three-month
LIBOR plus 1.50% and historical three-month Korean CD plus
1.50%).
Pro forma interest expense includes interest on the borrowings
and the amortization of debt issuance costs. Interest expense in
respect of the borrowings described in this note would have been
$168 million for the year ended December 31, 2004. The
average annualized interest rate used to calculate the total pro
forma interest expense was 5.58% (before debt issuance costs)
for the year ended December 31, 2004. The index rates used
were the historical three-month LIBOR plus 1.75% for the
seven-year term loan; a fixed rate of 7.25% for the old notes, a
weighted average rate of 4.60% for the three swapped Korean term
loans and rates of 5.3% and 3.48% for the new Korean fixed and
variable loans, respectively, for the year ended
December 31, 2004.
Debt issuance and other bridge financing costs related to the
new outstanding and drawn borrowings were $71 million.
These costs are recorded as Deferred charges and other assets on
our balance sheet and are to be amortized over the lives of the
borrowings and charged to the income statement as a component of
interest expense, with the exception of $13 million in
bridge financing commitment fees that was expensed in the first
quarter of 2005 as other expenses (income) net.
Amortization of debt issuance costs included in pro forma
interest expense was $6 million for the year ended
December 31, 2004.
Bridge financing and commitment fees on the revolving credit
facility included in pro forma other expenses
(income) net was an aggregate of $14 million
for the year ended December 31, 2004.
37
NOVELIS INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(Continued)
The table below summarizes the calculation of a full year of pro
forma interest expense attributable to our debt structure
assuming completion of the financing transactions as of
January 1, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year Pro Forma |
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
Effective |
|
|
Interest |
|
|
|
Amount |
|
|
Interest Rate |
|
|
Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
($ millions, except interest rates) |
|
Term loans floating
|
|
$ |
990 |
|
|
|
3.42% |
|
|
$ |
34 |
|
Term loans fixed swap
|
|
|
310 |
|
|
|
5.50% |
|
|
|
17 |
|
Old Notes
|
|
|
1,400 |
|
|
|
7.25% |
|
|
|
101 |
|
Korean term loans (swapped)
|
|
|
131 |
|
|
|
4.60% |
|
|
|
6 |
|
Korean term loans (new)
|
|
|
50 |
|
|
|
5.30% |
|
|
|
3 |
|
Korean variable term loan
|
|
|
19 |
|
|
|
3.48% |
|
|
|
1 |
|
Amortization of debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,900 |
|
|
|
|
|
|
$ |
168 |
|
|
|
|
|
|
|
|
|
|
|
The impact of a one-eighth of a percentage point
(12.5 basis points) increase or decrease in interest rates
on the variable rate borrowings would be to reduce or increase
net income by $1 million annually. An increase or decrease
of $100 million in the total borrowings would reduce or
increase net income by $4 million annually.
(b) Reflects the elimination of the interest expense and
income incurred between Novelis and Alcan for the year ended
December 31, 2004 on the borrowings and advances between
the parties.
Historical interest expense resulted from borrowings from Alcan
and its subsidiaries for various periods of time up to and
including the full year. For the year ended December 31,
2004, such borrowings totaled $2,909 million and consisted
of:
|
|
|
(i) fixed rate loans totaling $2,423 million, with an
average interest rate of 5.44%; and |
|
|
(ii) floating interest rate loans totaling
$486 million, with an average variable rate of 3.04%. |
Historical interest income resulted from advances to Alcan and
its subsidiaries for various periods of time up to and including
the full year. For the year ended December 31, 2004, such
advances totaled $426 million and are included in the
historical 2004 balances due from Alcan total of
$803 million; the balance of $377 million representing
derivative and securitized receivables not included in the
settlement with Alcan. The $426 million was substantially
all in fixed rate loans at an average interest rate of 1.84%.
(c) Reflects the elimination of third party interest
expense relating to existing third party borrowings in the
amount of $369 million as of December 31, 2004. These
third party borrowings for various periods of time up to and
including the full year consist of:
|
|
|
(i) fixed rate loans totaling $244 million, with an
average interest rate of 4.83%; and |
|
|
(ii) floating interest rate loans totaling
$125 million, with an average variable rate of 3.50%. |
(d) Represents the net tax effect of the aggregate tax
deductible pro forma interest cost adjustments in each relevant
jurisdiction. The effective tax benefit used for this
adjustment, which represents the rate at which Novelis could
deduct the pro forma interest cost is approximately 25%. This
25% effective tax benefit rate is less that the weighted average
statutory rate of 34% because Novelis is not able to fully
realize the benefit in interest deductibility in certain tax
jurisdictions.
38
NOVELIS INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(Continued)
(e) Represents the net tax effect of the aggregate tax
deductible pro forma other expense (income) net
adjustments at our weighted average statutory rate of 34%.
(f) The number of Novelis shares used to compute basic
earnings per share was 73,988,932, which was the number of
outstanding Novelis common shares on January 6, 2005.
(g) The number of Novelis shares used to compute historical
diluted earnings per share was 74,432,283 at January 6,
2005, which was the number of outstanding Novelis common shares
and the number of Novelis common shares covered by dilutive
options at that date. As the Company experienced a loss on a
pro-forma basis, dilutive shares have been excluded from the
computation of diluted earnings per share since the effect of
including such shares would be anti-dilutive.
(h) Represents an adjustment to record pro forma interest
expense of $4 million associated with Novelis capital
lease from Alcan of the Sierre North building and the machinery
and equipment located in the Sierre North Building (including
the hot and cold mills) for a term of 15 years, renewable
at Novelis option for an additional five-year period, at
an annual base rent in an amount equal to 8.5% of the book value
at the date of transfer of the assets. These assets have been
included in our historical financial statements with a
corresponding increase of $48 million to debt.
(i) As part of the financing transactions, we were required
to deposit $80 million in cash in an interest bearing
restricted deposit account at a major financial institution. The
financial institution previously extended an $80 million
credit facility to the subsidiary for which Novelis now has a
legal right and intent to offset that obligation against the
$80 million restricted deposit. Entry reflects the offset
of the interest on the restricted deposit against the interest
on the credit facility.
39
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read together with the
selected consolidated and combined financial data and our
consolidated and combined financial statements and accompanying
notes, included elsewhere in this prospectus, 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 and elsewhere in this prospectus,
particularly in Disclosure Regarding Forward-Looking
Statements and Market Data and Risk
Factors.
Overview
We are the worlds leading aluminum rolled products
producer based on shipment volume in 2004, with total aluminum
rolled products shipments of 2,785 kilotonnes during that
year. In 2004, we were the largest aluminum rolled products
producer in terms of shipments in each of Europe, South America
and Asia-Pacific, and we were the second largest in North
America. With operations on four continents comprised of 36
operating facilities in 11 countries, we are the only company of
our size and scope focused solely on aluminum rolled products
markets and capable of local supply of technically sophisticated
products in all of these geographic regions. We had sales and
operating revenues of $7.8 billion in 2004. Due in part to
the regional nature of supply and demand of aluminum rolled
products, our activities are organized under four business
groups and are managed on the basis of geographical areas. These
business groups are Novelis North America, Novelis Europe,
Novelis Asia, and Novelis South America.
The following table sets forth our key financial and operating
data for the six months ended June 30, 2005 and 2004 and
for the fiscal years ended December 31, 2004, 2003 and 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
June 30, |
|
|
Years Ended December 31, |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$, except where indicated) |
|
Sales and operating revenues(i)
|
|
$ |
4,291 |
|
|
$ |
3,739 |
|
|
$ |
7,755 |
|
|
$ |
6,221 |
|
|
$ |
5,893 |
|
Total Regional Income(ii)
|
|
|
322 |
|
|
|
354 |
|
|
|
654 |
|
|
|
508 |
|
|
|
472 |
|
Income before cumulative effect of accounting change
|
|
|
11 |
|
|
|
114 |
|
|
|
55 |
|
|
|
157 |
|
|
|
75 |
|
Rolled products shipments(iii) (kt)
|
|
|
1,443 |
|
|
|
1,392 |
|
|
|
2,785 |
|
|
|
2,491 |
|
|
|
2,479 |
|
Total assets
|
|
$ |
5,341 |
|
|
$ |
6,920 |
|
|
$ |
5,954 |
|
|
$ |
6,316 |
|
|
$ |
4,558 |
|
|
|
(i) |
The accounting principles used to prepare the information by
operating segment are the same as those used to prepare the
consolidated and combined financial statements, except, as
discussed below, the operating segments include our
proportionate share of joint ventures (including joint ventures
accounted for using the equity method) as they are managed
within each operating segment, with the adjustments for
equity-accounted joint ventures shown on a separate line in the
reconciliation to Income before taxes and other items. |
|
|
(ii) |
Total Regional Income, which is the measure of operating segment
profitability that we use, comprises earnings before interest,
taxes, depreciation and amortization excluding certain items,
such as corporate office costs and asset and goodwill
impairments, restructuring, rationalization and the change in
fair market value of our derivatives, which are not under the
control of the business groups. These items are managed by our
head office, which focuses on strategy development and oversees
governance, policy, legal compliance, human resources and
finance matters. Regional Income is the measure by which we
evaluate the performance of our business. Financial information
for the regional groups includes the results of certain joint
ventures on a proportionately consolidated basis, which is
consistent with the way the business groups are managed. Under
U.S. GAAP, these |
|
40
|
|
|
joint ventures are accounted for under the equity method.
Therefore, in order to reconcile Total Regional Income to income
before income taxes and other items, the Regional Income
attributable to these joint ventures is removed from Total
Regional Income and the net after-tax results are reported as
equity income. The change in the fair market value of
derivatives has been removed from individual regional results
and is shown on a separate line. This presentation provides a
more accurate portrayal of underlying business group results and
is in line with our portfolio approach to risk management. Prior
to our separation from Alcan, profitability of the operating
segments was measured based on business group profit, or BGP.
Please see note 18 of our unaudited interim consolidated
and combined financial statements and note 26 of our
audited annual combined financial statements for a discussion of
the differences between BGP and Regional Income. Prior period
measures of profitability for our operating segments have been
recast to conform to the current presentation. |
|
|
(iii) |
Includes conversion of customer-owned metal (tolling). |
The following table summarizes the reconciliation of Total
Regional Income to income before income taxes and other items.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
Years Ended |
|
|
|
Ended June 30, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
Regional Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Novelis North America
|
|
|
91 |
|
|
|
141 |
|
|
|
240 |
|
|
|
176 |
|
|
|
218 |
|
|
Novelis Europe
|
|
|
115 |
|
|
|
98 |
|
|
|
200 |
|
|
|
175 |
|
|
|
127 |
|
|
Novelis Asia
|
|
|
59 |
|
|
|
43 |
|
|
|
80 |
|
|
|
69 |
|
|
|
41 |
|
|
Novelis South America
|
|
|
57 |
|
|
|
72 |
|
|
|
134 |
|
|
|
88 |
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Regional Income
|
|
|
322 |
|
|
|
354 |
|
|
|
654 |
|
|
|
508 |
|
|
|
472 |
|
|
Corporate Office
|
|
|
7 |
|
|
|
(20 |
) |
|
|
(49 |
) |
|
|
(36 |
) |
|
|
(31 |
) |
Additional Items for Reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for equity-accounted joint ventures
|
|
|
(22 |
) |
|
|
(21 |
) |
|
|
(48 |
) |
|
|
(42 |
) |
|
|
(36 |
) |
|
Adjustment for mark-to-market derivatives
|
|
|
(47 |
) |
|
|
22 |
|
|
|
77 |
|
|
|
20 |
|
|
|
9 |
|
|
Restructuring, rationalization & impairment
|
|
|
11 |
|
|
|
5 |
|
|
|
(89 |
) |
|
|
16 |
|
|
|
(25 |
) |
|
Depreciation & amortization
|
|
|
(115 |
) |
|
|
(118 |
) |
|
|
(246 |
) |
|
|
(222 |
) |
|
|
(211 |
) |
|
Interest
|
|
|
(94 |
) |
|
|
(38 |
) |
|
|
(74 |
) |
|
|
(40 |
) |
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and other items
|
|
|
62 |
|
|
|
184 |
|
|
|
225 |
|
|
|
204 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income. We reported net income of $11 million
for the six months ended June 30, 2005, or diluted earnings
per share of $0.15. This comprised consolidated net income of
$41 million for the period of January 6, the effective
date of our separation from Alcan, to June 30, 2005, and a
combined loss of $30 million on mark-to-market derivatives,
primarily with Alcan, from January 1 to January 5, 2005,
the period prior to our separation from Alcan. Net income in the
carve out statements as a part of Alcan for the six months ended
June 30, 2004 was $114 million, or diluted earnings
per share of $1.53.
Shipments. Rolled products shipments increased 3.7% to
1,443 kilotonnes for the first six months of 2005 over the
equivalent period in 2004. We attribute this increase to strong
market demand, largely in North America and Asia, and market
share growth in South America.
41
Rolled products shipments increased by 306 kilotonnes, or 12%,
between 2002 and 2004. The demand growth in Asia, our own
significant production increases in that region, and market
share gains in the challenging South American market have all
benefited our shipment volumes. These gains offset the impact of
soft market conditions in Europe in 2002 and 2003. During 2004,
our rolled products shipments increased by 12% over 2003,
assisted by continued growth in Asia, the recovery in the North
American economies and the addition of four rolling operations
in Europe as a result of Alcans acquisition of Pechiney.
Total Regional Income. Our operating fundamentals
continued to be strong in the first half of 2005 and were
reflected in the higher rolled products shipments, increasing
conversion price and continued emphasis on cost control.
However, Regional Income decreased by $32 million, or 9%,
for the first half of 2005 versus the prior year period basis
due to three main factors. The adverse impacts from metal price
and metal price movements on can contracts with a price ceiling
in North America limit our ability to fully pass-through the
impact of the metal price change. This, as well as the impact of
metal timing differences, accounted for approximately
$35 million of the variance while negative impacts from
foreign currency movements, mainly in South America, accounted
for an additional $19 million of the decrease. Finally,
during the first half of 2004, there was a $19 million gain
on conversion to a defined contribution pension plan in South
America that unfavorably impacts the comparison of Regional
Income to 2005.
Total Regional Income increased 39% in 2004 as compared to 2002.
Continued focus on cost improvement and higher shipments were
the main contributors to the increase.
Financing Activity. At the spin-off from Alcan, we had
$2,951 million of long term debt and capital leases. With
the strength of the cash flows during the six months ended
June 30, 2005, we reduced our debt position by
$168 million to $2,783 million as at June 30,
2005.
Business Strengths. We use an integrated business system
to manage our business. The core components of this system
ensure that the same focus on value, improvement and
environment, health and safety is found in each of our
operations, regardless of geographical location. This has
enabled us to achieve quality, cost and productivity
improvements, optimize our product portfolio and strengthen our
execution capabilities. It has also enabled us to improve our
capital efficiency. Since 2002, we have held our capital
expenditures below depreciation while at the same time improving
our business. We have also achieved cash flow gains through the
strict management of our operating working capital, which is
defined as current assets, excluding cash and time deposits and
short-term loans receivable, less current liabilities, excluding
short-term borrowings and debt maturing within one year.
As a separate company, we are focused on aluminum rolled
products, which we believe will enable us to respond more
quickly to market demands and maximize the efficient allocation
of our capital, technical and human resources. As a separate
company, we are also able to provide incentives to our
management and employees that more closely align their interests
with the performance of our aluminum rolled products business.
Separation From Alcan
We were formed as a Canadian corporation on September 21,
2004. On January 6, 2005, we acquired substantially all of
the aluminum rolled products businesses operated by Alcan prior
to its 2003 acquisition of Pechiney. In addition to those
businesses, we acquired certain alumina and primary
metal-related assets in Brazil formerly owned by Alcan and four
former Pechiney rolling facilities in Europe.
In relation to our separation from Alcan, we incurred
$112 million in costs, fees and expenses. These costs, fees
and expenses were primarily related to financing fees, legal
separation matters, professional expenses, taxes and costs of
producing, printing, mailing and otherwise distributing
materials in connection with our recent financing transactions
and other shareholder communications. All these costs, fees and
expenses were paid by Alcan. Of the total debt issuance costs of
$71 million, $59 million has been recorded in Deferred
charges and other assets in 2005 and will be amortized over the
life of the borrowings, while the balance of $12 million
was expensed in Other expenses (income) net in the
first
42
quarter of 2005. The remaining costs, fees and expenses of
$40 million related to our separation from Alcan were
allocated proportionately to Novelis, with our share of
$9 million included in selling, general and administrative
expenses in the fourth quarter of 2004.
Basis of Presentation
The unaudited consolidated and combined financial statements for
the six months ended June 30, 2005 include the results for
the period from January 1 to January 5, 2005 prior to our
spin-off from Alcan, in addition to the results for the period
from January 6 to June 30, 2005, as described below. The
unaudited combined financial results for the period from January
1 to January 5, 2005 represent the operations and cash
flows of the Novelis entities on a carve-out basis. The
unaudited consolidated results as at June 30, 2005 and for
the period from January 6 (the date of the spin-off from Alcan)
to June 30, 2005 represent the operations, cash flows and
financial position of Novelis as a stand-alone entity. All
income earned and cash flows generated by the Novelis entities
as well as the risks and rewards of these businesses from
January 1 to January 5, 2005 were primarily attributed to
Novelis and are included in the unaudited consolidated results
for the period from January 6 to June 30, 2005, with the
exception of mark-to-market losses of $30 million on
derivative contracts primarily with Alcan. These mark-to-market
losses for the period from January 1 to January 5, 2005,
were recorded in the unaudited consolidated statement of income
for the six months ended June 30, 2005, and are reflected
as a decrease in Owners net investment.
Our historical combined financial statements as at and for the
twelve months ended December 31, 2004, 2003 and 2002 and
for the six months ended June 30, 2004, which we refer to
as our historical combined financial statements, have been
derived from the accounting records of Alcan using the
historical results of operations and historical basis of assets
and liabilities of the businesses subsequently transferred to
us. The net assets of the four Pechiney plants that were
transferred to us, initially acquired by Alcan in December 2003,
are included in our combined financial statements as at
December 31, 2003, and their results of operations and cash
flows are included beginning January 1, 2004. We believe
the assumptions underlying the historical combined financial
statements, including the allocations described below, are
reasonable. However, the historical combined financial
statements included herein may not necessarily reflect what our
results of operations, financial position and cash flows would
have been had we been a stand-alone company during the periods
presented. Alcans investment in the Novelis businesses,
presented as Owners net investment in the historical
combined financial statements, includes the accumulated earnings
of the businesses as well as cash transfers related to cash
management functions performed by Alcan.
As we were not a stand-alone company and operated as a part of
Alcan prior to 2005, the historical combined financial
statements presented in this prospectus include allocations of
certain Alcan expenses, assets and liabilities, including the
items described below.
|
|
|
General Corporate Expenses
|
Alcan historically performed various corporate functions for us.
Allocations for general corporate expenses are reflected in
selling, general and administrative expenses in our historical
combined statements of income. The general corporate expenses
allocation was primarily for human resources, legal, treasury,
insurance, finance, internal audit, strategy and public affairs
and amounted to $17 million for the six months ended
June 30, 2004 and $34 million, $24 million and
$28 million for the years ended December 31, 2004,
2003, and 2002, respectively. Total corporate costs, including
the amounts allocated, amounted to $20 million for the six
months ended June 30, 2004 and $49 million,
$36 million and $31 million for the years ended
December 31, 2004, 2003, and 2002, respectively.
Allocations were made based on the average head count and
capital employed for the periods reported. Capital employed
represents total assets less payables and accrued liabilities
and deferred credits and other liabilities. The costs allocated
are not necessarily indicative of the costs that would have been
incurred had we performed these functions as a stand-alone
company, nor are they necessarily indicative of costs that will
be charged or incurred in the future. As a stand-alone entity,
we perform the majority of these functions using our
43
own resources or purchased services; however, for an interim
period, some of these functions will continue to be provided by
Alcan under the transitional services agreement. We estimate
that, as an independent company, we will need to incur
additional expenses of approximately $5 to $10 million per
year, based on total corporate expenses in 2004 for certain of
these services. As an independent company, we will incur
additional corporate costs for human resources, treasury, legal,
insurance, finance, internal audit and other services, such that
we estimate that our total general corporate expenses will be
approximately $60 million for 2005. Refer to note 2 of
the audited annual combined financial statements and note 1
of the unaudited interim consolidated and combined financial
statements presented in this prospectus.
|
|
|
Pensions and Other Post-retirement Benefit Plans
|
Our employees have been covered under Alcans pension plans
and other post-retirement benefit plans. Our historical combined
financial statements include allocations for expenses attributed
to our employees participation in these plans.
Prior to the separation, certain entities within our company had
pension obligations, mostly comprised of defined benefit plans
in the United States and the United Kingdom, unfunded pension
benefits in Germany and lump sum indemnities payable to
employees of our businesses in France, Korea and Malaysia upon
retirement. These pension benefits are managed separately and
the related assets, liabilities and costs are included in both
our consolidated and combined and historical combined financial
statements.
Prior to the separation, Alcan managed defined benefit plans in
Canada, the United States, the United Kingdom and Switzerland
that cover some of the entities within our company. Our share of
these plans assets and liabilities is not included in our
historical combined balance sheets. The historical combined
statements of income, however, include an allocation of the
costs of the plans that varies depending on whether the entity
is a subsidiary or a division of Alcan. Pension costs of
divisions of Alcan included in our businesses are allocated
based on the following methods: service costs were allocated
based on a percentage of payroll costs; interest costs, the
expected return on assets and amortization of actuarial gains
and losses were allocated based on a percentage of the projected
benefit obligation; and prior service costs were allocated based
on headcount. Pension costs of subsidiaries of Alcan included in
our businesses are accounted for on the same basis as a
multi-employer pension plan whereby the subsidiaries
contributions for the period are recognized as net periodic
pension cost.
Prior to the separation, Alcan provided post-retirement benefits
in the form of unfunded healthcare and life insurance benefits
to retired employees in Canada and the United States that
include retired employees of some of our businesses. Our share
of these plans liabilities is included in our historical
combined balance sheets and our share of these plans costs
is included in our historical combined statements of income.
Income tax expense has been recorded in our historical combined
income statements as if we filed separate tax returns from
Alcan, notwithstanding that some of our operations were
historically included in the consolidated income tax returns
filed by Alcan and that most of the related income taxes were
paid by Alcan. Income taxes are calculated as if all of the
entities within our company had been separate tax paying legal
entities, each filing a separate tax return in its local tax
jurisdiction. For jurisdictions where there is no tax sharing
agreement, amounts currently payable have been included in the
owners net investment line in our historical combined
balance sheets.
Alcan managed its tax position for the benefit of its entire
portfolio of businesses and its tax strategies are not
necessarily consistent with the tax strategies that we would
have followed or will follow as a stand-alone company. As a
result, our effective tax rate as a stand-alone entity may
differ significantly from those prevailing in historical periods.
44
Historically, Alcan provided cash management services for
certain of our businesses, primarily in North America, the
United Kingdom, and parts of Europe to optimize efficient
pooling of funds. Cash deposits from these businesses were
transferred to Alcan on a regular basis. As a result, none of
Alcans cash and cash equivalents has been allocated to us
in our historical combined financial statements. Transfers to
and from Alcan are netted against the owners net
investment in our historical combined balance sheets. Cash and
cash equivalents in our historical combined balance sheets are
comprised of only the cash and cash equivalents of our
businesses, primarily in South America, Asia and parts of
Europe, that perform their own cash management functions.
Following the separation, we are responsible for our own cash
management functions.
Results of Operations for the Six Months Ended June 30,
2005 Compared to the Six Months Ended June 30, 2004
The following discussion and analysis is based on unaudited
consolidated and combined statements of income, which reflect
our operations for the six months ended June 30, 2005 and
2004, as prepared in conformity with U.S. GAAP.
The comparison of Net income between the first six months of
2005 and 2004 was heavily influenced by the following items on
an after-tax basis:
|
|
|
|
|
|
Gain on the monetization of cross-currency interest swaps of
inter-company debt amounting to $37 million in 2005; |
|
|
|
|
|
Gain on the sale of land in Asia of $11 million in 2005; |
|
|
|
|
|
Unrealized losses on the change in market value of derivatives
of $37 million in the first half of 2005, compared to
unrealized gains in the first half of 2004 of $8 million; |
|
|
|
|
|
Foreign currency balance sheet translation losses of
$21 million in the first half of 2005. The first half of
2004 recorded a gain of $5 million; |
|
|
|
|
|
Start-up costs amounting to $19 million in 2005; |
|
|
|
|
|
Gain in the first half of 2004 of $13 million on a change
in our South American pension plan; and |
|
|
|
|
|
As a stand-alone company, our interest expense increased by
$37 million in the first half of 2005 compared to the first
half of 2004. |
|
Foreign currency balance sheet translation effects, which are
primarily non-cash in nature, arise from translating monetary
items (principally deferred income taxes, operating working
capital and long term liabilities) denominated in Canadian
dollars and Brazilian Real into U.S. dollars for reporting
purposes.
|
|
|
Sales and Operating Revenues and Shipments
|
Sales and operating revenues increased from $3,739 million
in the six months ended June 30, 2004, to
$4,291 million in the comparable period in 2005, an
increase of $552 million, or 15%. The increase was
primarily the result of an increase in LME metal pricing, which
was up 10% for the first six months of 2005 vs. the same period
in 2004, a 5% increase in total shipments from 1,491 kilotonnes
to 1,571 kilotonnes and, to a lesser degree, the impact of the
stronger euro on translation of euro sales to U.S. dollars.
Our cost of sales and operating expenses represented 90% of our
sales and operating revenues for the six months ended
June 30, 2005, compared to 88% during the comparable period
in 2004. The increase in
45
cost of sales and operating expenses during the first half of
2005 in large part reflected the impact of higher LME prices on
metal input costs. The impact of the can price ceiling in North
America and metal pass-through differences resulted in an
adverse impact in the first half of 2005 compared to the same
period in 2004.
Depreciation and amortization of $118 million for the first
six months of 2004 decreased to $115 million in the first
half of 2005 selling, general and administrative expenses, or
SG&A, increased from $110 million in the six months
ended June 30, 2004 to $152 million in the comparable
period of 2005, or 38%. Included in SG&A for first half of
2005 are additional corporate office costs we incurred as a
stand-alone company and $7 million in start-up costs.
Interest expense in the first half of 2004, $38 million,
was significantly lower than the $94 million of interest
expense in the first six months of 2005. A comparison to first
half 2004 interest expense is not meaningful as it did not
reflect the level of debt, nor the associated interest costs, we
would have incurred had we operated on a stand-alone basis at
that time.
Other expenses (income) net was income
of $3 million in the first half of 2005 compared to the
first six months of 2004 with income of $14 million.
Influencing factors included a realized gain of $45 million
on the monetization of certain cross-currency interest rate
swaps that were put in place to hedge inter-company loans
denominated in currencies other than the U.S. dollar, an
$11 million gain on the sale of land in Asia in the first
half of 2005, as well as unrealized losses on the change in
market value of derivatives of $47 million compared to
unrealized gains on the change in market value of derivatives of
$15 million in the first half of 2004. Additionally, the
2005 first half comprised foreign currency balance sheet
translation losses of $7 million and debt issue costs of
$13 million on undrawn credit facilities used to back up
the Alcan notes we received in January 2005 as part of our
separation from Alcan. The 2004 first half included a gain on
asset sales of $7 million.
The effective tax rate for the first half of 2005 was 71%
compared to a composite statutory rate of 27%. In 2004, the
effective and statutory tax rates for the first six months were
36%. The main difference in the first half 2005 effective rate
was a $6 million tax provision in connection with our
spin-off from Alcan, for which there was no related income, a
$6 million pre-tax exchange loss on the translation of net
monetary liabilities denominated in local currency, for which
there was no related income tax recovery, and a tax liability of
$10 million on translation of U.S. dollar debt into
local currency for which there is no related income, both mainly
in South America. In addition, there were potential future tax
benefits on losses carried forward that were not recognized
since their realization is not likely.
46
Operating Segment Review Six Months Ended
June 30, 2005 and 2004
The following table summarizes the reconciliation of Regional
Income to income before income taxes and other items:
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
Regional Income
|
|
|
|
|
|
|
|
|
|
Novelis North America
|
|
|
91 |
|
|
|
141 |
|
|
Novelis Europe
|
|
|
115 |
|
|
|
98 |
|
|
Novelis Asia
|
|
|
59 |
|
|
|
43 |
|
|
Novelis South America
|
|
|
57 |
|
|
|
72 |
|
|
|
|
|
|
|
|
Total Regional Income
|
|
|
322 |
|
|
|
354 |
|
|
Corporate office *
|
|
|
7 |
|
|
|
(20 |
) |
Other Items
|
|
|
|
|
|
|
|
|
|
Equity-accounted joint ventures
|
|
|
(22 |
) |
|
|
(21 |
) |
|
Change in fair market value and reclassification of
derivatives
|
|
|
(47 |
) |
|
|
22 |
|
|
Restructuring, rationalization and impairment
|
|
|
11 |
|
|
|
5 |
|
|
Depreciation and amortization
|
|
|
(115 |
) |
|
|
(118 |
) |
|
Interest
|
|
|
(94 |
) |
|
|
(38 |
) |
|
|
|
|
|
|
|
Income before income taxes and other items
|
|
|
62 |
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
* |
Corporate office includes the $45 million gain realized on
the monetization of cross-currency interest rate swaps in the
first six months of 2005. |
The following table sets forth key financial and operating data
for Novelis North America for the six months ended June 30,
2005 and June 30, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
Six Months |
|
|
|
North America |
|
2005 |
|
|
2004 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions, except for Regional |
|
|
|
Income per tonne) |
|
Sales and operating revenues
|
|
|
1,667 |
|
|
|
1,419 |
|
|
|
18 |
% |
Regional Income
|
|
|
91 |
|
|
|
141 |
|
|
|
(36 |
)% |
Rolled product shipments (kt)
|
|
|
567 |
|
|
|
563 |
|
|
|
1 |
% |
Regional Income per tonne
|
|
|
160 |
|
|
|
250 |
|
|
|
(36 |
)% |
Depreciation
|
|
|
36 |
|
|
|
34 |
|
|
|
6 |
% |
Capital expenditures
|
|
|
17 |
|
|
|
17 |
|
|
|
|
|
Total assets
|
|
|
1,415 |
|
|
|
2,879 |
|
|
|
(51 |
)% |
Sales and operating revenues of Novelis North America were
$1,667 million for the six month period ended June 30,
2005, an increase of $248 million, or 17% in sales over the
comparable period of 2004. This was due to higher metal prices
that are largely passed through to customers as well as
increases in conversion prices.
Regional Income of Novelis North America was $91 million
for the first half of 2005, a decrease of $50 million, or
36%, from the first six months of 2004. This reduction was
mainly due to the adverse effect of metal price increases which
impacted the can price ceiling and metal pass-through
differences totaling
47
$34 million. Improved conversion selling prices in many
product lines as well as continued improvements in optimizing
our product portfolio were largely offset by cost increases,
mainly freight, environmental reserves and energy. The first
half of 2004 included approximately $9 million of interest
revenue on loans to Alcan that were collected as part of the
spin transactions.
Total assets of $1,415 million as at June 30, 2005
decreased by over 50% compared to June 30, 2004 as loans to
Alcan were collected as part of the spin transactions on
January 6, 2005.
The following table sets forth key financial and operating data
for Novelis Europe for the six months ended June 30, 2005
and June 30, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
Six Months |
|
|
|
Europe |
|
2005 |
|
|
2004 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions, except for Regional |
|
|
|
Income per tonne) |
|
Sales and operating revenues
|
|
|
1,640 |
|
|
|
1,523 |
|
|
|
8 |
% |
Regional Income
|
|
|
115 |
|
|
|
98 |
|
|
|
17 |
% |
Rolled product shipments (kt)
|
|
|
516 |
|
|
|
505 |
|
|
|
2 |
% |
Regional Income per tonne
|
|
|
223 |
|
|
|
194 |
|
|
|
15 |
% |
Depreciation
|
|
|
51 |
|
|
|
52 |
|
|
|
(2 |
)% |
Capital expenditures
|
|
|
20 |
|
|
|
32 |
|
|
|
(38 |
)% |
Total assets
|
|
|
2,193 |
|
|
|
2,372 |
|
|
|
(8 |
)% |
Sales and operating revenues of Novelis Europe were
$1,640 million for the six month period ended June 30,
2005, an increase of $117 million, or 8%, over the
comparable period of 2004. This was due in large part to higher
LME metal prices and the impact of a stronger euro on the
translation of euro sales into U.S. dollars.
Regional Income of Novelis Europe was $115 million for
first half of 2005, an increase of 17% compared to the first six
months of 2004. This increase was the result of continuing cost
discipline in both operating and SG&A costs as well as the
benefits from restructuring initiatives. These improvements,
together with higher shipments and the favorable impact of the
stronger euro when translating local currency profits into U.S.
dollars, more than offset negative product mix effects and metal
price lags.
Shipments of rolled products by Novelis Europe increased by 2%
from 505 kilotonnes in the first half of 2004 to 516 kilotonnes
in the first six months of 2005. Increased shipments into
lithographic and beverage can markets supported the improvement
over the previous years first half. This was partly
counterbalanced by reduced sales in the tightening foil and
packaging markets.
The following table sets forth key financial and operating data
for Novelis Asia for the six months ended June 30, 2005 and
June 30, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
Six Months |
|
|
|
Asia |
|
2005 |
|
|
2004 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions, except for Regional |
|
|
|
Income per tonne) |
|
Sales and operating revenues
|
|
|
698 |
|
|
|
566 |
|
|
|
23 |
% |
Regional Income
|
|
|
59 |
|
|
|
43 |
|
|
|
37 |
% |
Rolled product shipments (kt)
|
|
|
237 |
|
|
|
223 |
|
|
|
6 |
% |
Regional Income per tonne
|
|
|
249 |
|
|
|
193 |
|
|
|
29 |
% |
Depreciation
|
|
|
23 |
|
|
|
23 |
|
|
|
|
|
Capital expenditures
|
|
|
10 |
|
|
|
8 |
|
|
|
25 |
% |
Total assets
|
|
|
986 |
|
|
|
948 |
|
|
|
4 |
% |
48
Sales and operating revenues of Novelis Asia were
$698 million for the six-month period ended June 30,
2005, an increase of $132 million, or 23%, over the
$566 million in the comparable period of 2004, as shipments
of rolled products increased by 6% from 223 kilotonnes in the
first half of 2004 to 237 kilotonnes in the first half of 2005.
The increase in sales and operating revenue was also
attributable to higher metal prices. The increase in shipments
was due in large part, to can stock market share advances in
China and Southeast Asia.
Regional Income of Novelis Asia was $59 million for
six-month period of 2005, an increase of 37% over the
$43 million in the first half of 2004. In the first six
months of 2005, we experienced better pricing in addition to
increased shipments, of which pricing was approximately
two-thirds and volume was one-third of the improvement. These
benefits more than offset the adverse impact of metal timing
differences amounting to $6 million.
The following table sets forth key financial and operating data
for Novelis South America for the six months ended June 30,
2005 and June 30, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
Six Months |
|
|
|
South America |
|
2005 |
|
|
2004 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions, except for Regional |
|
|
|
Income per tonne) |
|
Sales and operating revenues
|
|
|
293 |
|
|
|
235 |
|
|
|
25 |
% |
Regional Income
|
|
|
57 |
|
|
|
72 |
|
|
|
(21 |
)% |
Rolled product shipments (kt)
|
|
|
123 |
|
|
|
101 |
|
|
|
22 |
% |
Regional Income per tonne
|
|
|
463 |
|
|
|
713 |
|
|
|
(35 |
)% |
Depreciation
|
|
|
22 |
|
|
|
24 |
|
|
|
(8 |
)% |
Capital expenditures
|
|
|
7 |
|
|
|
7 |
|
|
|
|
|
Total assets
|
|
|
761 |
|
|
|
808 |
|
|
|
(6 |
)% |
Sales and operating revenues of Novelis South America were
$293 million for the six months ended June 30, 2005,
an increase of $58 million, or 25%, over $235 million
in the comparable period of 2004. Rolled product shipments
increased from 101 kilotonnes in the first half of 2004 to 123
kilotonnes in the first six months of 2005, or 22%. The main
driver was the growth in the local can market, as well as growth
in our industrial products and export businesses.
Regional Income of Novelis South America was $57 million
for first half of 2005, a decrease of $15 million or 21%
compared to the six-month period in 2004. This drop resulted
from two specific factors: a $19 million gain resulting
from conversion to a defined contribution pension plan that
occurred in 2004 and a $21 million negative impact from the
14% strengthening of the Brazilian Real in the second quarter of
2005. Over two-thirds of the foreign currency impact resulted
from the adverse effects of foreign currency balance sheet
translation. The operating results of the business remained
sound with Regional Income benefiting from higher shipment
volumes and better conversion prices, each contributing the same
level of benefit as well as the favorable impact of higher LME
prices on production from our smelters amounting to
$8 million.
Results of Operations for the Year Ended December 31,
2004 Compared to the Year Ended December 31, 2003 and for
the Year Ended December 31, 2003 Compared to the Year Ended
December 31, 2002
The following discussion and analysis is based on our audited
historical combined statements of income and combined balance
sheets, which reflect our operations for the years ended
December 31, 2004, 2003 and 2002, as prepared in conformity
with U.S. GAAP.
49
The table below sets forth the contribution of each end-use
market and third party ingot sales to our total sales and
operating revenues for the years ended December 31, 2004,
2003 and 2002 (based on management estimates).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Contribution to Novelis sales and operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage/food cans
|
|
|
36 |
% |
|
|
35 |
% |
|
|
38 |
% |
Construction and industrial
|
|
|
24 |
|
|
|
28 |
|
|
|
28 |
|
Foil products
|
|
|
21 |
|
|
|
15 |
|
|
|
14 |
|
Transportation
|
|
|
15 |
|
|
|
16 |
|
|
|
15 |
|
Ingot
|
|
|
4 |
|
|
|
6 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Our net income for 2004 was $55 million compared to
$157 million in 2003 and a loss of $9 million in 2002.
The principal factors contributing to the decline in 2004 were
the after-tax restructuring and asset impairment charges in
Europe of $18 million, a separate asset impairment charge
of $65 million in Italy as well as a tax provision of
$21 million and $12 million in costs both related to
our start-up and our separation from Alcan, and a foreign
currency balance sheet translation loss of $15 million.
Other factors that negatively impacted 2004 net income were
the $24 million (pre-tax) increase in depreciation and
amortization and the $34 million (pre-tax) increase in
interest expense from the comparable year-ago period. Foreign
currency balance sheet translation effects, which are primarily
non-cash in nature, arise from translating monetary items
(principally deferred income taxes, operating working capital
and long-term liabilities) denominated in Canadian dollars and
Brazilian real into U.S. dollars for reporting purposes.
The translation loss in 2004 reflected the significant weakening
of the U.S. dollar against the Canadian dollar and
Brazilian real.
The negative impact on net income from these items was partially
offset by the improvement in rolled product shipment volume,
which increased 12% over the corresponding period in 2003. The
increase was in response to strengthening market conditions in
Asia and North America and market share improvements in South
America. The four Pechiney foil plants contributed 4% to
shipments for the year. The recovery in market price spreads
between recycled and primary metal and the positive impact of
the strengthening euro when translating local currency profits
into U.S. dollars also provided a positive improvement to
net income. Additionally, pre-tax mark-to-market gains on
derivatives increased by $49 million in 2004.
Included in our net income for 2003 was a foreign currency
balance sheet translation loss of $26 million. Other
significant items were after-tax gains of $26 million
($30 million pre-tax) on the sale of non-core businesses in
Italy, the United Kingdom and Malaysia and an after-tax
environmental charge of $18 million ($30 million
pre-tax) related mainly to a site in the United States as well
as positive tax adjustments totaling $24 million. Our
results of operations for 2003 also included after-tax
mark-to-market gains on derivatives of $11 million
($20 million pre-tax).
The improvement in our income before the cumulative effect of an
accounting change, for 2003 as compared to 2002 was made up
equally from the realization of tax benefits on previously
unrecorded tax losses carried forward and the difference in
restructuring, impairment and other special charges. In
addition, our continued focus on cost and productivity
improvements and the positive impact of the stronger euro in
translating local currency results more than offset the negative
effects of foreign currency balance sheet translation losses,
discussed above, and higher costs for recycled metal, pensions
and energy.
Results for 2002 included a non-cash charge of $84 million
that resulted from the adoption of SFAS No. 142,
Goodwill and Other Intangible Assets, as we identified an
impairment of goodwill as of
50
January 1, 2002 which was charged to income as a cumulative
effect of an accounting change upon adoption of the new
accounting standard. You should read note 4 of the annual
audited combined financial statements for further information on
SFAS No. 142. Our income before the cumulative effect
of an accounting change for 2002 was $75 million. Included
in our results for the year was a foreign currency balance sheet
translation gain of $6 million and a $7 million
after-tax ($9 million pre-tax) mark-to-market gain on
derivatives. Other significant items included an after-tax
charge of $23 million ($44 million pre-tax) for a
transfer pricing adjustment related to prior years, an after-tax
charge of $13 million ($14 million pre-tax) related to
asset impairments and an after-tax charge of $7 million
($11 million pre-tax) for restructuring charges, both of
which related to the 2001 restructuring program.
|
|
|
Sales and Operating Revenues and Shipments
|
The table below sets forth information relating to our sales and
operating revenues and shipments for the years ended
December 31, 2004, 2003, and 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
vs |
|
|
vs |
|
Years Ended December 31, |
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$, except where indicated) |
|
Sales and operating revenues
|
|
$ |
7,755 |
|
|
$ |
6,221 |
|
|
$ |
5,893 |
|
|
|
|
25 |
% |
|
|
6 |
% |
Rolled products shipments(i) (kt)
|
|
|
2,785 |
|
|
|
2,491 |
|
|
|
2,479 |
|
|
|
|
12 |
|
|
|
|
|
Ingot products shipments(ii) (kt)
|
|
|
234 |
|
|
|
290 |
|
|
|
234 |
|
|
|
|
(19 |
) |
|
|
24 |
|
|
|
(i) |
Includes conversion of customer-owned metal (tolling). |
|
(ii) |
Includes primary and secondary ingot and recyclable aluminum. |
Our sales and operating revenues were $7.8 billion for the
year ended December 31, 2004, an increase of
$1.5 billion, or 25%, compared to 2003. Approximately half
of the increase was the result of higher LME (London Metal
Exchange) aluminum prices, which are passed through to
customers. LME 3-month aluminum prices in 2004 were up on
average 21% compared to 2003. Eighty percent of the balance
of the increase in sales and operating revenues reflected
increased rolled products shipments, which were up 12% compared
to the year-ago period resulting from improved economies in Asia
and North America, and the addition of four plants in Europe
obtained as part of the Pechiney acquisition, as well as market
share improvements in South America. The remaining portion of
the increase was attributable to the translation effects of the
weakening U.S. dollar against other currencies, especially
the euro.
Ingot products shipments comprise primary ingot in Brazil,
foundry products sold in Korea and Europe, secondary ingot in
Europe and other miscellaneous recyclable aluminum sales made
for logistical purposes.
Our sales and operating revenues were $6.2 billion in 2003,
an increase of $328 million, or 6%, compared to 2002.
Approximately two-thirds of the increase reflected the
translation effect of the weakening U.S. dollar against
most currencies. The currency impact affected our operations
primarily in Europe and Korea where our revenues are denominated
in local currencies and are translated into U.S. dollars
for reporting purposes. Year over year, the value of the
U.S. dollar declined nearly 20% against the euro and 4%
against the Korean won. Approximately one-third of the increase
reflected the impact of higher LME prices being passed through
to our customers. The average LME 3-month aluminum price
increased approximately 5% year over year.
51
The table below sets forth information relating to our expenses
for the years ended December 31, 2004, 2003, and 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
% of Sales |
|
|
$ |
|
|
% of Sales |
|
|
$ |
|
|
% of Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$, except where indicated) |
|
Cost of sales and operating expenses, excluding depreciation and
amortization
|
|
$ |
6,856 |
|
|
|
88.4 |
% |
|
$ |
5,482 |
|
|
|
88.1 |
% |
|
$ |
5,208 |
|
|
|
88.4 |
% |
Depreciation and amortization
|
|
|
246 |
|
|
|
3.2 |
|
|
|
222 |
|
|
|
3.6 |
|
|
|
211 |
|
|
|
3.6 |
|
Selling, general and administrative expenses
|
|
|
268 |
|
|
|
3.5 |
|
|
|
211 |
|
|
|
3.4 |
|
|
|
183 |
|
|
|
3.1 |
|
Research and development expenses
|
|
|
58 |
|
|
|
0.8 |
|
|
|
62 |
|
|
|
1.0 |
|
|
|
67 |
|
|
|
1.1 |
|
Interest expenses
|
|
|
74 |
|
|
|
1.0 |
|
|
|
40 |
|
|
|
0.7 |
|
|
|
42 |
|
|
|
0.7 |
|
Other expenses, net
|
|
|
28 |
|
|
|
0.4 |
|
|
|
0 |
|
|
|
|
|
|
|
46 |
|
|
|
0.8 |
|
Our cost of sales and operating expenses represented 88.4% of
our sales and operating revenues in 2004, compared to 88.1% in
2003 and 88.4% in 2002. The stability of this cost/revenue
relationship reflects the conversion nature of our business. The
increase in costs of sales and operating expenses in 2004 in
large part reflected the impact of higher LME prices on metal
input costs. There was a commensurate increase in sales and
operating revenues as higher metal costs were passed through to
customers.
In 2004, our cost base was adversely affected by a number of
external factors that increased costs for natural gas and
freight. The sharp decline in the value of the U.S. dollar
also had a significant adverse impact on operating and overhead
costs incurred in other currencies, which are translated into
U.S. dollars for reporting purposes. In order to mitigate
the negative impact of cost pressures and currency, we remain
focused on reducing controllable costs.
Our depreciation and amortization expense was $246 million
in 2004 compared to $222 million in 2003. Nearly half of
the increase in 2004 was the result of the acquisition of
Pechiney at the end of 2003, with the remainder mainly
reflecting the effect of the stronger euro and Korean won when
translating local currency expenses into U.S. dollars. Our
depreciation and amortization expense increased $11 million
in 2003, or 5%, compared to 2002. The increase in 2003 mainly
reflected the effect of the strengthening euro and Korean won
when translated into U.S. dollars.
SG&A expenses were $268 million for 2004 compared to
$211 million in 2003, an increase of $57 million.
Included in SG&A for 2004 are expenses related to the
spin-off from Alcan and start-up costs for Novelis of
$17 million. Approximately one-third of the remaining
increase is from the four Pechiney plants, while about one-fifth
is from the impact of the strengthening euro, which increased
local currency costs when translated into U.S. dollars for
reporting purposes. Our 2003 SG&A expenses were
$28 million, or 15%, higher than in 2002. Approximately
half of the increase in 2003 reflected the impact of the
weakening U.S. dollar, most notably against the euro. On
average, the value of the U.S. dollar relative to the euro
declined by nearly 20% year over year. One-time pension-related
expenses in Brazil and a provision for restructuring in Italy
accounted equally for the balance of the increase. We expect
SG&A to be higher in 2005 due to increased corporate costs
as a stand-alone company. In addition, we expect to incur
one-time start up costs of $20 to $25 million in 2005.
Our research and development spending was $58 million in
2004, compared to $62 million in 2003 and $67 million
in 2002. In each of the three years, research and development
represented about 1% of sales and operating revenues.
We do not believe that an analysis of our historical interest
expense is meaningful as it does not reflect the level of debt
financing that our business has assumed and incurred in
connection with the reorganization transactions, nor the
associated interest costs. On a combined basis, historical
interest
52
expense was $74 million in 2004, an increase of 85% over
2003, reflecting the higher level of borrowings and debt at the
end of 2003 that was used to finance Alcans acquisition of
Pechiney in 2003. Historical combined interest expense of
$40 million in 2003 was little changed from 2002. See
Liquidity and Capital Resources for a
discussion of the debt we incurred in connection with the
reorganization transactions.
In 2004 Other expenses (income) net were expenses of
$28 million, an increase of $28 million over the same
period in 2003. The major factors in 2004 included
$26 million in restructuring and asset impairment charges
in Europe, including an $8 million asset impairment in the
U.K., the separate asset impairment charge of $65 million
in Italy and interest revenue of $26 million. Pre-tax
mark-to-market gains on derivatives were $69 million for
the year, an increase of $49 million from 2003.
In 2003, Other expenses (income) net of nil included
certain pre-tax expenses of $27 million. The most
significant items related to pre-tax environmental provisions of
$30 million mainly for a site at our Oswego facility in New
York; credits to the 2001 restructuring charge of
$24 million largely related to the sales of assets in the
U.K., Italy and Malaysia; pre-tax mark-to-market gains on
derivatives of $20 million; and foreign exchange losses of
$17 million mainly relating to foreign currency balance
sheet translation and a pre-tax charge of $7 million
associated with a change in pension plans in Brazil. Other
expenses (income) net were expenses of
$46 million in 2002, including a pre-tax expense of
$44 million related to a transfer pricing adjustment;
additions to the 2001 restructuring charge of $25 million
for rationalizations and asset impairments in the U.S., Italy
and Malaysia; pre-tax interest revenue of $16 million;
pre-tax mark-to-market gains on derivatives of $9 million;
and a pre-tax expense of $3 million related to an asset
impairment charge for operations in Korea. The transfer pricing
adjustment relates to discussions that the Internal Revenue
Service completed with the Canadian tax authorities in 2002 with
respect to our (formerly Alcan Aluminum Corporation) request for
competent authority assistance on the Canadian initiated
transfer pricing adjustments for the tax years 1988 through
1995. The Internal Revenue Service agreed to provide correlative
relief and the $44 million adjustment is the resulting
increase in expenses related to our business for the years 1988
through 1995.
Our income tax expense of $166 million represented an
effective tax rate of 74% for 2004 compared to an income tax
expense of $50 million and an effective tax rate of 25% for
2003 and an income tax expense of $77 million and an
effective tax rate of 57% in 2002. This compares to a 2004
composite statutory tax rate of 33% in Canada (32% in 2003 and
2002). In 2004, the major differences were caused by the
$65 million pre-tax asset impairment in Italy, for which a
tax recovery is not expected, and the $21 million tax
provision in connection with the spin-off of Novelis, for which
there is no related income. In 2003 the difference in the rates
was due primarily to prior years tax adjustments and the
realization of tax benefits on previously unrecorded tax losses
carried forward. In 2002, the difference in the rates was due
primarily to the impact of potential future tax benefits that
were not recognized since their realization was not likely as
well as higher tax rates in foreign jurisdictions, partially
offset by currency related items. You should read note 9 of
the audited annual combined financial statements for a
reconciliation of statutory and effective tax rates.
The change in tax rates from year to year is largely due to the
increase or decrease in valuation allowance recorded against
deferred tax assets. We reduce the deferred tax assets by a
valuation allowance if it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
In 2004, we incurred tax losses in Italy, driven mainly by the
impairment charge of $65 million, and it was not more
likely than not that the tax benefits on these losses
would be realized and therefore we increased the valuation
allowances on these deferred tax assets. In 2003, we reduced the
valuation allowance on deferred tax assets as a result of the
realization of tax benefits from the carryforward of prior
years tax losses to offset taxable income of the current
year in Italy, the United Kingdom and Korea. In 2002, we
incurred tax losses in certain jurisdictions, such as Italy,
where it was not more likely than not that the tax
benefits would be realized and therefore we increased the
valuation allowance on these deferred assets.
53
Effective January 1, 2002, we adopted
SFAS No. 142, Goodwill and Other Intangible Assets.
Under the standard, goodwill and intangible assets that have
indefinite useful lives are no longer amortized but rather are
tested at least annually for impairment.
On adoption of the standard, a review of goodwill resulted in an
impairment charge of $84 million recorded as a cumulative
effect of an accounting change as of January 1, 2002. This
non-cash adjustment reflected the deterioration in end-use
market conditions in the period from Alcans acquisition of
algroup in October 2000 to January 1, 2002, and did not
reflect a change in our growth prospects. Annual impairment
tests in 2004, 2003, and 2002 have not resulted in any further
impairment charges.
Operating Segment Review Years Ended
December 31, 2004, 2003 and 2002
Due in part to the regional nature of supply and demand of
aluminum rolled products, our activities are organized under
four business groups and are managed on the basis of
geographical areas. The business groups are Novelis North
America, Novelis Europe, Novelis Asia and Novelis South America.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues by business group(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
Novelis North America
|
|
|
38 |
% |
|
|
38 |
% |
|
|
43 |
% |
Novelis Europe
|
|
|
40 |
|
|
|
40 |
|
|
|
38 |
|
Novelis Asia
|
|
|
15 |
|
|
|
15 |
|
|
|
13 |
|
Novelis South America
|
|
|
7 |
|
|
|
7 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
Excludes intersegment revenues. Refer to note 26 of the
audited annual combined financial statements for details on
intersegment revenues. Additional operating segment information
is presented in note 26 of the audited annual combined
financial statements. |
The following tables set forth key financial and operating data
for Novelis North America for the fiscal years ended
December 31, 2004, 2003, and 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Contribution to Novelis North America sales and operating
revenues(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage/food cans
|
|
|
58 |
% |
|
|
57 |
% |
|
|
61 |
% |
Construction and industrial
|
|
|
15 |
|
|
|
14 |
|
|
|
11 |
|
Foil products
|
|
|
10 |
|
|
|
12 |
|
|
|
11 |
|
Transportation
|
|
|
14 |
|
|
|
15 |
|
|
|
15 |
|
Ingot
|
|
|
3 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
Years Ended |
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
vs |
|
|
vs |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$, except per tonne data and |
|
|
|
where indicated) |
|
Novelis North America selected financial information(ii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
$ |
2,964 |
|
|
$ |
2,385 |
|
|
$ |
2,517 |
|
|
|
|
24 |
% |
|
|
(5 |
)% |
Regional Income
|
|
|
240 |
|
|
|
176 |
|
|
|
218 |
|
|
|
|
36 |
|
|
|
(19 |
) |
Rolled products shipments(iii) (kt)
|
|
|
1,115 |
|
|
|
1,042 |
|
|
|
1,120 |
|
|
|
|
7 |
|
|
|
(7 |
) |
Ingot products shipments(iv) (kt)
|
|
|
60 |
|
|
|
41 |
|
|
|
45 |
|
|
|
|
46 |
% |
|
|
(9 |
) |
Regional Income per tonne(v)
|
|
|
215 |
|
|
|
169 |
|
|
|
195 |
|
|
|
|
27 |
|
|
|
(13 |
) |
Depreciation
|
|
|
69 |
|
|
|
68 |
|
|
|
67 |
|
|
|
|
1 |
|
|
|
1 |
|
Capital expenditures
|
|
|
41 |
|
|
|
38 |
|
|
|
32 |
|
|
|
|
8 |
|
|
|
19 |
|
Total assets
|
|
|
1,406 |
|
|
|
2,392 |
|
|
|
1,224 |
|
|
|
|
(59 |
) |
|
|
95 |
|
|
|
(i) |
Based on management estimates. |
|
(ii) |
Intersegment revenues and shipments are not included in the
figures above. Refer to note 26 of the audited annual
combined financial statements for details on intersegment
revenues. |
|
(iii) |
Includes conversion of customer-owned metal (tolling). |
|
|
(iv) |
Includes primary and secondary ingot and recyclable aluminum. |
|
(v) |
Based on rolled products shipments only. |
In 2004, Novelis North America had sales and operating revenues
of $3.0 billion, representing 38% of our total sales and
operating revenues, and shipments of 1,175 kilotonnes,
representing 39% of our total shipments. Compared to 2003,
Novelis North Americas revenues increased by
$579 million, or 24%. The majority of the increase
reflected the impact of higher LME prices passed through to
customers, with the balance mainly reflecting higher shipments.
In 2004, the industrial products, construction, transportation
and small industrial goods end-use markets were very strong. Can
and foil end-use markets were relatively flat for the industry;
however, Novelis North Americas participation was up in
these end-use markets. Recycling played a bigger role for us in
2004 as we increased the amount of recycling used in our
products. The spreads between recycled metal and primary metal
costs increased as aluminum prices continued to increase,
averaging slightly above normal spreads for the year. This
increase made a positive contribution to our financial results
due to our increased use of recycled metal.
Novelis North America reported Regional Income of
$240 million for 2004, an increase of $64 million, or
36%, over 2003. This improvement is attributable to strong
growth in rolled product shipments which were up 7% from the
year-ago period due to strengthening market conditions. Benefits
to Regional Income of cost control efforts and the recovery in
purchase price spreads between recycled metal and primary
aluminum were offset by the strengthening Canadian dollar and
the negative impact of metal price lags. Metal price lags result
from temporary timing differences between the pass-through
aluminum price component of our sales to customers and the
LME-related cost of aluminum purchases included in our cost of
goods sold. 2003 Regional Income included a $25 million
environmental provision for a site at our Oswego facility in New
York.
In 2003, Novelis North America had sales and operating revenues
of $2.4 billion, representing 38% of our total sales and
operating revenues, and shipments of 1,083 kilotonnes,
representing 39% of our total shipments. Compared to 2002,
Novelis North Americas revenues decreased by
$132 million, or 5%, in 2003 mainly due to lower shipments,
offset in part by the impact of higher aluminum input costs
passed through to customers.
55
Rolled product shipments for 2003 were 7% below the record level
in 2002 due to lower can stock shipments, the transfer of
business to Novelis Asia and weak market conditions in the
United States. In contrast, automotive sheet sales reached an
all-time record in 2003 as sales of light trucks in the North
American market remained strong, despite a 3% decline in overall
automobile production. Novelis North America benefited from
innovations in sport utility vehicle lift-gate and hood
technologies as a result of its continued close co-operation
with automotive customers. Industrial product revenues improved
despite ongoing weakness in the distributor market and severe
import price competition, as we continued to concentrate on new
value-creating product applications. Container and foilstock
shipments were essentially unchanged from 2002 levels, while
package and converter foil shipments continued to be adversely
affected by imports.
Novelis North Americas Regional Income for 2003 declined
by $42 million, or 19%, compared to 2002. Included in
Regional Income in 2003 is a $25 million environmental
provision for our rolling mill located in Oswego, New York,
while 2002 Regional Income included an expense of
$44 million related to the transfer pricing settlement. Of
the remaining $61 million decline, approximately half is
caused by lower rolled product volumes, while the remainder of
the decline is accounted for, in equal parts, by the adverse
effect of metal price lags, the impact of higher recycled metal
costs and the effect of the stronger Canadian dollar when
translating local currency expenses into U.S. dollars.
Contributions from aggressive cost reduction efforts and
improved conversion margins helped to partially offset the
year-over-year decline, each by equal amounts.
The following tables set forth key financial and operating data
for Novelis Europe for the fiscal years ended December 31,
2004, 2003, and 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Contribution to Novelis Europe sales and operating
revenues(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage/food cans
|
|
|
16 |
% |
|
|
17 |
% |
|
|
19 |
% |
Construction and industrial
|
|
|
40 |
|
|
|
49 |
|
|
|
52 |
|
Foil products
|
|
|
29 |
|
|
|
14 |
|
|
|
13 |
|
Transportation
|
|
|
12 |
|
|
|
12 |
|
|
|
12 |
|
Ingot
|
|
|
3 |
|
|
|
8 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
Years Ended |
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
vs |
|
|
vs |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$, except per tonne data and |
|
|
|
where indicated) |
|
Novelis Europe selected financial information(ii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
$ |
3,081 |
|
|
$ |
2,510 |
|
|
$ |
2,218 |
|
|
|
|
23 |
% |
|
|
13 |
% |
Regional Income
|
|
|
200 |
|
|
|
175 |
|
|
|
127 |
|
|
|
|
14 |
|
|
|
38 |
|
Rolled products shipments(iii) (kt)
|
|
|
984 |
|
|
|
860 |
|
|
|
853 |
|
|
|
|
14 |
|
|
|
1 |
|
Ingot products shipments(iv) (kt)
|
|
|
105 |
|
|
|
152 |
|
|
|
73 |
|
|
|
|
(31 |
) |
|
|
108 |
|
Regional Income per tonne(v)
|
|
|
203 |
|
|
|
203 |
|
|
|
149 |
|
|
|
|
|
|
|
|
36 |
|
Depreciation
|
|
|
115 |
|
|
|
87 |
|
|
|
75 |
|
|
|
|
32 |
|
|
|
16 |
|
Capital expenditures
|
|
|
84 |
|
|
|
97 |
|
|
|
81 |
|
|
|
|
(13 |
) |
|
|
20 |
|
Total assets
|
|
|
2,885 |
|
|
|
2,364 |
|
|
|
1,780 |
|
|
|
|
22 |
|
|
|
33 |
|
56
|
|
(i) |
Based on management estimates. |
|
(ii) |
Intersegment revenues and shipments are not included in the
figures above. Refer to note 26 of the audited annual
combined financial statements for details on intersegment
revenues. |
|
(iii) |
Includes conversion of customer-owned metal (tolling). |
|
|
(iv) |
Includes primary and secondary ingot and recyclable aluminum. |
|
(v) |
Based on rolled products shipments only. |
In 2004, Novelis Europe had sales and operating revenues of
$3.1 billion, representing 40% of our total sales and
operating revenues, and shipments of 1,089 kilotonnes,
representing 36% of our total shipments. Compared to 2003,
Novelis Europes sales and operating revenues increased by
$571 million, or 23%. The impact of higher LME prices
passed through to customers accounted for the majority of the
improvement in sales and operating revenues, with higher
shipments from the acquisition of Pechiney and foreign currency
translation effects accounting for the remaining improvement.
In 2004, the European aluminum can market grew as can production
accelerated conversion from steel to aluminum, driven by
legislative changes originating in Germany in the post-consumer
container return area, where the value of UBCs advantages
aluminum over steel in the recovery system. The European
automotive market also continued to grow well as we made headway
into new applications. Europe continues to experience growth in
the aluminization of vehicles for performance reasons. The
European lithographic sheet market also increased as demand for
higher-grade product, driven by computer-to-print technology,
feeds directly into our areas of asset capabilities and
expertise.
Novelis Europe reported Regional Income of $200 million for
2004 as compared to $175 million in 2003. The positive
effect on translation of euro-denominated results into
U.S. dollars, favorable metal effects, benefits from
previous restructuring activities, and the contribution of four
rolling operations acquired from Pechiney more than offset any
negative product mix impact. While some end-markets are slowly
recovering in Europe, the strength of the euro continues to keep
shipments and margins under pressure. In response to the
challenging market conditions, Novelis Europe is focused on
optimizing its portfolio of products and reducing costs.
In 2003, Novelis Europe had sales and operating revenues of
$2.5 billion, representing 40% of our total sales and
operating revenues, and shipments of 1,012 kilotonnes,
representing 36% of our total shipments. Compared to 2002,
Novelis Europes sales and operating revenues increased by
$292 million, or 13%. Approximately two-thirds of the
improvement reflected the impact of the stronger euro, with the
balance mainly reflecting the impact of higher total shipments.
In 2003, the European beverage can market was negatively
impacted by the timing of the introduction of complex deposit
requirements in Germany, but demand growth in Eastern Europe
partially offset this factor. The demand for lithographic sheet
was strong, ending 6% above 2002 levels; however the distributor
market was weak throughout the year. Other end-use markets were
mixed in 2003. The demand for bright surface products was
robust, whereas painted products and industrial plate showed
only modest improvement compared to 2002. In addition to the
difficult economic situation, the strengthening euro versus the
U.S. dollar exacerbated already very competitive market
conditions. The demand for aluminum automotive sheet remained
strong in 2003 and represented the key driver for overall market
growth, with automotive sheet shipments up 18% over 2002.
Through its automotive finishing facility in Nachterstedt,
Germany, Novelis Europe is the exclusive supplier to the
all-aluminum structured Jaguar XJ, which entered production in
2003 at a build rate of 30,000 cars per year.
In 2003, approximately sixty percent of the year-over-year
increase in Novelis Europes Regional Income was due to the
impact of the stronger euro on the translation of euro profits
into U.S. dollars with the remainder of the increase mainly
reflecting the impact of restructuring programs. During 2003,
Novelis Europe continued to concentrate on value-added market
sectors and products, while focusing on cost and operating
working capital reduction in its operations. Foil and technical
products continued to implement
57
major restructuring programs in the United Kingdom, Germany and
Switzerland. By mid-year, Novelis Europes profitability
had improved as the fixed cost burden was reduced through plant
consolidation.
The following tables set forth key financial and operating data
for Novelis Asia for the fiscal years ended December 31,
2004, 2003, and 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Contribution to Novelis Asia sales and operating
revenues(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage/food cans
|
|
|
24 |
% |
|
|
23 |
% |
|
|
10 |
% |
Construction and industrial
|
|
|
17 |
|
|
|
15 |
|
|
|
24 |
|
Foil products
|
|
|
27 |
|
|
|
26 |
|
|
|
26 |
|
Transportation
|
|
|
26 |
|
|
|
27 |
|
|
|
27 |
|
Ingot
|
|
|
6 |
|
|
|
9 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
Years Ended |
|
|
|
|
|
|
December 31, |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
vs |
|
|
vs |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$, except per tonne data |
|
|
|
and where indicated) |
|
Novelis Asia selected financial information(ii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
$ |
1,194 |
|
|
$ |
918 |
|
|
$ |
785 |
|
|
|
30 |
% |
|
|
17 |
% |
Regional Income
|
|
|
80 |
|
|
|
69 |
|
|
|
41 |
|
|
|
16 |
|
|
|
68 |
|
Rolled products shipments(iii) (kt)
|
|
|
452 |
|
|
|
385 |
|
|
|
320 |
|
|
|
17 |
|
|
|
20 |
|
Ingot products shipments(iv) (kt)
|
|
|
39 |
|
|
|
43 |
|
|
|
58 |
|
|
|
(9 |
) |
|
|
(26 |
) |
Regional Income per tonne(v)
|
|
|
177 |
|
|
|
179 |
|
|
|
128 |
|
|
|
(1 |
) |
|
|
40 |
|
Depreciation
|
|
|
46 |
|
|
|
45 |
|
|
|
42 |
|
|
|
2 |
|
|
|
7 |
|
Capital expenditures
|
|
|
31 |
|
|
|
25 |
|
|
|
32 |
|
|
|
24 |
|
|
|
(22 |
) |
Total assets
|
|
|
954 |
|
|
|
904 |
|
|
|
891 |
|
|
|
6 |
|
|
|
15 |
|
|
|
(i) |
Based on management estimates. |
|
(ii) |
Intersegment revenues and shipments are not included in the
figures above. Refer to note 26 of the audited annual
combined financial statements for details on intersegment
revenues. |
|
(iii) |
Includes conversion of customer-owned metal (tolling). |
|
|
(iv) |
Includes primary and secondary ingot and recyclable aluminum. |
|
(v) |
Based on rolled products shipments only. |
In 2004, Novelis Asia had sales and operating revenues of
$1.2 billion, representing 15% of our total sales and
operating revenues, and record shipments of 491 kilotonnes,
representing 16% of our total shipments. Compared to 2003,
Novelis Asias sales and operating revenues increased by
$276 million or 30%. Over 40% of the increase reflects the
impact of higher LME prices passed through to customers, with
the balance mainly reflecting higher shipments and an improved
product portfolio.
Novelis Asia reported Regional Income of $80 million for
2004 compared to $69 million in 2003. The improvement
principally reflected increased demand, most notably in China,
which was met with improved operating productivity, and a move
to higher value-added products. Novelis Asias rolled
products shipments were 452 kilotonnes in 2004, an increase of
17% from 2003.
58
In 2003, Novelis Asia had sales and operating revenues of
$918 million, representing 15% of our total sales and
operating revenues, and shipments of 428 kilotonnes,
representing 15% of our total shipments. Sales and operating
revenues increased by 17% in 2003 compared to 2002. Almost all
of the improvement reflected increased rolled product shipments.
Novelis Asia was able to capitalize on growth in Asian can
demand, particularly in China, combined with improved operating
performance in our Korean operations. Novelis Asia is the second
largest supplier to China in terms of shipments, which in
Asia-Pacific, is the fastest growing market. In order to
reinforce our strategic position in Southeast Asia, we increased
our ownership position in Aluminium Company of Malaysia Berhad
from 36% to 59% in 2003.
Novelis Asias Regional Income has steadily increased over
the last three years due to the higher shipments resulting from
the improved operating performance of our Korean rolling mills
and an improved product portfolio.
The following tables set forth key financial and operating data
for Novelis South America for the fiscal years ended
December 31, 2004, 2003, and 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Contribution to Novelis South America sales and operating
revenues(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage/food cans
|
|
|
60 |
% |
|
|
50 |
% |
|
|
52 |
% |
Construction and industrial
|
|
|
3 |
|
|
|
5 |
|
|
|
3 |
|
Foil products
|
|
|
11 |
|
|
|
8 |
|
|
|
10 |
|
Transportation
|
|
|
15 |
|
|
|
17 |
|
|
|
14 |
|
Ingot
|
|
|
11 |
|
|
|
20 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
Years Ended |
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
vs |
|
|
vs |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$, except per tonne data |
|
|
|
and where indicated) |
|
Novelis South America selected financial information(ii)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
$ |
525 |
|
|
$ |
414 |
|
|
$ |
379 |
|
|
|
|
27 |
% |
|
|
9 |
% |
Regional Income
|
|
|
134 |
|
|
|
88 |
|
|
|
86 |
|
|
|
|
52 |
|
|
|
2 |
|
Rolled products shipments(iii) (kt)
|
|
|
234 |
|
|
|
204 |
|
|
|
186 |
|
|
|
|
15 |
|
|
|
10 |
|
Ingot products shipments(iv) (kt)
|
|
|
30 |
|
|
|
54 |
|
|
|
58 |
|
|
|
|
(44 |
) |
|
|
(7 |
) |
Regional Income per tonne(v)
|
|
|
573 |
|
|
|
431 |
|
|
|
462 |
|
|
|
|
33 |
|
|
|
(7 |
) |
Depreciation
|
|
|
47 |
|
|
|
49 |
|
|
|
49 |
|
|
|
|
(4 |
) |
|
|
|
|
Capital expenditures
|
|
|
23 |
|
|
|
41 |
|
|
|
46 |
|
|
|
|
(43 |
) |
|
|
(11 |
) |
Total assets
|
|
|
779 |
|
|
|
808 |
|
|
|
790 |
|
|
|
|
(4 |
) |
|
|
2 |
|
|
|
(i) |
Based on management estimates. |
|
(ii) |
Intersegment revenues and shipments are not included in the
figures above. Refer to note 26 of the audited annual
combined financial statements for details on intersegment
revenues. |
|
(iii) |
Includes conversion of customer-owned metal (tolling). |
|
|
(iv) |
Includes primary and secondary ingot and recyclable aluminum. |
|
(v) |
Based on rolled products shipments only. |
59
In 2004, Novelis South America had sales and operating revenues
of $525 million, representing 7% of our total sales and
operating revenues, and shipments of 264 kilotonnes,
representing 9% of our total shipments. Compared to 2003,
Novelis South Americas sales and operating revenues
increased by $111 million, or 27%. Two-thirds of the
increase reflected the impact of higher LME prices passed
through to customers and sold from our smelters to third party
ingot customers with the balance mainly reflecting higher
shipments.
The first half of 2004 in South America was slow as the can
business was down approximately 6%. But by year-end, the market
recovered and was up 2%. The economy started to pick up in the
second quarter with full consumer involvement in most segments
occurring by the fourth quarter. The light gauge market in South
America grew by 11%; however, Novelis South Americas light
gauge business grew by 22%, reflecting the unique position we
hold in South America.
Novelis South America reported Regional Income of
$134 million for 2004 compared to $88 million in 2003.
Approximately fifty percent of the increased Regional Income is
related to market share gains, evidenced by a 15% increase in
Novelis South Americas rolled products shipments over the
prior year period compared to an 8% improvement in the overall
aluminum rolled product market, with the balance coming from
improved pricing, higher ingot prices due to the production from
our smelters in Brazil and a $19 million gain on conversion
of the defined benefit pension plan to a defined contribution
plan.
Novelis South America had sales and operating revenues of
$414 million in 2003, representing 7% of our total sales
and operating revenues, and shipments of 258 kilotonnes,
representing 9% of our total shipments. Approximately half of
the improvement reflected higher rolled products shipments,
which increased by 9% due to further inroads made into the can
market. The balance of the improvement in sales and operating
revenues reflected higher aluminum input costs which are passed
through to customers.
While South American economies improved in 2003, the business
environment remained challenging. As the only local can sheet
producer, Novelis South America was well positioned to grow can
sheet sales despite a decrease in demand in the domestic can
market. New product introductions along with competitive
advantages and improvements in the distribution chain also
strengthened our sales position in industrial products and light
gauge markets. Efforts to grow export sales continued in order
to mitigate the impact of soft local demand.
In 2003, Novelis South Americas Regional Income increased
by $2 million, or 2%, compared to 2002, and included a
$7 million loss on liquidation of the defined benefit
pension plan. Of the remaining variance, all of the
year-over-year increase was due to higher shipments. The impact
of higher LME prices and the benefits from ongoing cost
reduction initiatives were offset by lower conversion prices due
to the soft market conditions.
In 2002, South American economies were severely impacted by
political uncertainty in Brazil, Argentina and Venezuela. The
Brazilian real fell 53% during the year, which reduced demand
for U.S. dollar-based aluminum products and led to an 8%
drop in sheet shipments. In order to mitigate the decline in
local demand, Novelis South America turned to new export markets
and new product introductions, as well as focusing on higher
value-added products.
Liquidity and Capital Resources
Our liquidity and available capital resources are impacted by
three components: (1) operating activities,
(2) investment activities and (3) financing activities.
60
The following table sets forth information regarding our cash
flow for the six months ended June 30, 2005 and 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
Cash from Operating Activities
|
|
$ |
288 |
|
|
$ |
99 |
|
|
|
290 |
% |
Dividends
|
|
|
(21 |
) |
|
|
(3 |
) |
|
|
700 |
|
Capital Expenditures
|
|
|
(56 |
) |
|
|
(59 |
) |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
Free Cash Flow(i)
|
|
$ |
211 |
|
|
$ |
37 |
|
|
|
570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
Free cash flow (which is a non-GAAP measure) consists of cash
from operating activities less capital expenditures and
dividends. Dividends include those paid by our less than
wholly-owned subsidiaries to their minority shareholders and
dividends to the common shareholders of Novelis. 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 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. |
Cash from operating activities was $288 million for the
first half of 2005 with a change in working capital, deferred
items and other net of $182 million. This
represents a $189 million change in cash from operating
activities over the same period in 2004. The change in working
capital deferred items and other net for the same
periods in 2004 was ($146) million. For a discussion of the
impact of trading factors in our operating results that flow
through cash from operating activities, please refer to the
discussion in Operating Segment Review Six
Months Ended June 30, 2005 and 2004.
Free cash flow was $211 million for the first half of 2005,
an increase of $174 million over the same period in 2004,
resulting from the improvement in cash from operating activities
driven by the reduction in working capital in the first half of
2005 and the monetization of cross-currency interest rate swaps.
The following table sets forth information regarding our cash
flow for the years ended December 31, 2004, 2003, and 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
Years Ended |
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
vs |
|
|
vs |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$, except where indicated) |
|
Cash from operating activities
|
|
$ |
224 |
|
|
$ |
444 |
|
|
$ |
410 |
|
|
|
|
(50 |
)% |
|
|
8 |
% |
Capital expenditures
|
|
|
(165 |
) |
|
|
(189 |
) |
|
|
(179 |
) |
|
|
|
(13 |
) |
|
|
6 |
|
Dividends(i)
|
|
|
(4 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$ |
55 |
|
|
$ |
255 |
|
|
$ |
229 |
|
|
|
|
(78 |
) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
Dividends include only those paid by our less than wholly owned
subsidiaries to their minority shareholders. |
Even though we experienced a higher level of Regional Income at
each of our operating segments, our cash flow from operating
activities was $224 million for 2004 compared to $444 in
2003, mainly due to a change in working capital resulting from
higher LME prices. Our free cash flow was $55 million for
2004, a decrease of $200 million, or 78%, over the level in
2003, reflecting the impact from working capital. Our historical
combined financial statements do not reflect any dividends paid
by Alcan to its
61
shareholders or the level of interest expense that we are likely
to incur following our separation from Alcan.
The higher level of cash from operating activities and free cash
flow in 2003 resulted mainly from increased Regional Income at
most of our operating segments. In 2003, our cash flow generated
from operating activities was $444 million compared to
$410 million in 2002. Our free cash flow was
$255 million in 2003 compared to $229 million in 2002.
The following table sets forth information regarding our capital
expenditures and depreciation for the six months ended
June 30, 2005 and 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$, except |
|
|
|
where indicated) |
|
Capital expenditures
|
|
$ |
56 |
|
|
$ |
59 |
|
|
|
(5 |
)% |
Depreciation and amortization expense
|
|
$ |
115 |
|
|
$ |
118 |
|
|
|
(3 |
)% |
Reinvestment rate(i)
|
|
|
49 |
% |
|
|
50 |
% |
|
|
|
|
|
|
(i) |
Capital expenditures as a percentage of depreciation and
amortization expense. |
In the six months ended June 30, 2005, our capital
expenditures were $56 million, representing a capital
reinvestment rate of 49% of depreciation. During the same period
in 2004, our capital expenditures were $59 million,
representing a reinvestment rate of 50% of depreciation. The
majority of our capital expenditures for the first six months of
2005 were invested in projects devoted to product quality,
technology, productivity enhancements and undertaking small
projects to increase capacity.
The following table sets forth information regarding our capital
expenditures and depreciation for the years ended
December 31, 2004, 2003, and 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
Years Ended |
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
vs |
|
|
vs |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$, except where indicated) |
|
Capital expenditures
|
|
$ |
165 |
|
|
$ |
189 |
|
|
$ |
179 |
|
|
|
|
(13 |
)% |
|
|
6 |
% |
Depreciation and amortization expense
|
|
$ |
246 |
|
|
$ |
222 |
|
|
$ |
211 |
|
|
|
|
11 |
% |
|
|
5 |
% |
Reinvestment rate(i)
|
|
|
67 |
% |
|
|
85 |
% |
|
|
85 |
% |
|
|
|
|
|
|
|
|
|
|
|
(i) |
Capital expenditures as a percentage of depreciation and
amortization expense. |
Capital expenditures on property, plant and equipment decreased
in 2004 and remained below the level of depreciation expense for
a third consecutive year. Our capital spending was
$165 million in 2004 compared to $189 million in 2003
and $179 million in 2002.
We estimate that our annual capital expenditure requirements for
items necessary to maintain comparable production, quality and
market position levels (i.e., maintenance capital) will be
between $100 million and $120 million for the next
several years.
Total borrowings, as well as cash and time deposits, as
presented in our historical combined financial statements for
the years ended December 31, 2004 and 2003, are not
representative of the debt or cash and time deposits that we
have following our separation from Alcan. Historically, Alcan
has centrally managed its financing activities in order to
optimize its costs of funding and financial flexibility at a
corporate level. Consequently, the debt being carried in our
historical combined financial statements does not reflect either
our debt capacity or our financing requirements.
62
On separation from Alcan, we had $2,951 million of debt and
capital leases which decreased by $70 million in the first
quarter 2005. With the strength of the cash flows in the second
quarter of 2005, we further decreased our debt position by
$98 million to $2,783 million as at June 30,
2005, for total debt reduction year-to-date of
$168 million, or 6%.
All of our related party debt of $2,597 million as at
December 31, 2004 was payable to Alcan and was fully repaid
in the first quarter of 2005. The related party debt was
comprised of a combination of fixed and floating rate debt of
$1,392 million and fixed rate promissory notes (Alcan
Notes) obtained in December 2004 of $1,205 million. The
Alcan Notes comprised a major portion of the $1,375 million
bridge financing provided by Alcan to the Company as a result of
the reorganization transactions. The remaining balance of the
Alcan Notes of $170 million was obtained in January 2005.
The Alcan Notes were repaid with the proceeds of the old notes
issued in February 2005, discussed below.
In connection with the reorganization transactions, we entered
into senior secured credit facilities providing for aggregate
borrowings of up to $1,800 million. These facilities
consist of a $1,300 million seven-year senior secured Term
Loan B facility, bearing interest at LIBOR plus 1.75%, all of
which was borrowed on January 10, 2005, and a
$500 million five-year multi-currency revolving credit
facility. The Term Loan B facility consists of an
$825 million Term Loan B in the U.S. and a
$475 million Term Loan B in Canada. The proceeds of the
Term Loan B facility were used in connection with the
reorganization transactions, our separation from Alcan and to
pay related fees and expenses. Debt issuance costs incurred in
relation to these facilities have been capitalized in deferred
charges and other assets and are being amortized over the life
of the related borrowing in Interest.
On February 3, 2005, we issued $1,400 million
aggregate principal amount of senior unsecured debt securities.
The senior notes, which were priced at par, bear interest at
7.25% and will mature on February 15, 2015. We used the net
proceeds of the placement to repay indebtedness to Alcan.
We have entered into interest rate swaps to fix the interest
rate on $310 million of the variable rate Term Loan B debt
at an effective weighted average interest rate of 5.5% for
periods of up to three years.
In 2004, Novelis Korea Limited (Novelis Korea), formerly Alcan
Taihan Aluminium Limited, entered into a $70 million
floating rate long-term loan which was subsequently swapped for
a 4.55% fixed rate KRW 73 billion loan and into two
long-term floating rate loans of KRW 40 billion and KRW
25 billion that were swapped for fixed rates of 4.80% and
4.45%, respectively. In 2005, interest on an unrelated KRW 2
billion loan ranged from 3.00% to 4.43% (2004: 3.00% to 5.50%).
In February 2005, Novelis Korea entered into a $50 million
unsecured floating rate long-term loan which was subsequently
swapped for a 5.30% fixed rate KRW 51 billion loan. The proceeds
of the Korean term loans were used to refinance existing debt of
our Korean subsidiary.
Our subsidiaries in Malaysia and Brazil have access to committed
local credit lines totaling $32 million.
|
|
|
Off-Balance Sheet Arrangements
|
We did not have any off-balance sheet arrangements as defined in
Item 303(a)(4) of SEC Regulation S-K as of
June 30, 2005 or as of December 31, 2004.
63
We have future obligations under various contracts relating to
debt payments, capital and operating leases, long-term purchase
arrangements and pensions and other post-employment benefits.
The table below provides a summary of these contractual
obligations (based on undiscounted future cash flows) as at
December 31, 2004. Long-term debt obligations are presented
below. However, they reflect our historical debt level which is
not representative of the debt repayments and interest expense
that will actually be due or accrue under the new capital
structure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than |
|
|
|
|
|
|
More Than |
|
Payments Due by Period as at December 31, 2004 |
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
Long-term debt(i)
|
|
$ |
2,737 |
|
|
$ |
291 |
|
|
$ |
329 |
|
|
$ |
910 |
|
|
$ |
1,207 |
|
Interest payments on long-term debt(ii)
|
|
|
1,544 |
|
|
|
157 |
|
|
|
358 |
|
|
|
336 |
|
|
|
693 |
|
Capital leases(iii)
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Operating leases(iii)
|
|
|
25 |
|
|
|
9 |
|
|
|
10 |
|
|
|
5 |
|
|
|
1 |
|
Purchase obligations(iii)
|
|
|
105 |
|
|
|
41 |
|
|
|
31 |
|
|
|
22 |
|
|
|
11 |
|
Unfunded pension plans(iv)
|
|
|
434 |
|
|
|
7 |
|
|
|
16 |
|
|
|
17 |
|
|
|
394 |
|
Other post-employment benefits(iv)
|
|
|
457 |
|
|
|
8 |
|
|
|
18 |
|
|
|
19 |
|
|
|
412 |
|
Funded pension plans(iv)
|
|
|
|
(v) |
|
|
10 |
|
|
|
21 |
|
|
|
22 |
|
|
|
|
(v) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$ |
524 |
|
|
$ |
784 |
|
|
$ |
1,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
Refer to note 18 of the audited annual combined financial
statements. The long-term debt repayments above represent the
repayments based on our historical debt balances. In 2005, we
refinanced all of our long-term debt payable to Alcan and its
subsidiaries with third party long-term debt as described in
note 27, Subsequent Events Financing of the
audited annual combined financial statements. |
|
(ii) |
As described in (i) above, we refinanced all of our
long-term debt payable to Alcan and its subsidiaries with third
party long-term debt, and accordingly, the interest payments
discussed above are not representative of the interest expense
that will actually accrue under the new debt structure. Our
current debt structure consists of the $1.3 billion
seven-year Term Loan B facility, the $1.4 billion
10-year Senior Notes as described in note 27 to the audited
annual combined financial statements, and the existing
third-party long-term debt of Alcan Taihan Aluminum Limited as
described in note 18 to the audited annual combined
financial statements. Based on this debt structure, expected
interest payments would be as follows assuming variable interest
rates do not change; our interest rate swaps are not replaced
when they mature; and the Korean term loans are refinanced and
swapped at the same rates prevailing as at March 29, 2005:
Less than 1 year: $163 million; 1-3 years:
$348 million; 3-5 years: $343 million; More than
5 years: $671 million. |
|
(iii) |
Refer to note 20 of the audited annual combined financial
statements. |
|
|
(iv) |
Refer to note 24 of the audited annual combined financial
statements. |
|
(v) |
Pension funding generally includes the contribution required to
finance the annual service cost, except where the plan is
largely over-funded, and amortization of unfunded liabilities
over periods of 15 years, with larger payments made over
the initial period where required by pension legislation.
Contributions depend on actual returns on pension assets and on
deviations from other economic and demographic actuarial
assumptions. Based on our long-term expected return on assets,
annual contributions for years after 2009 are projected to be in
the same range as in prior years and to grow in relation with
payroll. |
As at June 30, 2005, debt payment requirements were: less
than 1 year: $3 million; 1-3 years:
$189 million; 3-5 years: $6 million; and greater
than 5 years: $2,562 million. Included in the debt
payments are capital lease obligation payments of approximately
$2 million each year with $39 million payable in
greater than 5 years. Interest payments on the above debt
were: less than 1 year: $176 million; 1-3 years:
$341 million; 3-5 years: $332 million; and
greater than 5 years: $530 million. There were no
64
other material changes in our contractual obligations in the
first half of 2005 from the amounts reported as of
December 31, 2004 in the table above.
Dividend Policy
On March 1, 2005, our board of directors approved a policy
of quarterly dividend payments on our common shares and declared
a quarterly dividend of $0.09 per common share payable on
March 24, 2005 to shareholders of record at the close of
business on March 11, 2005. On April 22, 2005, our
board of directors declared a quarterly dividend of
$0.09 per common share payable on June 20, 2005 to
shareholders of record at the close of business May 20,
2005. On July 27, 2005, our board of directors declared a
quarterly dividend of $0.09 per common share payable on
September 20, 2005 to shareholders of record at the close
of business August 22, 2005. Future dividends 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, and other
relevant factors.
Environment, Health and Safety
We strive to be a leader in environment, health and safety, or
EHS. To achieve this, we, as part of Alcan, introduced a new
environment, health and safety management system in 2003 which
is a core component of our overall business management system.
Our EHS system is aligned with ISO 14001, an international
environmental management standard, and OHSAS 18001, an
international occupational health and safety management
standard. All our facilities are expected to implement the
necessary management systems to support ISO 14001 and OHSAS
18001 certifications. As of March 31, 2005, all 36 of our
facilities worldwide are ISO 14001 certified, 34 facilities were
OHSAS 18001 certified and 32 have dedicated quality improvement
management systems.
Our capital expenditures for environmental protection and the
betterment of working conditions in our facilities were
$12 million in 2004. We expect these capital expenditures
will be approximately $20 million in 2005. In addition,
expenses for environmental protection (including estimated
and probable environmental remediation costs as well as general
environmental protection costs at our facilities) were
$34 million in 2004, and are expected to be
$37 million in 2005. Generally, expenses for environmental
protection are recorded in Cost of sales and operating expenses.
However, significant remediation costs that are not associated
with on-going operations are recorded in Other expenses
(income) net.
Risks and Uncertainties
We are exposed to a number of risks in the normal course of our
operations that could potentially affect our performance. A
discussion of risks and uncertainties is included under
Risk Factors above. In addition, refer to
notes 20 and 22 of our audited annual combined financial
statements and notes 13 and 14 of our unaudited interim
consolidated and condensed financial statements for a discussion
of commitments and contingencies and financial instruments and
commodity contracts. Please also refer to
Quantitative and Qualitative Disclosures about
Market Risk below.
We are exposed to certain market risks as part of our ongoing
business operations, including risks from changes in commodity
aluminum prices, foreign currency exchange rates and interest
rates that could impact our results of operations and financial
condition. Alcan historically has managed these types of risks
on our behalf as part of its group-wide management of market
risks. The notional amounts of derivative financial instruments
included in the historical combined financial statements
indicate the extent of our involvement in such instruments but
are not necessarily indicative of what our exposure to market
risk through the use of derivatives would have been as a
separate stand-alone entity. As a stand-alone company, we now
manage our exposure to these and other market risks through
regular operating and financing activities and the use of
derivative financial instruments. We use such derivative
financial
65
instruments as risk management tools and not for speculative
investment purposes. By their nature, all such instruments
involve risk including the credit risk of non-performance by
counterparties, and our maximum potential loss may exceed the
amount recognized in our balance sheet.
The decision whether and when to commence a hedge, along with
the duration of the hedge, can vary from period to period
depending on market conditions and the relative costs of various
hedging instruments. The duration of a hedge is always linked to
the timing of the underlying exposure, with the connection
between the two being regularly monitored to ensure
effectiveness. Derivative contracts that are deemed to be highly
effective in offsetting changes in the fair value or cash flows
of hedged items are designated as hedges of specific exposures
and, accordingly, all gains and losses on these instruments are
recognized in the same manner as the item being hedged.
The separation agreement between Alcan and us provides that we
will assume all liabilities under, or otherwise relating to,
derivatives and similar obligations primarily related to our
business. Initially, Alcan may continue to perform obligations
under such derivatives and similar obligations on our behalf,
but all amounts paid to or received from third parties will be
charged to or credited to us. Clearly defined policies and
management controls govern all risk management activities.
Derivative transactions are executed only with approved
counterparties. Transactions in financial instruments for which
there is no underlying exposure to our company are prohibited.
Most aluminum rolled products are priced in two components: a
pass-through aluminum price component based on the LME quotation
and local market premia, plus a margin over metal or
conversion charge based on the competitive market price of the
product. As a consequence, the aluminum price risk is largely
absorbed by the customer. In situations where we offer customers
fixed prices for future delivery of our products, we may enter
into hedging contracts for the metal inputs in order to protect
the profit on the conversion margin of the product. In addition,
sales contracts currently representing approximately 20% of our
total annual sales provide for a ceiling over which metal prices
cannot contractually be passed through to our customers.
Although we attempt to mitigate this risk through the purchase
of metal options, this hedging policy was not totally
economically effective during the six months ended June 30,
2005 given the relatively high and sustained metal prices since
the fourth quarter of 2004.
|
|
|
Foreign Currency Exchange Risk
|
Exchange rate movements, particularly the euro, the Canadian
dollar, the Brazilian real and the Korean won against the
U.S. dollar, have an impact on our results. In Europe and
Korea, where we have local currency conversion prices and
operating costs, we benefit as the euro strengthens and Korean
won weakens, but are adversely affected as the euro weakens but
the Korean won strengthens. In Korea, a significant portion of
the conversion prices for exports is U.S. dollar driven. In
Canada and Brazil, we have operating costs denominated in local
currency while our functional currency is the U.S. dollar.
As a result we benefit from a weakening in local currencies but,
conversely, are disadvantaged if they strengthen. In Brazil,
this is partially offset by some sales that are denominated in
real. In Europe and Korea where the local currency is also the
functional currency, certain revenues, operating costs and debt
are denominated in U.S. dollars. Foreign currency contracts
may be used to hedge these economic exposures.
Any negative impact of currency movements on the currency
contracts that we have entered into to hedge identifiable
foreign currency commitments to purchase or sell goods and
services would be offset by an equal and opposite favorable
exchange impact on the commitments being hedged. For a
discussion of accounting policies relating to currency
contracts, see note 3 of our audited annual combined
financial statements.
66
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
$ Millions |
|
Estimated Annual Effect on Our Net Income: |
|
Rate/Price |
|
|
per Year |
|
|
|
|
|
|
|
|
Economic impact of changes in period-average U.S. dollar
exchange rates Euro
|
|
|
+10 |
% |
|
$ |
14 |
|
Korean won
|
|
|
+10 |
|
|
|
(4 |
) |
Canadian dollar
|
|
|
+10 |
|
|
|
(4 |
) |
Brazilian real
|
|
|
+10 |
% |
|
|
(17 |
) |
We are subject to interest rate risk related to the variable
rate debt we incurred in the financing transactions. For every
12.5 basis point increase in the interest rates on the
$815 million of variable rate Term Loan B debt that
has not been swapped into fixed interest rates as of
June 30, 2005, our annual net income would be reduced by
$0.7 million.
Critical Accounting Policies and Estimates
We have prepared our combined financial statements in conformity
with accounting principles generally accepted in the United
States, and these statements necessarily include some amounts
that are based on our informed judgments and estimates. Our
accounting policies are discussed in note 3 of our audited
annual combined financial statements and note 2 of our
unaudited interim consolidated and combined financial
statements. Historically, the process of creating our financial
reports has been managed by Alcan. As discussed below, our
financial condition or results of operations may be materially
affected when reported under different conditions or when using
different assumptions in the application of such policies. In
the event estimates or assumptions prove to be different from
actual amounts, adjustments are made in subsequent periods to
reflect more current information. We believe the following
critical accounting policies are those that require our more
significant judgments and estimates used in the preparation of
our combined financial statements.
|
|
|
Allocation of General Corporate Expenses
|
Alcan has allocated general corporate expenses to us based on
average head count and capital employed. Capital employed
represents total assets less payables and accrued liabilities
and deferred credits and other liabilities. Capital employed and
average headcount are both indicative of the size of our
businesses. A combination of these measures as a basis of
allocation also mitigates unrepresentative fluctuations in the
amounts allocated. The costs allocated were not necessarily
indicative of the costs that would have been incurred if we had
performed these functions as a stand-alone company, nor were
they indicative of costs that will be incurred in the future.
The use of a different basis of allocation may result in a
material change to the amounts reflected in the SG&A expense
in the combined statements of income. The general corporate
expenses allocation is primarily for human resources, legal,
treasury, insurance, finance, internal audit, strategy and
public affairs and amounted to $17 million for the six
months ended June 30, 2004 and to $34 million,
$24 million and $28 million for the years ended
December 31, 2004, 2003 and 2002, respectively. Total
corporate costs, including the amounts allocated, amounted to
$20 million for the six months ended June 30, 2004 and
$49 million, $36 million and $31 million for the
years ended December 31, 2004, 2003 and 2002, respectively.
|
|
|
Pensions and Post-Retirement Benefits
|
The costs of pension and other post-retirement benefits are
calculated based on assumptions determined by us, with the
assistance of independent actuarial firms and consultants. These
assumptions include the long-term rate of return on pension
assets, discount rates for pension and other post-retirement
benefits obligations, expected service period, salary increases,
retirement ages of employees and health care cost trend rates.
These assumptions are subject to the risk of change as they
require significant judgment and have inherent uncertainties
that we may not be able to control.
67
The two most significant assumptions used to calculate the
obligations in respect of employee benefit plans are the
discount rates for pension and other post-retirement benefits,
and the expected return on assets.
The discount rate for pension and other post-retirement benefits
is the interest rate used to determine the present value of
benefits. It is based on the yield on long-term high-quality
corporate fixed income investments at the end of each fiscal
year. The weighted-average discount rate was 5.4% as of
December 31, 2004, compared to 5.8% and 5.6% for 2003 and
2002, respectively. An increase in the discount rate of 0.5%,
assuming inflation remains unchanged, would have resulted in a
reduction of approximately $40 million in the pension and
other post-retirement obligations and in a reduction of
approximately $4 million in the net periodic benefit cost.
A reduction in the discount rate of 0.5%, assuming inflation
remains unchanged, would have resulted in an increase of
approximately $43 million in the pension and other
post-retirement obligations and in an increase of approximately
$4 million in the net periodic benefit cost.
The calculation of the estimate of the expected return on assets
is described in note 24 of our annual combined financial
statements. The weighted-average expected return on assets was
8.3% for 2004, 8.0% for 2003 and 5.0% for 2002. The expected
return on assets is a long-term assumption whose accuracy can
only be measured over a long period based on past experience.
Over the 15-year period ended December 31, 2004, the
average actual return on assets exceeded the expected return by
0.9% per year. A variation in the expected return on assets
of 0.5% will result in a variation of approximately
$2 million in the net periodic benefit cost.
|
|
|
Environmental Liabilities
|
Environmental expenses that are not legal asset retirement
obligations are accrued on an undiscounted basis when it is
probable that a liability for past events exists and remediation
can be reasonably estimated. In determining whether a liability
exists, we are required to make judgments as to the probability
of a future event occurring. These judgments are subject to the
risk of change, as they depend on events that may or may not
occur in the future. If our judgments differ from those of legal
or regulatory authorities, the provisions for environmental
expense could increase or decrease significantly in future
periods. Our environmental experts and internal and external
legal counsel are consulted on all material environmental
matters.
|
|
|
Property, Plant and Equipment
|
Due to changing economic and other circumstances, we regularly
review our property, plant and equipment, or PP&E.
Accounting standards require that an impairment loss be
recognized when the carrying amount of a long-lived asset held
for use is not recoverable and exceeds its fair value. The
amount of impairment to be recognized is calculated by
subtracting the fair value of the asset from the carrying amount
of the asset. As discussed in the notes to our combined
financial statements, we reviewed specific PP&E for
impairment in 2004 due to situations where circumstances
indicated that the carrying value of specific assets could not
be recovered. We made assumptions about the undiscounted sum of
the expected future cash flows from these assets and determined
that they were less than their carrying amount, resulting in the
recognition of an impairment in accordance with U.S. GAAP.
In estimating future cash flows, we use our internal plans.
These plans reflect our best estimates; however they are subject
to the risk of change as they have inherent uncertainties that
we may not be able to control. Our actual results could differ
significantly from those estimates. We cannot predict whether an
event that triggers an impairment of PP&E will occur or when
it will occur, nor can we estimate what effect it will have on
the carrying values of our assets.
The provision for income taxes is calculated based on the
expected tax treatment of transactions recorded in our
consolidated and combined financial statements. Income tax
assets and liabilities, both current and deferred, are measured
according to the income tax legislation that is expected to
apply when the asset is realized or the liability settled. We
regularly review the recognized and unrecognized deferred income
tax assets to determine whether a valuation allowance is
required or needs to be adjusted. In
68
forming a conclusion about whether it is appropriate to
recognize a tax asset, we must use judgment in assessing the
potential for future recoverability while at the same time
considering past experience. All available evidence is
considered in determining the amount of a valuation allowance.
If our interpretations differ from those of tax authorities or
judgments with respect to tax losses change, the income tax
provision could increase or decrease, potentially significantly,
in future periods.
Recently Issued Accounting Standards
|
|
|
Consolidation of Variable Interest Entities
|
In January 2003, the Financial Accounting Standards Board, or
FASB, issued Interpretation No. 46, or FIN 46,
Consolidation of Variable Interest Entities, in an
effort to expand upon and strengthen existing accounting
guidance as to when a company should consolidate the financial
statements of another entity. The FASB issued a revision to
FIN 46 in December 2003. The interpretation requires
variable interest entities to be consolidated by a
company if that company is subject to a majority of expected
losses of the entity or is entitled to receive a majority of
expected residual returns of the entity, or both. A company that
is required to consolidate a variable interest entity is
referred to as the entitys primary beneficiary. The
interpretation also requires certain disclosures about variable
interest entities that a company is not required to consolidate,
but in which it has a significant variable interest. This
interpretation applied to us commencing with the period ending
March 31, 2004. For further details, refer to note 4
of our audited annual combined financial statements and
note 3 of our unaudited interim consolidated and combined
financial statements.
In our combined financial statements as at December 31,
2003 and prior to December 31, 2003, we combined all
entities in which we had control by ownership of a majority of
voting interests. As a result of FIN 46, our combined
balance sheet includes the assets and liabilities of Logan
Aluminium Inc. (Logan), a variable interest entity for which we
are the primary beneficiary. Logan manages a tolling arrangement
for our company and an unrelated party.
Upon adoption of FIN 46 in 2004, assets of approximately
$38 million and liabilities of approximately
$38 million related to Logan that were previously not
recorded on our combined balance sheet were recorded by us.
There was no impact on the combined statements of income for the
periods presented and no cumulative effect of an accounting
change to recognize. The results of operations of this variable
interest entity were included in our combined results
prospectively and did not have a material impact for the year
ended December 31, 2004. Our investment, plus any unfunded
pension liability, related to Logan totaled approximately
$37 million as at December 31, 2004, representing our
maximum exposure to loss. Creditors of Logan do not have
recourse to our general credit as a result of including Logan in
our financial statements.
|
|
|
Accounting for Conditional Asset Retirement
Obligations
|
In March 2005, FASB issued Interpretation No. 47
(FIN 47), Accounting for Conditional Asset Retirement
Obligations. FIN 47 clarifies that the term conditional
asset retirement obligation used in SFAS No. 143,
Accounting for Asset Retirement Obligations, refers to a legal
obligation to perform an asset retirement activity in which the
timing and/or method of settlement are conditional on a future
event that may or may not be within the control of the entity.
According to FIN 47, uncertainty about the timing and/or
method of settlement of a conditional asset retirement
obligation should be factored into the measurement of a
liability when sufficient information exists. This
interpretation is effective no later than the end of fiscal
years ending after December 15, 2005. Retrospective
application of interim financial information is permitted but
not required. We are currently assessing the impact of this
Interpretation.
In December 2004, FASB issued SFAS No. 123 (Revised
2004), Share-Based Payment (SFAS No. 123(R)), which is
a revision to SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123(R) requires all share-based
payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on
their fair values. We will adopt SFAS No. 123(R) on
January 1, 2006, as required by the Securities and Exchange
Commission. We
69
adopted the fair value based method of accounting for
share-based payments effective January 1, 2004 using the
retroactive restatement method described in
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. Currently,
we use the Black-Scholes formula to estimate the value of stock
options granted to employees and expect to continue to use this
option valuation model. We do not anticipate that the adoption
of SFAS No. 123(R) will have a material impact on our
results of operations or our financial position.
In May 2005, FASB issued FASB Staff Position
(FSP) No. EITF 00-19-1, Application of EITF Issue
No. 00-19 to Freestanding Financial Instruments Originally
Issued as Employee Compensation. The FSP was issued to clarify
the application of EITF Issue No. 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Companys Own Stock, to freestanding
financial instruments originally issued as employee compensation
that can be settled only by delivering registered shares. This
FSP clarifies that a requirement to deliver registered shares,
in and of itself, will not result in liability classification
for freestanding financial instruments originally issued as
employee compensation. This clarification is consistent with the
Boards intent in issuing FASB Statement No. 123
(revised 2004), Share-Based Payment. The guidance in this
FSP shall be applied in accordance with the effective date and
transition provisions of Statement 123(R). We are currently
evaluating the impact of Statement 123(R).
|
|
|
Treatment of Accounting Changes and Error
Corrections
|
In May 2005, FASB issued SFAS No. 154, Accounting
Changes and Error Corrections. This Statement replaces APB
Opinion No. 20, Accounting Changes, and FASB Statement
No. 3, Reporting Accounting Changes in Interim Financial
Statements, and changes the requirements for the accounting for
and reporting of a change in accounting principle. Opinion 20
previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period
of the change the cumulative effect of changing to the new
accounting principle. This Statement requires retrospective
application to prior periods financial statements of
changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative
effect of the change. This Statement shall be effective for
accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. Early adoption is
permitted for accounting changes and corrections of errors made
in fiscal years beginning after the date this Statement is
issued. We do not anticipate that our financial statements will
be materially impacted by this statement.
Quantitative and Qualitative Disclosures about Market Risk
Changes in interest rates, foreign exchange rates and the market
price of aluminum are among the factors that can impact our cash
flows.
We are subject to interest rate risk related to the variable
rate debt we incurred in the financing transactions. For every
12.5 basis point increase in the interest rates on the
$815 million of variable rate Term Loan B debt that
has not been swapped into fixed interest rates as of
June 30, 2005, our annual net income would be reduced by
$0.7 million. We are also subject to interest rate risk
related to the outstanding balance on various variable rate bank
loans entered into by Novelis Korea Limited. On June 30,
2005, Novelis Korea Limited had two variable rate bank loans
denominated in U.S. currency totaling $50 million and
$70 million, respectively. We have entered into agreements
to swap these floating rate loans for fixed rate loans
denominated in Korean won at rates of 5.30% and 4.55%,
respectively. On June 30, 2005, Novelis Korea Limited had
three variable rate loans denominated in Korean won totaling
$64 million. Two of the variable rate loans totaling KRW
40 billion and KRW 25 billion were swapped for fixed
rate loans of 4.80% and 4.45%, respectively. Interest on the
remaining variable rate loan totaling KRW 2 billion ranged
from 3.00% to 4.43% in the first half of 2005.
For accounting policies for interest rate swaps used to hedge
interest costs on certain debt, you should read Note 3 of
the audited annual combined financial statements. We do not
currently intend to refinance our fixed rate debt prior to
maturity. Transactions in interest rate financial instruments
for which there is no underlying interest rate exposure to the
Company are prohibited by our credit agreement related to our
senior secured credit facilities.
70
The schedule below presents fair value information and contract
terms relevant to determining future cash flows categorized by
expected maturity dates of our foreign currency derivatives
outstanding as at June 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
Nominal |
|
|
Fair |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
Beyond |
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In US$ millions, except contract rates) |
|
FORWARD CONTRACTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To purchase USD against the foreign currency
|
CHF Nominal Amount
|
|
|
12 |
|
|
|
11 |
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
28 |
|
|
|
(1 |
) |
|
Average contract rate
|
|
|
1.2785 |
|
|
|
1.3479 |
|
|
|
1.2873 |
|
|
|
1.2613 |
|
|
|
1.2381 |
|
|
|
|
|
|
|
|
|
To sell USD against the foreign currency
|
CAD Nominal Amount
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
Average contract rate
|
|
|
1.2560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHF Nominal Amount
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
Average contract rate
|
|
|
1.2751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KRW Nominal Amount
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57 |
|
|
|
(1 |
) |
|
Average contract rate
|
|
|
1,012.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To purchase EUR against the foreign currency
|
GBP Nominal Amount
|
|
|
53 |
|
|
|
3 |
|
|
|
2 |
|
|
|
|
|
|
|
33 |
|
|
|
91 |
|
|
|
(1 |
) |
|
Average contract rate
|
|
|
0.6760 |
|
|
|
0.7160 |
|
|
|
0.7361 |
|
|
|
|
|
|
|
0.7387 |
|
|
|
|
|
|
|
|
|
CAD Nominal Amount
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
Average contract rate
|
|
|
1.5218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD Nominal Amount
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
Average contract rate
|
|
|
1.2248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To sell EUR against the foreign currency
|
GBP Nominal Amount
|
|
|
66 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82 |
|
|
|
2 |
|
|
Average contract rate
|
|
|
0.6844 |
|
|
|
0.7073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHF Nominal Amount
|
|
|
14 |
|
|
|
8 |
|
|
|
4 |
|
|
|
4 |
|
|
|
3 |
|
|
|
33 |
|
|
|
(1 |
) |
|
Average contract rate
|
|
|
1.5204 |
|
|
|
1.4973 |
|
|
|
1.4610 |
|
|
|
1.4430 |
|
|
|
1.4266 |
|
|
|
|
|
|
|
|
|
USD Nominal Amount
|
|
|
202 |
|
|
|
128 |
|
|
|
76 |
|
|
|
|
|
|
|
5 |
|
|
|
411 |
|
|
|
9 |
|
|
Average contract rate
|
|
|
1.2501 |
|
|
|
1.2515 |
|
|
|
1.2699 |
|
|
|
|
|
|
|
1.1254 |
|
|
|
|
|
|
|
|
|
To sell GBP against the foreign currency
|
CHF Nominal Amount
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
Average contract rate
|
|
|
2.1580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD Nominal Amount
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
1 |
|
|
Average contract rate
|
|
|
1.8368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To purchase GBP against the foreign currency
|
CHF Nominal Amount
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
Average contract rate
|
|
|
2.2324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD Nominal Amount
|
|
|
45 |
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
50 |
|
|
|
(1 |
) |
|
Average contract rate
|
|
|
1.8229 |
|
|
|
1.7850 |
|
|
|
1.7949 |
|
|
|
1.7922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
71
The schedule below presents fair value information and contract
terms relevant to determining future cash flows categorized by
expected maturity dates of our currency derivatives outstanding
as at December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominal |
|
|
Fair |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ millions, except contract rates) |
|
Forward contracts to purchase USD against the foreign
currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHF Nominal Amount
|
|
|
33 |
|
|
|
11 |
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
49 |
|
|
|
(7 |
) |
|
Average contract rate
|
|
|
1.2722 |
|
|
|
1.3479 |
|
|
|
1.2904 |
|
|
|
1.2644 |
|
|
|
1.2408 |
|
|
|
|
|
|
|
|
|
GBP Nominal Amount
|
|
|
64 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
(3 |
) |
|
Average contract rate
|
|
|
1.8273 |
|
|
|
1.7420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To sell USD against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GBP Nominal Amount
|
|
|
56 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57 |
|
|
|
4 |
|
|
Average contract rate
|
|
|
1.7856 |
|
|
|
1.6387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EUR Nominal Amount
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
4 |
|
|
Average contract rate
|
|
|
1.2518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHF Nominal Amount
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
Average contract rate
|
|
|
1.1263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To sell EUR against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD Nominal Amount
|
|
|
316 |
|
|
|
87 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
460 |
|
|
|
(48 |
) |
Average contract rate
|
|
|
1.2329 |
|
|
|
1.2284 |
|
|
|
1.2330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHF Nominal Amount
|
|
|
24 |
|
|
|
13 |
|
|
|
5 |
|
|
|
5 |
|
|
|
4 |
|
|
|
51 |
|
|
|
(1 |
) |
|
Average contract rate
|
|
|
1.5199 |
|
|
|
1.5014 |
|
|
|
1.4614 |
|
|
|
1.4436 |
|
|
|
1.4266 |
|
|
|
|
|
|
|
|
|
GBP Nominal Amount
|
|
|
152 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168 |
|
|
|
(3 |
) |
|
Average contract rate
|
|
|
1.4288 |
|
|
|
1.4136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To purchase EUR against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GBP Nominal amount
|
|
|
56 |
|
|
|
5 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
62 |
|
|
|
1 |
|
|
Average contract rate
|
|
|
1.4239 |
|
|
|
1.3990 |
|
|
|
1.3598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To purchase GBP against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHF Nominal Amount
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
Average contract rate
|
|
|
2.2036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To sell EUR against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHF Nominal Amount
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
Average contract rate
|
|
|
2.1730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The currency contracts are undertaken to hedge identifiable
foreign currency commitments to purchase or sell goods and
services. Transactions in currency related financial instruments
for which there is no underlying foreign currency exchange rate
exposure to us are prohibited by our credit agreement related to
our senior secured credit facilities. For our accounting
policies relating to currency contracts, refer to note 3 of
the audited annual combined financial statements.
72
|
|
|
Derivative Commodity Contracts
|
Our aluminum forward contract positions are undertaken to hedge
anticipated future purchases of metal that are required to
support firm sales commitments with fabricated products
customers. Consequently, the negative impact of movements in the
price of aluminum on the forward contracts would generally be
offset by an equal and opposite impact on the purchases being
hedged, measured at the time the contracts and the underlying
obligations come due.
The effect of a reduction of 10% in aluminum prices on our
aluminum forward and options contracts outstanding at
June 30, 2005 would be to decrease net income, assuming
hedge accounting determination is met, over the period ending
December 2007 by approximately $50 million
($31 million in 2005, $14 million in 2006 and
$5 million in 2007). These results reflect a 10% reduction
from the June 30, 2005, three-month LME aluminum closing
price of $1,731 per tonne and assume an equal 10% drop has
occurred throughout the aluminum forward price curve existing as
at June 30, 2005.
73
BUSINESS
Overview
We are the worlds leading aluminum rolled products
producer based on shipment volume in 2004, with total aluminum
rolled products shipments of approximately 2,785 kilotonnes
during that year. With operations on four continents comprised
of 36 operating facilities in 11 countries, we are the only
company of our size and scope focused solely on aluminum rolled
products markets and capable of local supply of technically
sophisticated products in all of these geographic regions. We
had sales and operating revenues of $7.8 billion in 2004.
Our History
We were formed as a Canadian corporation on September 21,
2004. On January 6, 2005 (which we refer to as the
separation date), we acquired substantially all of the aluminum
rolled products businesses held by Alcan prior to its
acquisition of Pechiney in 2003, as well as certain alumina and
primary metal-related businesses in Brazil formerly owned by
Alcan and four rolling facilities in Europe that Alcan acquired
from Pechiney in 2003. As part of this transaction, Alcans
capital was reorganized and our common shares were distributed
to the then-existing shareholders of Alcan. The various steps
pursuant to which we acquired our businesses from Alcan and
distributed our shares to Alcans shareholders are referred
to herein as the reorganization transactions.
We inherited our basic management processes, structure, and
values from Alcan. In 1902, the Canadian subsidiary of the
Pittsburgh Reduction Company (later Alcoa Inc., or Alcoa) was
first chartered as Northern Aluminum Company, Limited. When
Alcoa divested most of its interests outside the
United States in 1928, Alcan was formed as a separate
company from Alcoa to assume control of most of these interests.
In the following years, Alcan expanded globally building or
acquiring hydroelectric power, smelting, packaging and
fabricated product facilities.
The first Alcan rolling operation began in September 1916 in
Toronto, Canada, with an 84-inch hot mill and three finishing
mills. Many of our mills were originally constructed by Alcan,
including many among the largest aluminum rolling operations in
each of the geographic regions in which we operate including:
|
|
|
|
|
Oswego, United States in 1963, a major producer of can sheet and
industrial sheet; |
|
|
|
Norf, Germany in 1967, a joint venture, owned at 50%, which
operates the largest hot mill rolling facility in the world in
terms of capacity; |
|
|
|
Saguenay Works, Canada in 1971, which operates the largest
capacity continuous caster in the world; and |
|
|
|
Pindamonhangaba, Brazil in 1977, the only South American plant
capable of producing beverage can body and end stock. |
More recent expansion has been through acquisitions and
modernization of existing mills, including Alcans
acquisition of an interest in the Logan, Kentucky facility,
which is dedicated to the production of can stock, from Arco
Aluminum, or Arco, in 1985, our investment in a new production
line at Logan which increased our share of the total production
capacity from 40% to approximately 67%, as well as the purchase
of a majority ownership interest in the Yeongju and Ulsan
facilities in Korea in 1999 and 2000, respectively. Alcans
acquisition of Alusuisse Group Ltd. in 2000 and Pechiney in 2003
provided us with additional sheet and foil rolling facilities.
Our Industry
The aluminum rolled products market represents the supply of and
demand for aluminum sheet, plate and foil produced either from
sheet ingot or continuously cast roll-stock in rolling mills
operated by independent aluminum rolled products producers and
integrated aluminum companies alike.
74
Aluminum rolled products are semi-finished aluminum products
that constitute the raw material for the manufacture of finished
goods ranging from automotive body panels to household foil.
There are two major types of manufacturing processes for
aluminum rolled products differing mainly in the process used to
achieve the initial stage of processing:
|
|
|
|
|
hot mills that require sheet ingot, a rectangular
slab of aluminum, as starter material; and |
|
|
|
continuous casting mills that can convert molten
metal directly into semi-finished sheet. |
Both processes require subsequent rolling, which we call cold
rolling, and finishing steps such as annealing, coating,
leveling or slitting to achieve the desired thicknesses and
metal properties. Most customers receive shipments in the form
of aluminum coil, a large roll of metal, which can be fed into
their fabrication processes.
There are two sources of input material: primary aluminum, such
as molten metal, re-melt ingot and sheet ingot, and recycled
aluminum, such as recyclable material from fabrication
processes, which we refer to as recycled process material, used
beverage cans and other post-consumer aluminum.
Primary aluminum can generally be purchased at prices set on the
London Metal Exchange, or LME, plus a premium that varies by
geographic region of delivery, form (ingot or molten metal) and
alloy.
Recycled aluminum is also an important source of input material.
Aluminum is infinitely recyclable and recycling it requires
approximately 5% of the energy needed to produce primary
aluminum. As a result, in regions where aluminum is widely used,
manufacturers are active in setting up collection processes in
which used beverage cans and other recyclable aluminum are
collected for re-melting at purpose-built plants. Manufacturers
may also enter into agreements with customers who return
recycled process material and pay to have it re-melted and
rolled into the same product again.
There has been a long term industry trend towards lighter gauge
(thinner) rolled products, which we refer to as
downgauging, where customers request products with similar
properties using less metal in order to reduce costs and weight.
For example, aluminum rolled products producers and can
fabricators have continuously developed thinner walled cans with
the same strength as previous generation containers, resulting
in a lower cost unit. As a result of this trend, aluminum
tonnage across the spectrum of aluminum rolled products, and
particularly for the beverage/food cans end-use market, has
declined on a per unit basis, but actual rolling machine hours
per unit have increased. Because the industry has historically
tracked growth based on aluminum tonnage shipped, we believe the
downgauging trend may contribute to an understatement of the
actual growth of revenue attributable to rolling in some end-use
markets.
Aluminum rolled products companies produce and sell a wide range
of aluminum rolled products, which can be grouped into four
end-use markets based upon similarities in end-use applications:
construction and industrial, beverage/food cans, foil products
and transportation. Within each end-use market, aluminum rolled
products are manufactured with a variety of alloy mixtures, a
range of tempers (hardness), gauges (thickness) and widths,
and various coatings and finishes. Large customers typically
have customized needs resulting in the development of close
relationships with their supplying mills and close technical
development relationships. Refer to Managements
Discussion and Analysis of Financial Condition and Results of
Operations for information regarding the percentage of our
sales and operating revenues derived from each of these end-use
markets.
Construction and Industrial. Construction is the largest
application within this end-use market. Aluminum rolled products
developed for the construction industry are often decorative,
offer insulating properties, are durable and corrosion
resistant, and have a high strength-to-weight ratio. Aluminum
siding, gutters, and downspouts comprise a significant amount of
construction volume. Other applications include doors, windows,
awnings, canopies, façades, roofing and ceilings.
75
Aluminums ability to conduct electricity and heat and to
offer corrosion resistance makes it useful in a wide variety of
electronic and industrial applications. Industrial applications
include electronics and communications equipment, process and
electrical machinery and lighting fixtures. Uses of aluminum
rolled products in consumer durables include microwaves, coffee
makers, flat screen televisions, air conditioners (which use
finstock in heat exchangers), pleasure boats and cooking
utensils.
Another industrial application is lithographic sheet. Print
shops, printing houses and publishing groups use lithographic
sheet to print books, magazines, newspapers and promotional
literature. In order to meet the strict quality requirements of
the end-users, lithographic sheet must meet demanding
metallurgical, surface and flatness specifications.
Beverage/ Food Cans. Beverage cans are the largest
aluminum rolled products application, accounting for
approximately a quarter of worldwide shipments in 2004,
according to CRU. The recyclability of aluminum cans enables
them to be used, collected, melted, and returned to the original
product form many times, unlike steel, paper or polyethylene
terephthalate plastic, or PET plastic, which deteriorate with
every iteration. Aluminum beverage cans also offer advantages in
fabricating efficiency and shelf life. Fabricators are able to
produce and fill beverage cans at very high speeds, and
non-porous aluminum cans provide longer shelf life than PET
plastic containers. Aluminum cans are light, stackable and use
space efficiently, making them convenient and cost efficient to
ship. Downgauging and changes in can design help to reduce total
costs on a per can basis and contribute to making aluminum more
competitive with substitute materials.
Beverage can sheet is sold in coil form for the production of
can body, ends and tabs. The material can be ordered as rolled,
degreased, pre-lubricated, pre-treated and/or lacquered.
Typically, can makers define their own specifications for
material to be delivered in terms of alloy, gauge, width, and
surface finish.
Other applications in this end-use market include food cans and
screw caps for the beverage industry.
Foil Products. Aluminum, because of its relatively light
weight, recyclability and formability, has a wide variety of
uses in packaging. Converter foil is very thin aluminum foil,
plain or printed, that is typically laminated to plastic or
paper to form an internal seal for a variety of packaging
applications including juice boxes, pharmaceuticals, food
pouches, cigarette packaging and lid stock. Customers order
coils of converter foil in a range of thicknesses from 6 microns
to 60 microns.
Household foil includes home and institutional aluminum foil
wrap, sold as a branded or generic product. Known in the
industry as packaging foil, it is manufactured in thicknesses
from 11 microns to 23 microns. Container foil is used to
produce semi-rigid containers such as pie plates and take-out
food trays and is usually ordered in a range of thicknesses from
60 microns to 200 microns.
Transportation. Heat exchangers, such as radiators and
air conditioners, is an important application for aluminum
rolled products in the truck and automobile categories of the
transportation end-use market. Original equipment manufacturers
also use aluminum sheet with specially treated surfaces and
other specific properties for interior and exterior
applications. Newly developed alloys are being used in
transportation tanks and rigid containers that allow for safer
and more economical transportation of hazardous and corrosive
goods.
There has been recent growth in certain geographic markets in
the use of aluminum rolled products in automotive body panel
applications, including hoods, deck lids, fenders and lift
gates. These uses typically result from co-operative efforts
between aluminum rolled products manufacturers and their
customers that yield tailor-made solutions for specific
requirements in alloy selection, fabrication procedure, surface
quality and joining. We believe the recent growth in automotive
body panel applications is due in part to the lighter weight,
better fuel economy and performance associated with this
application.
Aluminum rolled products are also used in aerospace
applications, a segment of the transportation market in which we
do not compete. Aerospace-related consumption of aluminum rolled
products has historically represented a relatively small portion
of total aluminum rolled products market shipments.
76
Aluminum is also used in the construction of ships hulls
and superstructures and passenger rail cars because of its
strength, light weight, formability and corrosion resistance.
The aluminum rolled products industry is characterized by
economies of scale, significant capital investments required to
achieve and maintain technological requirements, and demanding
customer qualification standards. The service and efficiency
demands of large customers have encouraged consolidation among
suppliers of aluminum rolled products. To overcome these
obstacles in small but growing markets, established Western
companies have entered into joint ventures with local companies
to provide necessary product and process know-how and capital.
While our customers tend to be increasingly global, many
aluminum rolled products tend to be produced and sold on a
regional basis. The regional nature of the markets is influenced
in part by the fact that not all mills are equipped to produce
all types of aluminum rolled products. For instance, only a few
mills in Europe, a few mills in Asia, and one mill in South
America, our Pindamonhangaba, or Pinda, facility, produce
beverage can body and end stock. In addition, individual
aluminum rolling mills generally supply a limited range of
end-use applications, and seek to maximize profits by producing
high volumes of the highest margin mix given available capacity
and equipment capabilities.
Certain multi-purpose common alloy and plate rolled products are
imported into Europe and North America from producers in
emerging markets, such as Brazil, Africa, Russia and China.
However, at this time we believe that these producers are
generally unable to meet the quality requirements, lead times
and specifications of customers for more demanding applications.
In addition, high freight costs, import duties, inability to
take back recycled aluminum, lack of technical service
capabilities and long lead-times mean that many developing
market exporters are viewed as second-tier suppliers. Therefore,
many of our customers in the Americas, Europe and Asia do not
look to suppliers in these emerging markets for a significant
portion of their requirements.
The aluminum rolled products market is highly competitive. We
face competition from a number of companies in all of the
geographic regions and end-use markets in which we operate. Our
primary competitors in North America are Alcoa, Aleris
International, Inc., Wise Metal Group LLC, Norandal Aluminum,
Corus Group Plc, Arco Aluminum, Inc. and Alcan; our primary
competitors in Europe are Norsk Hydro A.S.A., Alcan, Alcoa and
Corus; our primary competitors in Asia-Pacific are Unifus
Aluminum Co., Sumitomo Light Metal Company, Ltd., Kobe Steel
Ltd. and Alcoa; and our primary competitors in South America are
Companhia Brasileira de Alumínio, Alcoa and Aluar Aluminio
Argentino. The factors influencing competition vary by region
and end-use market but generally, we compete on the basis of our
value proposition, including price, product quality, the ability
to meet customers specifications, range of products
offered, lead times, technical support and customer service. In
some regions and end-use markets, competition is also affected
by fabricators requirements that suppliers complete a
qualification process to supply their plants. This process can
be rigorous and may take many months to complete. As a result,
obtaining business from these customers can be a lengthy and
expensive process; however, the ability to obtain and maintain
these qualifications can represent a competitive advantage.
In addition to competition from within the aluminum rolled
products industry, we, as well as other aluminum rolled products
manufacturers, face competition from non-aluminum materials, as
fabricators and end-users have, in the past, demonstrated a
willingness to substitute other materials for aluminum. In the
beverage/food cans end-use market, aluminum rolled
products primary competitors are glass, PET plastic
and steel. In the transportation end-use market, aluminum rolled
products compete mainly with steel. Aluminum competes with wood,
plastic and steel in building products applications. Factors
affecting competition with substitute materials include price,
ease of manufacture, consumer preference and performance
characteristics.
77
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Key Factors Affecting Supply and Demand
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The following factors have historically affected the demand for
aluminum rolled products:
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Economic Growth. We believe that economic growth is the
single largest driver of aluminum rolled products demand. In
mature markets, growth in demand has typically correlated
closely with growth in industrial production. In emerging
markets such as China, growth in demand typically exceeds
industrial production growth largely because of expanding
infrastructures, capital investments and rising incomes that
often accompany economic growth in these markets. |
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Substitution Trends. Manufacturers willingness to
substitute other materials for aluminum in their products and
competition from substitution materials suppliers also affect
demand. For example, in North America, competition from PET
plastic containers and glass bottles, and changes in consumer
preferences in beverage containers, have, in recent years,
reduced the growth rate of aluminum can sheet in North America
from the high rates experienced in the 1970s and 1980s. Despite
changes in consumer preferences, North American aluminum
beverage can shipments have remained at approximately
100 billion cans per year since 1994 according to the Can
Manufacturers Institute. |
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|
LME and Local Currency Effect. U.S. dollar
denominated trading of primary aluminum on the LME has two
primary effects on demand. First, significant shifts between the
value of the local currency of the end-user and the
U.S. dollar may affect the cost of aluminum to the end-user
relative to substitute materials, depending on the cost of the
substitute material in local currency. Second, the uncertainty
of primary metal movements on the LME may discourage product
managers in industries such as automotive from making long term
commitments to use aluminum parts. Long term forward contracts
can be used by manufacturers to reduce the impact of LME price
volatility. |
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Downgauging. Increasing technological and asset
sophistication has enabled aluminum rolling companies to offer
consistent or even improved product strength using less
material, providing customers with a more cost-effective
product. This continuing trend reduces raw material
requirements, but also effectively increases rolled
products plant utilization rates and reduces available
capacity because the same number of units require more rolling
hours to achieve thinner gauges. As utilization rates increase,
revenues rise as pricing tends to be based on machine hours used
rather than on the volume of material rolled. On balance, we
believe that downgauging has enhanced overall market economics
for both users and producers of aluminum rolled products. |
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Seasonality. Demand for certain aluminum rolled products
is significantly affected by seasonal factors. As the
temperature increases so does consumption of beer and soft
drinks packaged in aluminum cans. Summer construction starts
also increase demand for aluminum sheet used in the construction
and industrial end-use market. For these reasons, revenues
typically peak in the northern hemisphere in the second and
third quarters, while sales in the southern hemisphere, which
account for a relatively small portion of our revenues, are
highest in the first and fourth quarters. |
The following factors have historically affected the supply of
aluminum rolled products:
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Production Capacity. As in most manufacturing industries
with high fixed costs, production capacity has the largest
impact on supply in the aluminum rolled products industry. In
the aluminum rolled products industry, the addition of
production capacity requires large capital investments and
significant plant construction or expansion and typically
requires long lead-time equipment orders. |
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Alternative Technology. Advances in technological
capabilities allow aluminum rolled products producers to better
align product portfolio and supply with industry demand. As an
example, continuous casting offers the ability in some markets
to increase capacity in smaller increments than is possible with
hot mill additions. This enables production capacity to better
adjust to small year-over-year increases in demand. However, the
continuous casting process permits the production of a more
limited range of products. |
78
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Trade. Some trade flows do occur between regions despite
shipping costs, import duties and the need for localized
customer support. Higher value-added, specialty products such as
lithographic sheet are more likely to be traded internationally,
especially if demand in certain markets exceeds local supply.
With respect to less technically demanding applications,
emerging markets with low cost inputs may export commodity
aluminum rolled products to larger, more mature markets.
Accordingly, regional changes in supply, such as plant
expansions, may have some effect on the worldwide supply of
commodity aluminum rolled products. |
Our Business Strategy
As a separate company, our management will be free to focus on
aluminum rolled products, which we believe enables us to respond
more quickly to market demands and maximize the efficient
allocation of our capital, technical and human resources. As a
separate company, we are also able to provide incentives to our
management and employees that more closely align their interests
with the performance of the aluminum rolled products business.
Our primary objective is to maximize shareholder value by
increasing our revenues and profitability in the North American,
European, Asia-Pacific and South American aluminum rolled
products markets. We intend to achieve our objective through the
application of our business strengths to the strategic
initiatives outlined below. We intend to:
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Address Customer Needs with Innovative and Market-Driven
Products. We intend to enhance value to our customers by
improving the quality of our products and services. We intend to
conduct research and development that generates new products and
processes to enable us to maintain long term partnerships with
our key customers. Significant growth opportunities in aluminum
rolled products consumption have typically come from product
substitution opportunities, such as thin aluminum foil in
packaging applications, automotive body panels and aluminum
building materials. We plan to work in partnership with our
customers to develop new uses for our various products by
substituting highly engineered aluminum rolled products for
other materials, thereby developing new markets for our
products. We believe that our experience in process innovation,
developing new technologies in surface treatment, casting,
alloying, laser semi-finishing, forming and joining, and our
ability to develop specialized aluminum rolled products
solutions, will assist our efforts. We plan to address higher
technology and more profitable end-use markets with proprietary
products and processes that will be unique and attractive to our
customers. |
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Develop and Implement a New Metal Conversion Business
Model. Since we have separated from an integrated aluminum
producer, we intend to implement a new metal conversion business
model focused on the aluminum rolled products markets and
emphasizing product line selection based on higher value-added
rather than volume, economies of utilization and a higher focus
on recyclables. We believe the resulting change will allow us to
react more quickly in all markets and better align our business
with customer requirements. |
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Improve Production From Existing Assets and Reduce Capital
Needs. We intend to optimize our production capacity in
order to focus on achieving attractive returns on our capital
assets without investing significant amounts of new capital. Our
modern mills in North America, Europe, Asia and South America
give us the ability to manufacture a wide range of value-added
differentiated aluminum rolled products enabling us to
selectively move production among our mills within these regions
based on market demand. We believe that our separation from
Alcan and its vertically integrated production chain will offer
us further opportunities to improve sourcing logistics and
increase working capital efficiency. Other opportunities for
capital reductions include increasing the use of tolling which
reduces our capital requirements because the metal being
processed is owned by the customer. Tolling refers to the
process by which customers provide their own metal to us to be
converted into a rolled product, and are charged a value-added
conversion cost, instead of the metal plus value-added
conversion cost. Tolling allows us to generate revenues by
converting the metal without having to devote capital to
maintaining inventories of metal. |
79
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Leverage Economies of Scale in Raw Material Sourcing. We
intend to continue working with our suppliers to further
leverage economies of scale in our purchase of primary aluminum,
supplies and services. Our metal management strategy includes
plans to develop our recycling program further with a focus on
sources of material such as used beverage cans, as well as other
forms of recycled material in all regions in which we operate,
which will expand our access to more cost effective sources of
aluminum. We also have the ability to expand our sheet ingot
casting capacity in the different regions in which we operate,
which can be used to reduce reliance on, or maintain costs from,
third party sheet ingot suppliers. |
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Capture Growth in Targeted Markets. We intend to
capitalize on our international presence in order to capture
growth opportunities in targeted aluminum rolled products
markets such as beverage cans in selected regions and the
growing automotive component market on the North American,
European and Asian continents. We also own technology relating
to the two main types of continuous casting processes, namely
belt caster and twin roll caster, providing us with a cost
advantage when examining options to profitably serve common
alloy aluminum rolled products production in emerging markets
such as China, Eastern Europe and South America. We intend to
use these strengths, through royalty arrangements, joint
ventures with local partners, or on a stand-alone basis, to grow
profitably when opportunities arise in these emerging markets. |
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Pursue Selected Expansion and Acquisition Opportunities.
We intend to use our management team, large scale operations,
technical resources, market focus and operating cash flow to
identify and take advantage of appropriate expansion and
acquisition opportunities as they may arise. |
We expect that implementation of these strategic initiatives
will enable us to generate stable earnings and cash flow from
operating activities. In the near-term, we expect to use a
substantial portion of our excess cash flow to repay debt and
reduce our leverage, which is required by the terms of the
senior secured credit facilities we entered into in connection
with the reorganization transactions. We will then consider
other alternatives to maximize shareholder value such as
investment opportunities and increased return of cash to
shareholders consistent with achieving and maintaining our
optimum financial structure.
Our Business Groups
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 business groups. The business
groups are Novelis North America (NNA), Novelis Europe (NE),
Novelis Asia (NA) and Novelis South America (NSA).
80
The table below sets forth the contribution of each of our
business groups to our sales and operating revenues, Regional
Income, total assets and shipments for the six months ended
June 30, 2005 and 2004 and for the years ended
December 31, 2004, 2003 and 2002. The measure of
profitability of operating segments we use as a stand-alone
entity is referred to as Regional Income. Regional Income
comprises earnings before interest, taxes, depreciation and
amortization excluding certain items, such as corporate office
costs and asset and goodwill impairments, restructuring,
rationalization and the change in fair market value of our
derivatives, which are not under the control of the business
groups. These items are managed by our head office, which
focuses on strategy development and oversees governance, policy,
legal compliance, human resources and finance matters. Financial
information for the regional groups includes the results of
certain joint ventures on a proportionately consolidated basis,
which is consistent with the way the business groups are
managed. Under U.S. GAAP, these joint ventures are
accounted for under the equity method. Prior to our separation
from Alcan, profitability of the operating segments was measured
based on business group profit, or BGP. Please see note 18
of our interim consolidated and combined financial statements
and note 26 of our annual combined financial statements for
a discussion of the differences between BGP and Regional Income.
Prior period measures of profitability for our operating
segments have been recast to conform to the current presentation.
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As at and for the |
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As at and for the |
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Six Months |
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Year Ended |
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Ended June 30, |
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December 31, |
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Business Group(i) |
|
2005 |
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|
2004 |
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|
2004 |
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|
2003 |
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|
2002 |
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|
|
|
|
|
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|
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(All amounts in $ millions, except shipments, |
|
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which are in kt) |
|
Novelis North America
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
|
1,667 |
|
|
|
1,419 |
|
|
|
2,964 |
|
|
|
2,385 |
|
|
|
2,517 |
|
|
Regional Income
|
|
|
91 |
|
|
|
141 |
|
|
|
240 |
|
|
|
176 |
|
|
|
218 |
|
|
Total assets
|
|
|
1,415 |
|
|
|
2,879 |
|
|
|
1,406 |
|
|
|
2,392 |
|
|
|
1,224 |
|
|
Shipments
|
|
|
567 |
|
|
|
563 |
|
|
|
1,175 |
|
|
|
1,083 |
|
|
|
1,165 |
|
Novelis Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
|
1,640 |
|
|
|
1,523 |
|
|
|
3,081 |
|
|
|
2,510 |
|
|
|
2,218 |
|
|
Regional Income
|
|
|
115 |
|
|
|
98 |
|
|
|
200 |
|
|
|
175 |
|
|
|
127 |
|
|
Total assets
|
|
|
2,193 |
|
|
|
2,372 |
|
|
|
2,885 |
|
|
|
2,364 |
|
|
|
1,780 |
|
|
Shipments
|
|
|
516 |
|
|
|
505 |
|
|
|
1,089 |
|
|
|
1,012 |
|
|
|
926 |
|
Novelis Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
|
698 |
|
|
|
566 |
|
|
|
1,194 |
|
|
|
918 |
|
|
|
785 |
|
|
Regional Income
|
|
|
59 |
|
|
|
43 |
|
|
|
80 |
|
|
|
69 |
|
|
|
41 |
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Total assets
|
|
|
986 |
|
|
|
948 |
|
|
|
954 |
|
|
|
904 |
|
|
|
891 |
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|
Shipments
|
|
|
237 |
|
|
|
223 |
|
|
|
491 |
|
|
|
428 |
|
|
|
378 |
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Novelis South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
|
293 |
|
|
|
235 |
|
|
|
525 |
|
|
|
414 |
|
|
|
379 |
|
|
Regional Income
|
|
|
57 |
|
|
|
72 |
|
|
|
134 |
|
|
|
88 |
|
|
|
86 |
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|
Total assets
|
|
|
761 |
|
|
|
808 |
|
|
|
779 |
|
|
|
808 |
|
|
|
790 |
|
|
Shipments
|
|
|
123 |
|
|
|
101 |
|
|
|
264 |
|
|
|
258 |
|
|
|
244 |
|
|
|
|
(i) |
|
The sales and operating revenues and shipment information
presented in the table above excludes intersegment revenues and
shipments. |
Our 36 operating facilities in 11 countries provide us with
highly automated, flexible and advanced manufacturing
capabilities. In addition to the aluminum rolled products
plants, NSA operates bauxite mining, alumina refining, hydro
power plants and smelting facilities. We believe our facilities
have the assets required for efficient production and are well
managed and maintained. For a further discussion of
81
financial information by geographic area, refer to note 25
to our audited annual combined financial statements.
Through 12 aluminum rolled products facilities, including three
recycling facilities, NNA manufactures aluminum sheet and light
gauge products. Important end-use applications for NNA include
beverage cans, containers and packaging, automotive and other
transportation applications, building products and other
industrial applications.
In 2004, NNA had sales and operating revenues of
$2,964 million, representing 38% of our total sales and
operating revenues, and shipments of 1,175 kilotonnes, including
tolled metal, representing 39% of our total shipments.
In 2004, approximately 60% of NNAs production was directed
to beverage can sheet. The beverage can end-use application is
technically demanding to supply and pricing is competitive.
Producers with low-cost and technologically advanced
manufacturing facilities and technical support capability have a
competitive advantage. Recycling is important in the
manufacturing process and NNA has three facilities that collect
and remelt post-consumer aluminum and recycled process material.
Most of the recycled material is from used beverage cans and the
material is cast into sheet ingot for NNAs can sheet
production plants.
NE provides European markets with value-added sheet and light
gauge products through its 16 operating plants. In 2004, NE
had sales and operating revenues of $3,081 million,
representing 40% of our total sales and operating revenues, and
shipments of 1,089 kilotonnes, including tolled metal,
representing 36% of our total shipments.
NE serves a broad range of aluminum rolled product end-use
applications. Construction and industrial represents the largest
end-use market in terms of shipment volume by NE. NE supplies
plain and painted sheet for building products such as roofing,
siding, panel walls and shutters, where, due to the
materials recyclability, aluminum products compare
favourably with non-metallic building materials that usually
have to be disposed of in landfills after demolition.
NE also has packaging facilities at three locations, and in
addition to rolled product plants, NE has distribution centers
in Italy and France together with sales offices in several
European countries.
NA operates three manufacturing facilities in the Asian region
and manufactures a broad range of sheet and light gauge
products. In 2004, NA had sales and operating revenues of
$1,194 million, representing 15% of our total sales and
operating revenues, and shipments of 491 kilotonnes, including
tolled metal, representing 16% of our total shipments.
NA production is balanced between the foil products,
construction and industrial, and beverage/food can end-use
markets. We believe that NA is well-positioned to benefit from
further economic development in China.
NSA operates two rolling plants and two primary aluminum
manufacturing facilities and has an interest in a calcined coke
manufacturing facility, each located in Brazil. NSA manufactures
various aluminum rolled products, including can stock,
automotive and industrial sheet and light gauge for the
beverage/food can, construction and industrial and
transportation end-use markets.
82
In 2004, NSA had sales and operating revenues of
$525 million, representing 7% of our total sales and
operating revenues, and shipments of 264 kilotonnes, including
tolled metal, representing 9% of our total shipments.
The primary aluminum produced by NSAs mine, refinery and
smelters is used by our Brazilian aluminum rolled products
operations, with any excess production being sold on the market
in the form of aluminum billets. In 2004, NSA had sales of 30
kilotonnes of primary metal. NSA generates a portion of its own
power requirements. NSA also owns options to develop additional
hydroelectric power facilities.
Raw Materials and Suppliers
The raw materials that we use in manufacturing include primary
aluminum, recycled aluminum, sheet ingot, alloying elements and
grain refiners. Our smelters also use alumina, caustic soda and
calcined petroleum coke and resin. These raw materials are
generally available from several sources and are not subject to
supply constraints under normal market conditions. We also
consume considerable amounts of energy in the operation of our
facilities.
We obtain aluminum from a number of sources, including the
following:
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Primary Aluminum Purchases. We purchased approximately
2,100 kilotonnes of primary aluminum in 2004 in the form of
sheet ingot and standard ingot, as quoted on the LME, 52% of
which we purchased from Alcan. Following our separation from
Alcan, we have continued to source aluminum from Alcan pursuant
to the metal supply agreements described under
Arrangements Between Novelis and Alcan. |
|
|
Primary Aluminum Production. We produced approximately
109 kilotonnes of our own primary aluminum requirements in 2004
through our smelter and related facilities in Brazil. |
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|
Recycled Aluminum Products. We operate facilities in
several plants to recycle post-consumer aluminum, such as used
beverage cans collected through recycling programs. In addition,
we have agreements with several of our large customers where we
take recycled processed material from their fabricating activity
and re-melt, cast and roll their recycled aluminum products and
re-supply them with aluminum sheet. Other sources of recycled
material include lithographic plates, where over 90% of aluminum
used is recycled, and products with longer lifespans, like cars
and buildings, which are just starting to become high volume
sources of recycled material. We purchased approximately
800 kilotonnes of recycled material in 2004. |
|
|
The majority of recycled material collected and re-melted is
directed back through can-stock plants. The net effect of these
activities is that 29% of our aluminum rolled products
production in 2004 was made with recycled material. |
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|
Sheet Ingot. We have the ability to cast sheet ingot,
which are the slabs of aluminum that are fed into hot rolling
mills to make aluminum rolled products. Casting, which requires
precise control of heat and metal alloys, can have a major
impact on the quality of the sheet ingot produced and all
aluminum rolled products that are subsequently produced from
that sheet ingot. In 2004, we were able to supply 71% of our
internal needs for sheet ingot, which helped us to control the
quality of the sheet ingot we used, and generated cost savings
and sourcing flexibility. We purchased the remainder from Alcan
and other providers on longer term contracts. Following the
separation, we have continued to source a portion of our sheet
ingot requirements from Alcan pursuant to the metal supply
agreements described under Arrangements
Between Novelis and Alcan. |
We use several sources of energy in the manufacture and delivery
of our aluminum rolled products. In 2004, natural gas and
electricity represented more than 75% of our energy consumption
by cost. We also
83
use fuel oil and transport fuel. The majority of energy usage
occurs at our casting centers and during the hot rolling of
aluminum. Our cold rolling facilities require relatively less
energy. We purchase our natural gas on the open market, which
subjects us to market pricing fluctuations. Recent natural gas
pricing volatility in the United States has increased our energy
costs. We seek to stabilize our future exposure to natural gas
prices through the use of forward purchase contracts. Natural
gas prices in Europe, Asia and South America have historically
been more stable than in the United States.
A portion of our electricity requirements are purchased pursuant
to long term contracts in the local regions in which we operate.
A number of our facilities are located in regions with regulated
prices, which affords relatively stable costs. NSA has its own
hydroelectric facilities that meet a substantial portion of its
local electricity requirements for smelting operations.
We also have bauxite and alumina requirements. We will satisfy
some of our alumina requirements for the near term pursuant to
the alumina supply agreement we have entered into with Alcan as
discussed below under Arrangements Between
Novelis and Alcan.
Our Customers
Although we provide products to a wide variety of customers in
each of the markets that we serve, we have experienced
consolidation trends among our customers in many of our key
end-use markets. In 2004, approximately 41% of our total sales
and operating revenues were to our ten largest customers, most
of whom we have been supplying for more than 20 years. To
address consolidation trends, we focus significant efforts at
developing and maintaining close working relationships with our
customers and end-users.
Our major customers include Agfa-Gevaert N.V., Alcans
packaging business group, Anheuser-Busch Companies, Inc.,
affiliates of Ball Corporation, various bottlers of the
Coca-Cola system, Crown Cork & Seal Company, Inc.,
Daching Holdings Limited, DaimlerChrysler AG, Ford Motor
Company, General Motors Corporation, Lotte Aluminum Co. Ltd.,
Kodak Polychrome Graphics GmbH, Pactiv Corporation, Rexam Plc,
Ryerson Tull, Inc., Tetra Pak Ltd., Thyssen and Visteon
Corporation.
We sell most of our products under long-term contracts with
pricing based on margin over metal pricing, which is
subject to periodic adjustments based on market factors.
In our largest end-use market, beverage can sheet, we sell
directly to beverage makers and bottlers as well as to can
fabricators that sell the cans they produce to bottlers. In
certain cases, we also operate under umbrella agreements with
beverage makers and bottlers under which they direct their can
fabricators to source their requirements for beverage can body,
end and tab stock from us. The bottlers are not responsible for
the contractual performance by the can fabricators that we
supply under these umbrella agreements. Among these umbrella
agreements is one, referred to as the CC agreement, with several
North American bottlers of Coca-Cola branded products, including
Coca-Cola Enterprises and its affiliates. This agreement is
based on arrangements that have been in place since 1997 and is
subject to periodic renewal. Under the CC agreement we shipped
approximately 400 kilotonnes of beverage can sheet, including
tolled metal, in 2004. These shipments were made to, and we
received payment from, our direct customers, being the beverage
can fabricators that sell beverage cans to the Coca-Cola
associated bottlers. Under the CC agreement, bottlers in the
Coca-Cola system may join the CC agreement by committing a
specified percentage of the can sheet required by their can
fabricators to us. Pricing under the CC agreement is set for the
duration of the agreement, but is subject to change in the event
of changes in the competitive environment or to the competitive
industry price structure.
Purchases by Rexam Plc and its affiliates from our operations in
all of our business segments represented approximately 11.1%,
9.6% and 11.3% of our total sales and operating revenues in
2004, 2003 and 2002, respectively. Rexam Plcs North
American affiliates are the largest customers purchasing under
the CC agreement.
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Distribution and Backlog
We have two principal distribution channels for the end-use
markets in which we operate: direct sales and distributors (who
are sometimes referred to as stockists). In 2004, 14% of our
total sales and operating revenues were derived from
distributors and 86% of our total sales and operating revenues
were derived from direct sales from our customers.
We supply various end-use markets in approximately 88 countries
through a direct sales force that operates from individual
plants or sales offices, as well as from regional sales offices
in 21 countries. The direct sales channel typically involves
very large, sophisticated fabricators and original equipment
manufacturers. Long standing relationships are maintained with
leading companies in industries that use aluminum rolled
products. Supply contracts for large global customers generally
range from one to five years in length and historically there
has been a high degree of renewal business with customers. Given
the customized nature of products and in some cases, large order
sizes, switching costs are significant, thus adding to the
overall consistency of the customer base.
We also use third-party agents or traders in some regions to
complement our own sales force. They provide service to our
customers in countries where we do not have local expertise. We
tend to use third-party agents in Asia and South America more
frequently than in other regions.
We also sell our products through aluminum distributors,
particularly in North America and Europe. Customers of
distributors are widely dispersed, and sales through this
channel are highly fragmented. Distributors sell mostly
commodity or less specialized products into many end-use
markets, including the construction and industrial and
transportation markets. We collaborate with our distributors to
develop new end-use applications and improve the supply chain
and order efficiencies.
We produce aluminum rolled products primarily to meet our
customers requirements established under annual or
multi-year contracts, which are typically not
take-or-pay contracts and we do not believe that
order backlog is a material aspect of our business.
In 2004, we spent $58 million on research and development
activities in our plants and modern research facilities, which
included mini-scale production lines equipped with hot mills,
can lines and continuous casters. We spent $62 million on
research and development activities in 2003 and $67 million
in 2002. We conduct research and development activities at our
mills in order to satisfy current and future customer
requirements, improve our products and reduce our conversion
costs. Our customers work closely with our research and
development professionals to improve their production processes
and market options. We have approximately 300 employees
dedicated to research and development and customer technical
support, located in many of our plants and research centers.
Our Employees
We have approximately 13,200 employees. A significant portion of
our employees, approximately 6,500, are employed in our
European operations and approximately 3,000 are employed in
North America. With respect to the remainder of our workforce,
approximately 1,600 are employed in Asia and approximately 2,100
are employed in South America and other areas. Approximately
two-thirds of our employees are represented by labour unions and
their employment conditions governed by collective bargaining
agreements. Collective bargaining agreements are negotiated on a
site, regional or national level, and are of different
durations. We believe that we have good labour relations in all
our operations and have not experienced a significant labour
stoppage in any of our principal operations during the last
decade.
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Intellectual Property
In connection with our separation from Alcan, Alcan has assigned
or licensed to us a number of important patents, trademarks and
other intellectual property rights owned or previously owned by
Alcan and required for our business. Ownership of intellectual
property that is used by both us and Alcan is owned by one of
us, and licensed to the other. Certain specific intellectual
property rights which have been determined to be exclusively
useful to us or which were required to be transferred to us for
regulatory reasons have been assigned to us with no license back
to Alcan.
We own technology relating to the two main types of continuous
casting processes. Continuous casting mills are an alternative
technology for making aluminum rolled products, using a process
that converts molten aluminum directly into hot coils for
further processing. Because small incremental capacity additions
of between 10 kilotonnes and 175 kilotonnes can be made at lower
capital investment than a hot mill, continuous casting mills
offer the industry a better way of matching supply and demand,
especially in emerging markets. We developed the belt caster
technology named Flexcaster through internal research and
development, and acquired the twin roll casting machine
technology through the Pechiney acquisition. We will continue to
specialize in the development and sales of continuous casting
equipment in order to maintain our position as the world leading
manufacturer of continuous casting machines.
Environment, Health and Safety
We own and operate numerous manufacturing and other facilities
in various countries around the world. Our operations are
subject to numerous and increasingly stringent laws and
regulations governing the protection of the environment, health
and safety. We regularly monitor and conduct environment, health
and safety assessments of our facilities. Environment, health
and safety is a key component of our management operating
system. We believe we have well-developed processes and we
expect to continue to focus on this component going forward.
Arrangements Between Novelis and Alcan
In connection with our separation from Alcan, we and Alcan
entered into a separation agreement and several ancillary
agreements to complete the transfer of the businesses
contributed to us by Alcan and the distribution of our shares to
Alcan common shareholders. We may in the future enter into other
commercial agreements with Alcan, the terms of which will be
determined at the relevant times.
The separation agreement sets forth the agreement between us and
Alcan with respect to: the principal corporate transactions
required to effect our separation from Alcan; the transfer to us
of the contributed businesses; the distribution of our shares to
Alcan shareholders; and other agreements governing the
relationship between Alcan and us following the separation.
Under the terms of the separation agreement, we assume and agree
to perform and fulfill all of the liabilities and obligations of
the contributed businesses and of the entities through which
such businesses were contributed, including liabilities and
obligations related to discontinued rolled products businesses
conducted by Alcan prior to the separation, in accordance with
their respective terms.
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Releases and Indemnification
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The separation agreement provides for a full and complete mutual
release and discharge of all liabilities existing or arising
from all acts and events occurring or failing to occur or
alleged to have occurred or to have failed to occur and all
conditions existing or alleged to have existed on or before the
separation, between or among us or any of our subsidiaries, on
the one hand, and Alcan or any of its subsidiaries other than
us, on the other hand, except as expressly set forth in the
agreement. The liabilities released or discharged include
liabilities arising under any contractual agreements or
arrangements existing or alleged to exist between or among any
such members on or before the separation, other than the
86
separation agreement, the ancillary agreements described below
and the other agreements referred to in the separation agreement.
We have agreed to indemnify Alcan and its subsidiaries and each
of their respective directors, officers and employees, against
liabilities relating to, among other things:
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the contributed businesses, liabilities or contracts; |
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liabilities or obligations associated with the contributed
businesses, as defined in the separation agreement, or otherwise
assumed by us pursuant to the separation agreement; and |
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any breach by us of the separation agreement or any of the
ancillary agreements we entered into with Alcan in connection
with the separation. |
Alcan has agreed to indemnify us and our subsidiaries and each
of our respective directors, officers and employees against
liabilities relating to:
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liabilities of Alcan other than those of an entity forming part
of our group or otherwise assumed by us pursuant to the
separation agreement; |
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any liability of Alcan or its subsidiaries, other than us,
retained by Alcan under the separation agreement; and |
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any breach by Alcan of the separation agreement or any of the
ancillary agreements we entered into with Alcan in connection
with the separation. |
The separation agreement also specifies procedures with respect
to claims subject to indemnification and related matters.
Both we and Alcan have agreed to use our commercially reasonable
efforts, prior to, on and after the separation, to take, or
cause to be taken, all actions, and to do, or cause to be done,
all things, reasonably necessary or advisable under applicable
laws and agreements to complete the transactions contemplated by
the agreement and the other ancillary agreements described below.
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Non-solicitation of Employees
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Except with the written approval of the other party and subject
to certain exceptions provided in the agreement, we and Alcan
have agreed not to, for a period of two years following the
separation, (1) directly or indirectly solicit for
employment or recruit the employees of the other party or one of
its subsidiaries, or induce or attempt to induce any employee of
the other party or one of its subsidiaries to terminate his or
her relationship with that other party or subsidiary, or
(2) enter into any employment, consulting, independent
contractor or similar arrangement with any employee or former
employee of the other party or one of its subsidiaries, until
one year after the effective date of the termination of such
employees employment with the other party or one of its
subsidiaries, as applicable.
We have agreed not to engage, directly or indirectly, in any
manner whatsoever, for a period of five years following the
separation, in the manufacturing, production and sale of certain
products for the plate and aerospace markets, unless expressly
permitted to do so under the terms of the agreement.
We have agreed (1) not to undergo a change of control
event, as defined in the separation agreement, for a period of
12 months following the separation, and (2) in the
event of a change of control (including a change of control
achieved in an indirect manner), during the four-year period
following the first anniversary of the separation, to provide
Alcan, within 30 days thereafter with a written undertaking
of the
87
acquirer that such acquirer shall be bound by the non-compete
covenants set forth in the separation agreement during the
remainder of the four-year period, to the same extent as if it
had been an original party to the agreement.
If a change of control event occurs during the 12 month
period following the separation, or if, at any time during the
four-year period following the first anniversary of the
separation a change of control of our company occurs and the
person or group of persons who acquired control of our company
fails to execute and deliver the undertaking mentioned above or
refuses, neglects or fails to comply with any of its obligations
pursuant to such undertaking (each a control-related
event), Alcan will have a number of remedies, including
terminating any or all of the metal supply agreements, the
technical services agreements, or the intellectual property
licenses granted to us or any of our subsidiaries in the
intellectual property agreements, or the transitional services
agreement.
In connection with our separation from Alcan, we entered into a
number of ancillary agreements with Alcan governing certain
terms of our separation as well as various aspects of our
relationship with Alcan following the separation. These
ancillary agreements include:
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Transitional Services Agreement. Pursuant to the
transitional services agreement, Alcan will provide to us or we
will provide to Alcan, as applicable, on an interim,
transitional basis, various services, including, but not limited
to, treasury administration, selected benefits administration
functions, employee compensation and information technology
services. The agreed upon charges for these services generally
allows us or Alcan, as applicable, to recover fully the
allocated costs of providing the services, plus all
out-of-pocket costs and expenses plus a margin of five percent.
No margin will be added to the cost of services supplied by
external suppliers. In general, the services began on the
separation date and will cover a period generally not expected
to exceed 12 months following the separation. With respect
to particular services, we or Alcan, depending on who is the
recipient of the relevant services, may terminate the agreement
with respect to one or more of those services upon prior written
notice. |
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Metal Supply Agreements. We and Alcan have entered into
four multi-year metal supply agreements pursuant to which Alcan
will supply us with specified quantities of remelt ingot, molten
metal and sheet ingot in North America and Europe on terms and
conditions substantially similar to market terms and conditions
during specific periods. These agreements are anticipated to
provide us with the ability to cover some metal requirements
through a fixed price purchase mechanism. In addition, an ingot
supply agreement in effect between Alcan and Alcan Taihan
Aluminum prior to the separation remains in effect following the
separation. |
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Foil Supply Agreements. We have entered into foil supply
agreements with Alcan for the supply of foil from our facilities
located in Norf, Ludenscheid and Ohle, Germany to Alcans
packaging facility located in Rorschach, Switzerland as well as
from our facilities located in Utinga, Brazil to Alcans
packaging facility located in Maua, Brazil. These agreements are
for five-year terms during the course of which we will supply
specified percentages of Alcans requirements for its
facilities described above (in the case of Alcans
Rorschach facility, 95% in 2005, 94% in 2006, 93% in 2007, 92%
in 2008 and 90% in 2009, and in the case of Alcans Maua
facility, 70%). In addition, we will continue to supply certain
of Alcans European operations with foil under the terms of
two agreements that were in effect prior to the separation. |
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Alumina Supply Agreements. We have entered into a
ten-year alumina supply agreement with Alcan pursuant to which
we will purchase from Alcan, and Alcan will supply to us,
alumina for our primary aluminum smelter located in Aratu,
Brazil. The annual quantity of alumina to be supplied under this
agreement is between 85,000 metric tonnes to 126,000 metric
tonnes. In addition, an alumina supply agreement between Alcan
and Novelis Deutschland GmbH that was in effect prior to the
separation remains in effect following the separation. |
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Intellectual Property Agreements. We and Alcan have
entered into intellectual property agreements pursuant to which
Alcan has assigned or licensed to us a number of important
patents, trademarks and other intellectual property rights owned
by Alcan and required for our business. Ownership of
intellectual property that is used by both us and Alcan is owned
by one of us and licensed to the other. Certain specific
intellectual property rights which were determined to be
exclusively useful to us or which were required to be
transferred to us for regulatory reasons have been assigned to
us with no license back to Alcan. |
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Sierre Agreements. We and Alcan entered into a number of
agreements pursuant to which: |
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Alcan transferred to us certain assets and liabilities of the
automotive and other aluminum rolled products businesses
relating to the sales and marketing output of the Sierre North
Building, which comprises a portion of the Sierre facility in
Switzerland, at a transfer price determined by a valuation made
by an independent third party, pursuant to the terms of the
separation and asset transfer agreements; |
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Alcan leased to us the Sierre North Building and the machinery
and equipment located in the Sierre North Building (including
the hot and cold mills) for a term of 15 years, renewable
at our option for additional five-year periods, at an annual
base rent in an amount equal to 8.5% of the book value of the
Sierre North Building, the leased machinery or equipment, as
applicable, pursuant to the terms of the real estate lease and
equipment lease agreements; |
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We and Alcan will have access to, and use of, property and
assets that are common to each of our respective operations at
the Sierre facility, pursuant to the terms of the access and
easement agreement; |
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Alcan agreed to supply us with all our requirements of aluminum
rolling slabs for the production of aluminum rolled products at
the Sierre facility for a term of ten years, subject to
availability, and provided the aluminum rolling slabs meet
applicable quality standards and are competitively priced,
pursuant to the terms of the metal supply agreement; |
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Alcan will provide certain services to us at the Sierre
facility, including services consisting of or relating to
environmental testing, chemical laboratory services, utilities,
waste disposal, facility safety and security, medical services,
employee food service and rail transportation, and we will
provide certain services to Alcan at the Sierre facility,
including services consisting of or relating to hydraulic and
mechanical maintenance, roll grinding and recycled process
material for a two-year renewable term, pursuant to the terms of
the shared services agreement; and |
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Alcan retains access to all of the total plate production
capacity of the Sierre facility, which represents a portion of
Sierres total hot mill production capacity. The formula
for the price to be charged to Alcan for products from the
Sierre hot mill is based upon its proportionate share of the
fixed production costs relating to the Sierre hot mill
(determined by reference to actual production hours utilized by
Alcan) and the variable production costs (determined by
reference to the volume of product produced for Alcan). Under
the tolling agreement, we have agreed to maintain the current
standards of maintenance, management and operation of the Sierre
hot mill. |
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With respect to the use of the machinery or equipment in the
Sierre North Building, we have agreed to refrain from making or
authorizing any use of it which may benefit any business
relating to the sale, marketing, manufacturing, development or
distribution of plate or aerospace products. |
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Neuhausen Agreements. We have entered into an agreement
with Alcan pursuant to which (1) Alcan transferred to us
various laboratory and testing equipment used in the aluminum
rolling sheet business located in Neuhausen, Switzerland and
(2) approximately 35 employees transferred from Alcan to us
at the Neuhausen facility. In addition, we have assumed certain
obligations in connection with the operations of the Neuhausen
facility, including (1) the obligation to reimburse Alcan
for 100% of its actual and direct costs incurred in terminating
employees, cancelling third-party |
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agreements, and discontinuing the use of assets in the event we
request Alcan to discontinue or terminate services under the
services agreement, (2) the obligation to reimburse Alcan
for 20% of the costs to close the Neuhausen facility in certain
circumstances, and (3) the obligation to indemnify Alcan
for (a) all liabilities arising from the ownership,
operation, maintenance, use, or occupancy of the Neuhausen
facility and/or the equipment at any time after the separation
date and resulting from our acts or omissions or our violation
of applicable laws, including environmental laws, (b) all
liabilities relating to the employees that transferred from
Alcan to us arising before, on or after the separation date, and
(c) an amount equal to 20% of all environmental legacy
costs related to the Neuhausen facility. |
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Tax Sharing and Disaffiliation Agreement. The tax sharing
and disaffiliation agreement provides an indemnification if
certain factual representations are breached or if certain
transactions are undertaken or certain actions are taken that
have the effect of negatively affecting the tax treatment of the
separation, including the reorganization transactions. It
further governs the disaffiliation of the tax matters of Alcan
and its subsidiaries or affiliates other than us, on the one
hand, and us and our subsidiaries or affiliates, on the other
hand. In this respect it allocates taxes accrued prior to the
separation and after the separation as well as transfer taxes
resulting therefrom. It also allocates obligations for filing
tax returns and the management of certain pending or future tax
contests and create mutual collaboration obligations with
respect to tax matters. |
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Employee Matters Agreement. Pursuant to the employee
matters agreement, we and Alcan have allocated between us
assets, liabilities and responsibilities with respect to certain
employee compensation, pension and benefit plans, programs and
arrangements and certain employment matters and, more
specifically, pursuant to which we have set out the terms and
conditions pertaining to the transfer to us of certain Alcan
employees. As of the separation date, we hired or employed all
of the employees of Alcan and its affiliates who were then
involved in the businesses transferred to us by Alcan. During a
one-year period following the separation, such employees
terms and conditions of employment, including pension and
benefit plans as well as employment policies, will be
comparable, in the aggregate, to the terms and conditions of
employment in effect immediately prior to the separation.
Employees who transferred to us from Alcan also receive credit
for their years of service with Alcan prior to the separation.
Effective as of the separation date, we generally assumed all
employment compensation and employee benefit liabilities
relating to our employees. |
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Technical Services Agreements. We have entered into
technical services agreements with Alcan pursuant to which
(1) Alcan will provide technical support and related
services to certain of our facilities in Canada, Brazil and
France, and (2) we will provide similar services to certain
Alcan facilities in Canada. These agreements are not long-term
agreements. In addition, we have entered into a technical
services agreement with Alcan pursuant to which (1) Alcan
will provide us with materials characterization, chemical
analysis, mechanical testing and formability evaluation and
other general support services at the Neuhausen facility,
(2) Alcan will provide us and our employees with access to
and use of those portions of the Neuhausen facility where the
laboratory and testing equipment mentioned above is located, and
office space suitable for our technical and administrative
personnel, and (3) we will provide Alcan with access to
specific technical equipment and additional services upon
request from Alcan, in consideration for agreed upon service
fees for a period of two years. Following the first year of the
term of the Neuhausen technical services agreement, either party
may terminate the agreement by providing the other with at least
six months prior written notice. |
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Ohle Agreement. We and Alcan have entered into an
agreement pursuant to which we will supply pet food containers
to Alcan, which Alcan will market in connection with its related
packaging activities. We have agreed for a period of five years
not to, directly or indirectly, for ourselves or others, in any
way work in or for, or have an interest in, any company or
person or organization within the European market which conduct
activities competing with the activities of Alcan Packaging
Zutphen B.V., a subsidiary of Alcan, related to its pet food
containers business. |
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Foil Supply and Distribution Agreement. Pursuant to the
two-year foil supply and distribution agreement, we will
(1) manufacture and supply to, or on behalf of, Alcan
certain retail and industrial packages of Alcan brand aluminum
foil and (2) provide certain services to Alcan in respect
of the foil we supply to Alcan under this agreement, such as
marketing and payment collection. We will receive a service fee
based on a percentage of the foil sales under the agreement.
Pursuant to the terms of the agreement, we have agreed we will
not market retail packages of foil in Canada under a brand name
that competes directly with the Alcan brand during the term of
the agreement. |
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Metal Hedging Agreement. We have also entered into an
agreement pursuant to which Alcan provides metal price hedging
services to us. These fixed forward pricing arrangements help us
to reduce the risk of metal price fluctuations when we enter
into agreements with customers that provide for fixed metal
price arrangements. Alcan charges us fees based on the amount of
metal covered by each hedge. |
Properties
We have 36 operating facilities in 11 countries. We believe our
facilities are generally well-maintained and in good operating
condition and have adequate capacity to meet our current
business needs. Our principal properties and assets have been
pledged to banks pursuant to our senior secured credit
facilities, as described in Description of Material
Indebtedness.
The following provides a description, by business group, of the
plant processes and end-use markets for our aluminum rolled
products, recycling and primary metal facilities.
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Location |
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Plant Process |
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Major End-Use Markets |
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Oswego, New York
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Hot rolling, cold rolling, recycling |
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Can stock, Construction/
Industrial, Semi-finished coil |
Logan, Kentucky(i)
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Hot rolling, cold rolling |
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Can stock |
Saguenay, Quebec
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Continuous casting |
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Semi-finished coil |
Kingston, Ontario
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Cold rolling, finishing |
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Automotive, Construction/Industrial |
Terre Haute, Indiana
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Cold rolling, finishing |
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Foil |
Warren, Ohio
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Coating |
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Can stock |
Fairmont, West Virginia
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Cold rolling, finishing |
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Foil |
Toronto, Ontario
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Finishing |
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Foil, foil containers |
Louisville, Kentucky
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Cold rolling, finishing |
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Foil |
Burnaby, British Columbia
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Finishing |
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Foil containers |
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(i) |
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We own 40% of the shares of Logan Aluminium Inc., but we have
made subsequent equipment investments such that we now have
access to approximately 67% of Logans total production
capacity. |
Our Oswego, New York, facility operates modern equipment for
used beverage cans recycling, ingot casting, hot rolling, cold
rolling and finishing. Oswego produces can stock as well as
building and industrial products. Oswego also provides feedstock
to our Kingston, Ontario, facility, which produces heat-treated
automotive sheet and our Fairmont, West Virginia, facility,
which produces light gauge sheet.
The Logan, Kentucky, facility is a processing joint venture
between us and Arco Aluminium, a subsidiary of BP plc. Our
original equity investment in the joint venture was 40%, while
Arco held the remaining 60% interest. Subsequent equipment
investments have resulted in us now having access to
approximately 67% of Logans total production capacity.
Logan, which was built in 1985, is the newest and largest hot
mill in North America. Logan operates modern and high-speed
equipment for ingot casting, hot-rolling, cold-rolling and
finishing. Logan is a dedicated manufacturer of aluminum sheet
products for
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the can stock market with modern equipment, efficient workforce
and product focus. A portion of the can end stock is coated at
NNAs Warren, Ohio, facility, in addition to Logans
on-site coating assets. Together with Arco, we operate Logan as
a production cooperative, with each party supplying its own
primary metal inputs for transformation at the facility. The
transformed product is then returned to the supplying party at
cost. Logan does not own any of the primary metal inputs or any
of the transformed products. All of the fixed assets at Logan
are directly owned by us and Arco in varying ownership
percentages or solely by us. As discussed in
Managements Discussion and Analysis of Financial
Condition and Results of Operations, our consolidated and
combined balance sheet includes the assets and liabilities of
Logan.
We share control of the management of Logan with Arco through a
seven-member board of directors on which we appoint four members
and Arco appoints three. Management of Logan is led jointly by
two executive officers, one nominated by us and one nominated by
Arco, who are subject to approval by at least five members of
the board of directors.
Our Saguenay Works, Quebec, facility operates the worlds
largest continuous caster, which produces feedstock for our
three foil rolling plants located in Terre Haute, Indiana,
Fairmont, West Virginia and Louisville, Kentucky. The continuous
caster was developed through internal research and development
and we own the process technology. Our Saguenay Works facility
produces aluminum rolled products directly from molten metal,
which will be sourced under long term supply arrangements we
have with Alcan.
Along with our recycling center in Oswego, New York, we own two
other fully dedicated recycling facilities in Berea, Kentucky
and Greensboro, Georgia. Each offers a modern, cost-efficient
process to recycle used beverage cans and other recycled
aluminum into sheet ingot to supply our hot mills in Logan and
Oswego. Berea is the largest used beverage can recycling
facility in the world.
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Location |
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Plant Process |
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Major End-Use Markets |
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Norf, Germany(i)
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Hot rolling, cold rolling |
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Can stock, foilstock, reroll Construction/Industrial |
Göttingen, Germany
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Cold rolling, finishing |
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Can end, Lithographic, Painted sheet |
Rogerstone, United Kingdom
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Hot rolling, cold rolling |
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Foilstock, paintstock, reroll |
Nachterstedt, Germany
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Cold rolling, finishing |
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Construction/Industrial, Automotive |
Sierre, Switzerland(ii)
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Hot rolling, cold rolling |
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Automotive sheet |
Pieve, Italy
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Continuous casting, cold rolling |
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Paintstock, industrial |
Ohle, Germany
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Cold rolling, finishing |
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Foil |
Bresso, Italy
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Finishing |
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Painted sheet |
Rugles, France
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Continuous casting, cold rolling, finishing |
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Foil |
Dudelange, Luxembourg
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Continuous casting, cold rolling, finishing |
|
Foil |
Bridgnorth, United Kingdom
|
|
Cold rolling, finishing |
|
Foil |
Annecy, France
|
|
Hot rolling, Cold rolling, finishing |
|
Painted sheet, circles |
Ludenscheid, Germany
|
|
Cold rolling, finishing |
|
Foil |
Berlin, Germany
|
|
Finishing |
|
Foil |
|
|
|
(i) |
|
Operated as a joint venture between us, 50% interest, and Norsk
Hydro Aluminium Deutschland GmbH, 50% interest. |
92
|
|
|
(ii) |
|
We have entered into an agreement with Alcan pursuant to which
Alcan, following the separation, retains access to the plate
production capacity utilized prior to separation at the Sierre
facility, which represents a portion of the total production
capacity of the Sierre hot mill. |
Aluminium Norf GmbH in Germany, a 50/50 production sharing joint
venture between us and Norsk Hydro Aluminium Deutschland
GmbH, is a large scale, modern manufacturing hub for several of
our operations in Europe, and is the largest aluminum rolling
mill in the world. Norf supplies hot coil for further processing
through cold rolling to some of our other plants including
Goettingen and Nachterstedt in Germany and provides foilstock to
our plants in Ohle and Ludenscheid in Germany and Rugles in
France. Together with Norsk Hydro, we operate Norf as a
production cooperative, with each party supplying its own
primary metal inputs for transformation at the facility. The
transformed product is then transferred back to the supplying
party on a pre-determined cost-plus basis. The facilitys
capacity is, in principle, shared 50/50. We own 50% of the
equity interest in Norf and Norsk Hydro owns the other 50%. We
share control of the management of Norf with Norsk Hydro through
a jointly-controlled shareholders committee. Management of
Norf is led jointly by two managing executives, one nominated by
us and one nominated by Norsk Hydro.
Rogerstones hot mill in the United Kingdom supplies the
Bridgnorth foil plant with foilstock and produces paintstock
reroll for Pieve and Annecy. In addition, Rogerstone produces
standard sheet and coil for the United Kingdom distributor
market. The Pieve plant, located in Milan, Italy, produces
continuous cast coil that is cold rolled into paint stock and
sent to the Bresso plant, also located in Milan.
The Dudelange foil plant in Luxembourg utilizes continuous twin
roll casting equipment and is one of the few foil plants in the
world capable of producing 6 micron foil for aseptic packaging
applications from continuous cast material. The Sierre hot
rolling plant in Switzerland is Europes leading producer
of automotive sheet in terms of shipments and also supplies
plate stock to Alcan.
Our recycling operations at Borgofranco, Italy and Latchford,
United Kingdom position us as one of the major recyclers in
Europe. Latchford is the only major recycling plant in Europe
dedicated to used beverage cans.
NE also manages Pechiney Aluminum Engineering (Voreppe, France),
which sells casthouse technology, including liquid metal
treatment devices, such as degassers and filters, direct cast
automation packages and twin roll continuous casters, in many
parts of the world.
|
|
|
|
|
Location |
|
Plant Process |
|
Major End-Use Markets |
|
|
|
|
|
Ulsan, Korea(i)
|
|
Hot rolling, cold rolling |
|
Can stock, Construction/Industrial, Foil stock |
Yeongju, Korea(ii)
|
|
Hot rolling, cold rolling |
|
Can stock |
Bukit Raja, Malaysia(iii)
|
|
Continuous casting, cold rolling |
|
Construction/Industrial, Foil stock Foil, finstock |
|
|
|
(i) |
|
We hold a 68% equity interest in the Ulsan plant. |
|
(ii) |
|
We hold a 68% equity interest in the Yeongju plant. |
|
(iii) |
|
Ownership of the Bukit Raja plant corresponds to our 59%
shareholding in Aluminium Company of Malaysia Berhad. We
increased our ownership from 36% to 59% in 2003. |
Our Korean subsidiary, in which we hold a 68% interest, was
formed through acquisitions in 1999 and 2000. Since our
acquisitions, product capability has been developed to address
higher value and more technically advanced markets such as can
sheet.
In 2003, we increased from 36% to 59% our participation in the
Aluminium Company of Malaysia, a publicly traded company that
controls the Bukit Raja, Selangor light gauge rolling facility.
Unlike our
93
production sharing joint ventures at Norf and Logan, our Korean
and Malaysian partners are financial partners and we market 100%
of the plants output.
NA also operates a recycling furnace in Ulsan, Korea for the
conversion of customer and third party recycled aluminum,
including used beverage cans. Metal from recycled aluminum
purchases represented 6% of NAs total shipments in 2004.
|
|
|
|
|
Location |
|
Plant Process |
|
Major End-Use Markets |
|
|
|
|
|
Pindamonhangaba, Brazil
|
|
Hot rolling, cold rolling |
|
Construction/Industrial, can stock, foil stock |
Utinga, Brazil
|
|
Finishing |
|
Foil |
Our Pinda rolling and recycling facility in Brazil has an
integrated process that includes recycling, sheet ingot casting,
hot mill and cold mill operations. A leased coating line
produces painted products, including can end stock. Pinda
supplies foil stock to our Utinga foil plant, which produces
converter, household and container foil.
Pinda is the largest aluminum rolling and recycling facility in
South America in terms of shipments and the only facility in
South America capable of producing can body and end stock. Pinda
recycles primarily used beverage cans, and is engaged in tolling
recycled metal for our customers.
The table below sets forth plant processes and end-use markets
information about our South American primary metal
operations. Total production capacity at these facilities was
109 kilotonnes in 2004.
|
|
|
|
|
Location |
|
Plant Process |
|
Major End-Use Markets |
|
|
|
|
|
Aratu, Brazil
|
|
Smelting |
|
Primary aluminum (sheet ingot and billets) |
Petrocoque, Brazil(i)
|
|
Refining calcined coke |
|
Carbon products (smelter anodes) |
Ouro Preto, Brazil
|
|
Hydroelectric, Bauxite mining, Alumina refining, Smelting |
|
Primary aluminum (sheet ingot and billets) |
|
|
(i) |
Operated as a joint venture between us, 25% interest, Petrobas
Quimica S.A., 35% interest, Universal Comércio
e Empreendimentos Ltda., 25% interest, and Companhia Brasileira
de Aluminio, 15% interest. |
We conduct bauxite mining, alumina refining, primary aluminum
smelting and hydroelectric power generation operations at our
Ouro Preto facility in Saramenha, Brazil. Our owned power
generation supplied 67% of the Ouro Preto smelter needs. In the
Ouro Preto region, we own rights to approximately
5.6 million tonnes of bauxite reserves. There are
additional reserves in the Cataguases and Carangola regions
sufficient to meet our requirements in the foreseeable future.
We also conduct primary aluminum smelting operations at our
Aratu facility in Brazil.
Legal Proceedings
In connection with our separation from Alcan, we assumed a
number of liabilities, commitments and contingencies mainly
related to our historical rolled products operations, including
liabilities in respect of legal claims and environmental
matters. As a result, we may be required to indemnify Alcan for
claims successfully brought against Alcan or for the defense of,
or defend, legal actions that arise from time to time in the
normal course of our rolled products business including
commercial and contract disputes, employee-related claims and
tax disputes (including several disputes with Brazils
Ministry of Treasury regarding taxes and social security
contributions, and a dispute with taxation authorities in
Italy). In addition to these assumed liabilities and
contingencies, we may, in the future, be involved in, or subject
to, other disputes, claims and proceedings that arise in the
ordinary course of our business, including some
94
that we assert against others. Where appropriate, we have
established reserves in respect of these matters (or, if
required, we have posted cash guarantees). While the ultimate
resolution of, and liability and costs related to, these matters
cannot be determined with certainty due to the considerable
uncertainties that exist, we do not believe that any of these
pending actions, individually or in the aggregate, will
materially impair our obligations or materially affect our
financial condition or liquidity. The following describes
certain environmental matters relating to our business for which
we assumed liability as a result of our separation from Alcan.
We are involved in proceedings under the U.S. Superfund or
analogous state provisions regarding the usage, storage,
treatment or disposal of hazardous substances 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. 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 related remediation or compliance actions. Although we
cannot reasonably estimate all of the costs that are likely to
ultimately be borne by us, we have provided for the currently
anticipated costs associated with ongoing environmental
remediation or compliance actions, and we have no reason to
believe that such remediation and compliance actions will
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 on a non-discounted basis 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 an estimated claim.
Management generally 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, or
PRPs, unless otherwise noted.
PAS Site. Novelis Corporation (a wholly-owned subsidiary
of ours and formerly known as Alcan Aluminum Corporation, or
Alcancorp.) and third parties were defendants in a lawsuit
instituted in July 1987 by the U.S. Environmental
Protection Agency, or EPA, relating to the Pollution Abatement
Services, or PAS, site, a third-party disposal site, in Oswego,
New York. In January 1991, the U.S. District Court for the
Northern District of New York found Novelis Corporation liable
for a share of the clean-up costs for the site, and in December
1991 determined the amount of such share to be $3,175,683 plus
interest and costs. Novelis Corporation appealed this decision
to the United States Court of Appeals, Second Circuit. In April
1993, the Second Circuit reversed the District Court and
remanded the case for a hearing on what liability, if any, might
be assigned to Novelis Corporation depending on whether Novelis
Corporation could prove that its waste did not contribute to the
costs of remediation at the site. This matter was consolidated
with another case, instituted in October 1991 by the EPA against
Novelis Corporation in the U.S. District Court for the
Northern District of New York seeking clean-up costs in regard
to the Fulton Terminals Superfund site in Oswego County, New
York, which was also owned by PAS. The remand hearing was held
in October of 1999. The trial court re-instituted its judgment
holding Novelis Corporation liable. The amount of the judgment
plus interest was $13.5 million as of December 2000. The
case was appealed. In the first quarter 2003, the Second Circuit
affirmed the decision of the trial court. In 2004, Novelis
Corporation paid $13.9 million in respect of the EPA claim,
representing the full amount of the judgment plus interest, and
$1.6 million to the State of New York, and is currently
responsible for future oversight costs, which are currently
estimated at approximately $600,000.
95
PAS Oswego Site Performing Group. Novelis Corporation has
also been sued by ten other PRPs at the PAS site seeking
contribution from Novelis Corporation for costs they
collectively incurred in cleaning up the PAS site from 1990 to
the present. The costs incurred by the PRPs to date total
approximately $6.4 million plus accrued interest. Based
upon currently available record evidence, Novelis Corporation is
contesting responsibility for costs incurred by the PRPs.
Oswego North Ponds. In the late 1960s and early 1970s,
Novelis Corporation in Oswego used an oil containing
polychlorinated biphenyls, or PCBs, in its re-melt operations.
At the time, Novelis Corporation utilized a once-through cooling
water system that discharged through a series of constructed
ponds and wetlands, collectively referred to as the North Ponds.
In the early 1980s, low levels of PCBs were detected in the
cooling water system discharge and Novelis Corporation performed
several subsequent investigations. The PCB-containing hydraulic
oil, Pydraul, which was eliminated from use by Novelis
Corporation in the early 1970s, was identified as the source of
contamination. In the mid-1980s, the Oswego North Ponds site was
classified as an inactive hazardous waste disposal
site and added to the New York State Registry. Novelis
Corporation ceased discharge through the North Ponds in mid-2002.
In cooperation with the New York State Department of
Environmental Conservation, or NYSDEC, and the New York State
Department of Health, Novelis Corporation entered into a consent
decree in August 2000 to develop and implement a remedial
program to address the PCB contamination at the Oswego North
Ponds site. A remedial investigation report was submitted in
January 2004 and we anticipate that the NYSDEC will issue a
proposed remedial action plan and record of decision during the
second half of 2005. We expect that the remedial plan will be
implemented in 2006. The estimated cost associated with this
remediation is approximately $25 million.
Butler Tunnel Site. Novelis Corporation was a party in a
1989 EPA lawsuit before the U.S. District Court for the
Middle District of Pennsylvania involving the Butler Tunnel
Superfund site, a third-party disposal site. In May 1991, the
Court granted summary judgment against Novelis Corporation for
alleged disposal of hazardous waste. After unsuccessful appeals,
Novelis Corporation paid the entire judgment plus interest.
The United States government filed a second cost recovery action
against Novelis Corporation seeking recovery of expenses
associated with the installation of an early warning system for
potential future releases from the Butler site. The complaint
does not disclose the amount of costs sought by the government.
The case has been held in abeyance since shortly after it was
filed and therefore there has been no opportunity for discovery
to fully determine the type of remedial action sought, the total
cost, the existence of other settlements or the existence of
other non-settling PRPs that may exist for potential
contribution. In December 2004, a motion for partial summary
judgment was heard and is under advisement.
Tri-Cities Site. In 1994 Novelis Corporation and other
companies responded to an EPA inquiry concerning the shipment of
old drums to Tri-Cities Inc., a third party barrel reprocessing
facility in upstate New York. In 1996 the EPA issued an
administrative order directing the defendants to clean up the
site. Novelis Corporation refused to participate, claiming that
the drums sent to Tri-Cities were empty at the time of delivery.
In September 2002, Novelis Corporation received notice from the
EPA contending that Novelis Corporation was responsible for past
and future response costs with accrued interest as well as
penalties for its violation of the administrative order. Novelis
Corporation responded by outlining its objections to the
EPAs determination. The EPA subsequently referred the
matter to the Department of Justice, or DOJ, for enforcement. In
December 2004, a consent decree was negotiated with the DOJ and
EPA. Under this consent agreement, Novelis Corporation has paid
$360,000 as a civil penalty as well as $600,000 in past costs.
Future costs have been capped at a maximum payment of $800,000
payable over an extended period of time.
Quanta Resources Site. In June 2003, the DOJ filed a
Superfund costs recovery action in the U.S. District Court
for the Northern District of New York against Novelis
Corporation and Russell Mahler, the site owner, seeking
unreimbursed response costs stemming from the disposal of
rolling oil emulsion at the Quanta Resources facility in
Syracuse, New York. The parties are in the process of
96
discovery. In 2003, Novelis Corporation met with the DOJ and the
EPA who quantified potential liability for unreimbursed costs
and penalties in the amount of $1.4 million.
Sealand Site. New York State and EPA claim that Novelis
Corporations waste that was sent to the Sealand, New York
Restoration site is a hazardous substance that contributed to
the occurrence of response costs. There are several PRPs at this
site. In 1993, Novelis Corporation declined a request to
participate in a program to provide drinking water to area
residents, contending that Novelis Corporations waste did
not cause or contribute to the harm at the site. In 2003, Alcan
met with the DOJ and the EPA who quantified potential liability
for unreimbursed costs at $2.6 million.
Toyo Coal Tar Remediation. Prior property owners
contaminated the soil at our Joliet, Illinois facility with coal
tar. Following litigation, Novelis Corporation received a 90%
cost allocation from two defendants. In 1998, a remediation plan
was developed to clean-up soils and groundwater. The remedial
program was implemented in 1999. Novelis Corporation continues
to monitor the remediation. Novelis Corporations estimated
costs are approximately $275,000.
Diamond Alkali Superfund Site-Lower Passaic River
Initiative. In 2003, Novelis Corporation received a letter
from the EPA regarding an investigation being launched into
possible contamination of the Lower Passaic River in 1965.
Novelis Corporation has been identified as a PRP arising from
one of its former plants in Newark, New Jersey that may have
generated hazardous waste. A remedial investigation feasibility
study is scheduled to be carried out over several years. Novelis
Corporation has entered into a consent decree with other PRPs
and will participate in a remedial feasibility study. Novelis
Corporations estimated environmental costs have been set
at $184,000.
Jarl Extrusions (Rochester, NY). The affected property in
Rochester, New York was acquired in 1988. Operations at the
property were subsequently discontinued and the property was
sold in December 1996. Novelis Corporation retained liability
under the terms of sale. Novelis Corporation entered into a
consent decree with NYSDEC under which evaluation of the site
was performed in 1990 and 1991. Most of the contamination was
determined to have come from an adjoining site. In its response
to Novelis Corporations investigation report, the NYSDEC
asked Novelis Corporation to admit to liability for off-site
pollution (a Superfund site is located next door) and that
hazardous sludge was dumped in the ponds behind the building.
Novelis Corporation denied these allegations. In light of the
States failure to cooperate with Novelis Corporation in
the remediation of this site under the consent decree, Novelis
Corporation filed a notice of protest with the State. Novelis
Corporations appeal was denied, but the State later
approved a new remedial investigation report negotiated between
NYSDEC and Novelis Corporation. A feasibility study for site
remediation was then approved by NYSDEC. Negotiations on a
consent order for remedial design construction were completed
and the restrictive deed covenants have been filed for the
property. The clean-up has been completed and NYSDEC approved a
long-term operation and monitoring plan (O&M).
Novelis Corporation continues to conduct O&M and has sought
permission to decommission two monitoring wells. Estimated costs
associated with this matter are approximately $150,000.
Terre Haute TCE Issue. Trichloroethylene, or TCE, soil
and groundwater contamination was discovered on the Terre Haute
site in 1990. A site investigation was performed in between 1991
and 1994 whereby the extent of TCE groundwater and soil
contamination was delineated. The subsurface contamination was
located on site with groundwater plume migrating off site, with
impacts to private homeowner drinking water wells. Terre Haute
entered into the Indiana Voluntary Remediation Program in 1995.
A remediation plan was developed which consisted of Soil
Venting/ Air Sparging for subsurface soil remediation. The point
source carbon treatment systems were installed on impacted
homeowners wells. The active subsurface soil remediation was
completed in 2003. Now that the remediation phase has been
completed, Novelis Corporation is required to support a post
remedial groundwater and drinking water well monitoring program.
Periodic monitoring will be required until groundwater clean up
goals are met. Based on historical trends in TCE contamination,
it is anticipated that clean up objectives will be met within
10 years. Once the clean up objectives are met, the project
will be considered closed. Estimated costs associated with
funding the required monitoring program for a period of
10 years is approximately $600,000.
97
MANAGEMENT
Our Directors
Our Board of Directors comprises 12 directors. Our
directors terms will expire at each annual shareholders
meeting. Our first annual meeting of shareholders after the
separation will be held prior to June 30, 2006. This will
be an annual meeting of shareholders for the election of
directors. The annual meeting will be held at a place in North
America and on such date as may be fixed by our board of
directors.
The following table sets forth information as to persons who
currently serve as our directors. Except in the case of David
FitzPatrick, all of the directors listed below have served on
our board of directors since the separation.
Mr. FitzPatrick joined our board of directors on
March 24, 2005. Biographical details for each of our
directors are also set forth below.
|
|
|
|
|
|
|
Name |
|
Age |
|
|
Position |
|
|
|
|
|
|
Brian W. Sturgell
|
|
|
56 |
|
|
Director, President and Chief Executive Officer |
J.E. Newall, O.C.(1)(2)(3)(4)
|
|
|
70 |
|
|
Non-Executive Chairman of the Board |
Jacques Bougie, O.C.(2)(4)
|
|
|
58 |
|
|
Director |
Charles G. Cavell(1)(2)(3)
|
|
|
62 |
|
|
Director |
Clarence J. Chandran(2)(3)(4)
|
|
|
56 |
|
|
Director |
C. Roberto Cordaro(2)(3)(4)
|
|
|
55 |
|
|
Director |
Helmut Eschwey(2)(3)(4)
|
|
|
56 |
|
|
Director |
David J. FitzPatrick(1)(2)
|
|
|
51 |
|
|
Director |
Suzanne Labarge(1)(2)(3)
|
|
|
58 |
|
|
Director |
William T. Monahan(2)(3)(4)
|
|
|
58 |
|
|
Director |
Rudolf Rupprecht(1)(2)(4)
|
|
|
65 |
|
|
Director |
Edward V. Yang(1)(2)(4)
|
|
|
60 |
|
|
Director |
|
|
(1) |
Member of our audit committee. |
|
(2) |
Member of our corporate governance committee. |
|
(3) |
Member of our human resources committee. |
|
(4) |
Member of our customer relations committee. |
Brian W. Sturgell is our President and Chief Executive
Officer and a Director. Mr. Sturgell has 31 years of
experience in the aluminum business and worked for Alcan for the
past 15 years. From January 2002 until January, 2005,
Mr. Sturgell was Executive Vice President and a member of
the Office of the President at Alcan, and responsible for
Alcans Rolled Products Americas and Asia, Rolled Products
Europe and Packaging business groups. In this role, he oversaw
the global operations of Alcans rolled products and
packaging businesses. Mr. Sturgell has held several other
positions with Alcan: Executive Vice President, Aluminum
Fabrication, Americas and Asia (from November 2000 to January
2002), Executive Vice President, Corporate Development (from
January 1999 to November 2000), Executive Vice President, Asia/
Pacific (July 1997 to January 1999) and Executive Vice
President, Fabricated Products, North America and President of
Alcan Aluminum Corporation (from January 1996 to July 1997). In
2004, Mr. Sturgell concluded a two-year term as Chairman of
the U.S. Aluminum Association. He is a member of the board
of directors for the U.S. National Association of
Manufacturers. Born in Michigan in 1949, Mr. Sturgell
graduated from Michigan State University with a bachelor of
science degree. He has also attended the Executive Development
Program at the Kellogg Graduate School at Northwestern
University in the United States.
J.E. Newall, O.C. is the Non-Executive Chairman of our
board of directors and a member of our audit, corporate
governance, human resources and customer relations committees.
Mr. Newall had been on
98
the board of directors of Alcan since 1985. Mr. Newall has
been Chairman of the board of directors of NOVA Chemicals
Corporation (previously known as Nova Corporation) since 1998
and of Canadian Pacific Railway Limited since 2001. He was the
Vice Chairman and Chief Executive Officer of NOVA Chemicals
Corporation from 1991 to 1998. He is also a Director of Maple
Leaf Foods Inc.
Jacques Bougie, O.C. is a Director on our board of
directors and a member of our corporate governance and customer
relations committees. Mr. Bougie was President and Chief
Executive Officer of Alcan from 1993 to 2001 and was President
and Chief Operating Officer of Alcan from 1989 to 1993. He is
Chairman of the International Advisory Council of CGI Group Inc.
and is a Director of NOVA Chemicals Corporation, McCain
Foods Ltd. and Abitibi Consolidated Inc.
Charles G. Cavell is a Director on our board of directors
and a member of our audit, corporate governance and human
resources committees. Mr. Cavell recently retired as
President and Chief Executive Officer of Quebecor World Inc.,
one of the worlds largest commercial printers, with plants
throughout Europe, South America and North America. He currently
serves on the board of several commercial and charitable
institutions and he is the Vice Chairman of the Board of
Governors of Concordia University.
Clarence J. Chandran is a Director on our board of
directors and a member of our corporate governance, human
resources and customer relations committees. Mr. Chandran
is Chairman of the Chandran Family Foundation Inc. He retired as
the President, Business Process Services, of
CGI Group Inc. in 2004 and retired as Chief Operating
Officer of Nortel Networks Corporation in 2001.
Mr. Chandran is also a Director of MDS Inc. and Chairman of
the board of directors of Conros Corporation and was a Director
of Alcan from 2001 to 2003.
C. Roberto Cordaro is a Director on our board of
directors and a member of our corporate governance, human
resources and customer relations committees. Mr. Cordaro is
the President, Chief Executive Officer and has been a Director
of Nuvera Fuel Cells, Inc. since 2002. He was Chief Executive
Officer of the Motor Coach Industries International from 2000 to
2001 and was Executive Vice President of Cummins Inc. from 1996
to 1999.
Helmut Eschwey is a Director on our board of directors
and a member of our corporate governance, human resources and
customer relations committees. Dr. Eschwey has been the
Chairman of the board of management of Heraeus Holding GmbH, in
Germany since 2003. Prior to that, Dr. Eschwey was the head
of the plastics technology business at SMS AG from 1994. Before
he joined SMS AG, he held management positions at Freudenberg
Group of Companies, Pirelli & C. S.p.A. and the Henkel
Group.
David J. FitzPatrick became a Director on our board of
directors in March 2005 and is a member of the audit and
corporate governance committees. He is senior advisor to the
chief executive officer of Tyco International Ltd. (Tyco).
Previously, he was executive vice president and chief financial
officer of Tyco, a post he held from September 2002 until March
2005. He was senior vice president and chief financial officer
of United Technologies Corporation from June 1998 until
September 2002.
Suzanne Labarge is a Director on our board of directors
and a member of our audit, corporate governance and human
resources committees. Ms. Labarge retired as the Vice
Chairman and Chief Risk Officer of the Royal Bank of Canada in
September 2004. She was Executive Vice President, Corporate
Treasury, of the Royal Bank of Canada from 1995 to 1998. She is
also a director of the Bank of China and a member of the Board
of Governors of McMaster University.
William T. Monahan is a Director on our board of
directors and a member of our corporate governance, human
resources and customer relations committees. Mr. Monahan is
the retired Chairman and Chief Executive Officer of Imation
Corporation, where he served in that capacity from its spin-off
from 3M Co. in 1996 to May of 2004. Prior to that, he held
numerous executive positions at 3M, including Group Vice
President, Senior Vice President of 3M Italy and the Vice
President of the Data Storage Division. Mr. Monahan is a
Director of Pentair, Inc., Hutchinson Technology Inc. and
Mosaic, Inc.
99
Rudolf Rupprecht is a Director on our board of directors
and a member of our audit, corporate governance and customer
relations committees. Dr. Rupprecht was the Chairman of the
executive board of MAN AG, in Germany from 1996 until the end of
2004. Prior to that, Dr. Rupprecht occupied various
supervisory board positions within that company which he joined
in 1966. Dr. Rupprecht is also a member of the supervisory
boards of Salzgitter AG, MAN AG and Bayerische Staatsforsten and
is Chairman of the supervisory board of SMS GmbH.
Edward V. Yang is a Director on our board of directors
and a member of our audit, corporate governance and customer
relations committees. Mr. Yang is the Chief Executive
Officer of the Netstar Group of Companies and is also Operating
Partner at ING Barings Private Equity Partners Asia. Prior to
his current role, Mr. Yang was also a Corporate Senior Vice
President and the President of Asia Pacific at Electronic Data
Systems Corporation from 1992 to 2000.
Our Executive Officers
The following table sets forth information as to executive
officers of our company who are not directors. Biographical
details for each of our executive officers who are not directors
are also set forth below. Except in the case of Leslie J.
Parrette, Jr., all of the individuals listed below have
been employed by our company since the separation.
Mr. Parrette joined our company in March 2005. None of the
identified officers have retained their positions with Alcan
after the separation.
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Name |
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Age |
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Position |
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Martha Finn Brooks
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46 |
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Chief Operating Officer |
Geoffrey P. Batt
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57 |
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Senior Vice President and Chief Financial Officer |
Christopher Bark-Jones
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59 |
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Senior Vice President and President Europe |
Kevin Greenawalt
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48 |
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Senior Vice President and President
North America |
Jack Morrison
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53 |
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Senior Vice President and President Asia |
Antonio Tadeu Coelho Nardocci
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48 |
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Senior Vice President and President
South America |
Pierre Arseneault
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49 |
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Vice President, Strategic Planning and Information Technology |
Steven Fehling
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58 |
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Vice President Global Procurement and Metal Management |
David Godsell
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50 |
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Vice President, Human Resources and Environment, Health and
Safety |
Jo-Ann Longworth
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44 |
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Vice President and Controller |
Orville G. Lunking
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50 |
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Vice President and Treasurer |
Leslie J. Parrette, Jr.
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44 |
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General Counsel |
Brenda Pulley
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47 |
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Vice President, Corporate Affairs and Communications |
Thomas Walpole
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50 |
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Vice President and General Manager, Can Products Business Unit |
David Kennedy
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56 |
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Corporate Secretary |
Martha Finn Brooks is our Chief Operating Officer.
Ms. Brooks joined Alcan as the President and Chief
Executive Officer of Alcans Rolled Products Americas and
Asia business group in August 2002. Ms. Brooks led three of
Alcans business units, namely North America, Asia and
Latin America. Prior to joining Alcan, Ms. Brooks was the
Vice President, Engine Business, Global Marketing Sales at
Cummins Inc., a manufacturer of service electric power
generation systems, engines and related products. She was with
Cummins Inc. for 16 years, where she held a variety of
positions in strategy, international business development,
marketing and sales, engineering and general management.
Ms. Brooks is a member of the board of directors of
International Paper Company, a member of the Board of Trustees
of Manufactures Alliance, and a Trustee of the Hathaway Brown
School. Born in 1959, Ms. Brooks holds a
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B.A. in Economics and Political Science and a Masters of Public
and Private Management specializing in international business
from Yale University in the United States.
Geoffrey P. Batt is a Senior Vice President and our Chief
Financial Officer. Mr. Batt retired from Alcan in January
2004 after a 29-year career as a senior financial manager with
the company. A former Vice President and Financial Controller of
Alcans Rolled Products Americas and Asia business group,
Mr. Batt has held senior finance positions in Canada,
Switzerland, the United Kingdom, and the United States.
Mr. Batt joined Alcan in 1973 as an accountant in Kingston,
Canada. In 1985 he was named Director of Planning and Finance of
Alcan Enterprises North America in Montreal. Two years later he
became Finance Director, New Business for Alcan Aluminium S.A.
In 1988, he assumed the position of New Business Development
Manager of British Alcan. He returned to Montreal in 1991 as
Assistant Controller for Alcan Aluminium Limited. Mr. Batt
became Treasurer of Alcan Aluminium Limited in 1997 and Chief
Financial Officer of Alcan Europe in 1998. Born in 1947 and a
native of Keynsham, England, Mr. Batt attended Queens
University in Kingston, Ontario. In 1975, Mr. Batt received
his accounting designation from The Certified General
Accountants Association of Canada.
Christopher Bark-Jones is a Senior Vice President and the
President of our European operations. Mr. Bark-Jones was
the President and Chief Executive Officer of Alcan Rolled
Products, Europe from January 2002 until January 2005. He held
several other positions with Alcan: Vice President, Corporate
Development and Chief Financial Officer, Alcan Europe (from
August 2000 to January 2002) and the Chairman and Chief
Executive Officer of Indian Aluminum Company, Limited, a company
listed on the Indian stock exchange (from October 1998 to August
2000). Mr. Bark-Jones was the Chief Financial Officer of
British Alcan Aluminium plc from July 1991 to June 1996, and the
Chief Financial Officer of Alcan Europe Ltd. from its formation
on June 1996 until October 1998. He is past Chairman of the
European Aluminum Association. Before joining Alcan in 1978,
Mr. Bark-Jones was an investment research analyst at Morgan
Guarantee Trust Company. Born in 1946 in Liverpool, England
Mr. Bark-Jones has an MA in economics from Cambridge
University in England and an MBA from Insead Business School in
France.
Kevin Greenawalt is a Senior Vice President and the
President of our North American operations. Mr. Greenawalt
was the President of Rolled Products North America from April
2004 until January 2005. Mr. Greenawalt was with Alcan
since 1983, holding various managerial positions in corporate
and business planning, operations planning, manufacturing, sales
and business unit management. Prior to the Rolled Products North
America position, his most recent position at Alcan was Vice
President, Manufacturing for Rolled Products Europe based in
Zurich, Switzerland, where he was responsible for ten facilities
in Germany, Switzerland, Italy and the United Kingdom. In the
late 1990s, Mr. Greenawalt led the Alcan North American
Light Gauge Products business unit. Born in 1956,
Mr. Greenawalt holds an MBA and a Bachelor of Science in
Industrial Administration from Carnegie-Mellon University in the
United States. He participated in the International Masters
Program in Practicing Management (UK, Canada, India, Japan,
France) and was trained in Japan in Kaizen and Lean
Manufacturing.
Jack Morrison is a Senior Vice President and the
President of our Asian operations. Mr. Morrison was the
President, Rolled Products Asia and Chief Executive Officer of
Alcan Taihan Aluminum Limited from June 2000 until January 2005.
Mr. Morrison has been responsible for Aluminium Company of
Malaysia since November 2001. He is also on the boards of
directors of Novelis Korea Limited and Aluminium Company of
Malaysia. Mr. Morrison has over 30 years experience in
the aluminum industry having worked for Alcoa and Consolidated
Aluminum prior to joining Alcan in 1981. Prior to his assignment
in Asia, Mr. Morrison was the President of Alcan Sheet
Products, North America located in Cleveland, Ohio, United
States. Born in 1952, Mr. Morrison holds a Bachelor of
Science in Industrial Management from Purdue University in the
United States.
Antonio Tadeu Coelho Nardocci is a Senior Vice President
and President of our South American operations following the
separation. Mr. Nardocci joined Alcan in 1980.
Mr. Nardocci was the President of Rolled Products South
America from March 2002 until January 2005. Prior to that, he
was a Vice President of Rolled Products operations in Southeast
Asia and Managing Director of Alcom Aluminum
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Company of Malaysia in Kuala Lumpur, Malaysia. Born in São
Paulo, Brazil in 1957, Mr. Nardocci graduated from the
University of São Paulo with a degree in metallurgy.
Mr. Nardocci is a member of the executive board of the
Brazilian Aluminum Association.
Pierre Arseneault is our Vice President, Strategic
Planning and Information Technology. He is responsible for
developing our global strategic planning efforts and leading our
organizations information technology function.
Mr. Arseneault joined Alcan in 1981. Mr. Arseneault
was a Vice President of Alcan from December 2003 until January
2005. In his 23 years with Alcan, he held different key
positions. He led the Pechiney integration from December 2003 to
May 2004. He was President of Rolled Products North America from
August 2001 to December 2003 and President of light gauge in
North America and Asia from August 2000 to August 2001. From
April 1997 until August 2000, based in Asia, Mr. Arseneault
held the position of Vice President of South East Asia. During
the prior 15 years, he held different positions in
Alcans Primary Metal group. Born in 1956 in Victoriaville,
Canada, Mr. Arseneault graduated from Polytechnique
University, where he earned a Bachelors Degree in
Industrial Engineering. He also has a Masters Degree in
international management from the International Masters Program
in Practicing Management (IMPM), a cooperative venture of
business schools in five countries around the world
Canada, England, France, India, and Japan.
Steven Fehling is Vice President, Global Procurement and
Metal Management for Novelis Inc. He is responsible for
developing procurement strategy, driving global procurement
improvement initiatives and for large and multi-continent
contracts. He is also responsible for leading the development
and implementation of policies on metal pricing, hedging,
trading and the global procurement of metal. Mr. Fehling
has 20 years of experience in the industry. Since joining
Alcan in 1990 as Vice President Planning & Marketing
for the companys Recycling Division, Mr. Fehling held
a series of senior level management positions for the
organization. Prior to the separation from Alcan, he led global
purchasing, maintained a leadership role in strategic metal
policy development and day-to-day metal management and hedging
activities for Alcan Rolled Products Americas and Asia business
group as Vice President Metal Management and Purchasing.
Mr. Fehling holds an M.B.A. with a major in Logistics from
Indiana University, and a Bachelor in Industrial Management from
Purdue University. He is also a graduate of the advanced
management program at Harvard University. Active in the aluminum
industry, Mr. Fehling has served on the Executive Committee
and the Board of Directors of the Aluminum Association.
David Godsell is our Vice President, Human Resources and
Environment, Health and Safety. In this position, he has global
responsibilities for all aspects of our organizations
human resources function as well as environment, health and
safety. Mr. Godsell joined Alcan in 1979. After joining
Alcan, he held human resources positions of increasing
responsibility within the downstream Alcan fabrication group
before transferring to Alcans smelting company in British
Columbia. From 1996 until January 2005, Mr. Godsell was the
Vice President of Human Resources and Environment, Health and
Safety for Alcan Rolled Products Americas and Asia.
Mr. Godsell began his career with the Continental Can
Company in 1978 prior to joining Alcan. Born in 1955,
Mr. Godsell holds a Bachelor of Arts in Economics from
Carleton University in Ottawa, Canada.
Jo-Ann Longworth is our Vice President and Controller.
From August 2003 until January 2005, Ms. Longworth was Vice
President and Business Finance Director for Rolled Products
Americas and Asia in Cleveland, Ohio, United States.
Ms. Longworth joined Alcan in 1989 and has progressed
through a series of financial positions with several Alcan
businesses. After starting her career in the Controllers
department as Manager of Accounting Research in Montreal, she
subsequently became the controller for Alcans North
American Foil Products division in Toronto in 1993 before moving
to Jamaica three years later as Chief Financial Officer of the
bauxite and alumina facilities there. In 2000,
Ms. Longworth relocated back to Montreal and held the post
of Financial Director in the Primary Metals Group for Quebec and
United States prior to becoming Director, Investor Relations for
Alcan in 2002. Before joining Alcan, Ms. Longworth was an
audit manager at Price Waterhouse. Born in Montreal in 1961, she
attended Concordia and McGill universities and is a Canadian
Chartered Accountant.
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Orville G. Lunking is our Vice President and Treasurer.
From August 2001 until January 2005, Mr. Lunking was the
Corporate Treasurer of Smithfield Foods, Inc. Previously, from
July 1997 to August 2001, Mr. Lunking was the Assistant
Treasurer for Sara Lee Corporation. From 1991 to July 1997,
Mr. Lunking was the Director of Global Finance for
AlliedSignal Inc., now known as Honeywell International Inc.
Mr. Lunking also worked for seven years, from 1984 to 1991,
as a senior associate and then Vice President in a broad range
of corporate financial service areas at Bankers Trust in New
York. He began his career in the Treasurers Office of
General Motors in New York, from 1981 to 1984. Mr. Lunking
was born in Johannesburg, South Africa in 1955 and graduated
with an undergraduate degree in geography from Dartmouth College
and an MBA in finance from the Wharton School of the University
of Pennsylvania.
Leslie J. Parrette, Jr. joined Novelis as General
Counsel in March 2005. From July 2000 until February 2005, he
served as Senior Vice President and General Counsel of Aquila,
Inc., an international electric and gas utility and energy
trading company. From September 2001 to February 2005, he also
served as Corporate Secretary of Aquila. Prior to joining
Aquila, Mr. Parrette was a partner in the Kansas City-based
law firm of Blackwell Sanders Peper Martin LLP from April 1992
through June 2000. Born in 1961, Mr. Parrette holds an
A.B., magna cum laude, in Sociology from Harvard College
(1983) and received his J.D. from Harvard Law School (1986).
Brenda D. Pulley is our Vice President, Corporate Affairs
and Communications. She has global responsibility for our
organizations corporate affairs and communication efforts,
which include branding, strategic planning, and internal and
external communications. She was Vice President, Corporate
Affairs and Government Relations of Alcan from September 2000 to
2004. Upon joining Alcan in 1998, Ms. Pulley was named
Director, Government Relations. She has served as Legislative
Assistant to Congressman Ike Skelton of Missouri and to the
U.S. House of Representatives Subcommittee on Small
Business, specializing in energy, environment, and international
trade issues. She also served as Executive Director for the
National Association of Chemical Recyclers, and Director,
Federal Government Relations for Safety-Kleen Corp.
Ms. Pulley currently serves as the Chairperson for America
Recycles Day and on the board of directors for the League of
American Bicyclists. Born in 1958, Ms. Pulley earned her
Bachelor of Science degree from Central Missouri State
University in the United States majoring in Social Science, with
a minor in communications.
Thomas Walpole is Vice President and General Manager, Can
Products Business Unit for Novelis Inc. He is responsible
for developing and coordinating Novelis global strategy in
the can market, including recycling and promotion and also leads
the Can Product business unit in North America. Mr. Walpole
has over twenty-five years of aluminum industry experience
having worked for Alcan since 1979. Prior to his recent
assignment, Mr. Walpole held international positions for
the organization in Europe and Asia until 2004. He began as Vice
President, Sales, Marketing & Business Development for
Alcan Taihan Aluminum Ltd. (ATA) and most recently was
President of the Litho/ Can and Painted Products for the Europe
region. Born in 1954, Mr. Walpole graduated from State
University of New York at Oswego with a Bachelor of Science
degree in accounting, and holds a Master of Business from Case
Western Reserve University.
David Kennedy is our Corporate Secretary. Since joining
Alcan in 1979, Mr. Kennedy has held various legal and
business positions within the Canadian downstream businesses of
the Alcan Group, including Senior Counsel, with a general focus
on business transactions. Since 1997, he has served as counsel
to global projects related to Y2K and most recently Alcans
TARGET project responding to evolving public policies to address
global warming. In his capacity as Manager Code of Conduct from
1997 to 2000, Mr. Kennedy provided leadership and advice in
the administration of Alcans Code of Conduct, a document
reflecting the legal-ethical framework in which Alcan conducts
its operations throughout the world. Mr. Kennedy is a
member of a number of professional and business associations,
including the Canadian Bar Association. From 1990 to 1998 he
served as Chairman of the Competition Law Policy Committee,
Canadian Alliance of Manufacturers and Exporters. He is
presently a Director of the Canadian Centre for Ethics and
Corporate Policy, the Canadian German Chamber of Commerce and
Family Awareness of Mental Health Everywhere. Born in 1949,
Mr. Kennedy is a graduate of the
103
University of Western Ontario and University of Toronto Law
School. He has been a member of the Ontario bar since 1976.
Board of Directors and Corporate Governance Matters
We are committed to the highest levels of corporate governance
practices, which we believe are essential to our success and to
the enhancement of shareholder value. Our shares are listed on
the Toronto and New York Stock Exchanges and we make required
filings with the Canadian and U.S. securities regulators.
We make these filings available on our website at
http://www.novelis.com as soon as reasonably practicable after
they are electronically filed. Novelis is subject to a variety
of corporate governance and disclosure requirements.
Novelis corporate governance practices meet the Toronto
Stock Exchange Corporate Governance Guidelines, or the TSX
Guidelines, and other applicable stock exchange and regulatory
requirements and ensure transparency and effective governance of
the Company.
Our Board of Directors will regularly review corporate
governance practices in light of developing requirements in this
field. As new provisions come into effect, our Board of
Directors will reassess our corporate governance practices and
implement changes as and when appropriate. The following is an
overview of our corporate governance practices.
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Novelis Board of Directors
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Our Board of Directors has the responsibility for stewardship of
our company, including the responsibility to ensure that we are
managed in the interest of our shareholders as a whole, while
taking into account the interests of other stakeholders. Our
Board of Directors supervises the management of our business and
affairs and discharges its duties and obligations in accordance
with the provisions of (1) the CBCA, (2) our articles
of incorporation and bylaws, (3) the charters of our Board
of Directors and its committees, and (4) other applicable
legislation and company policies.
Our corporate governance practices require that, in addition to
its statutory duties, the following matters be subject to Board
approval: (1) capital expenditure budgets and significant
investments and divestments, (2) our strategic and
value-maximizing plans, (3) the number of directors within
the limits provided in our articles of incorporation and
(4) any matter which may have the potential for important
impact on our company. The Board intends to review the
composition and size of the Board once a year. All new directors
will receive a Board Manual containing a record of historical
public information about the company, as well as the charters of
the Board and its committees, and other relevant corporate and
business information. Senior management makes regular
presentations to the Board on the main areas of our business.
Directors are invited to tour our various facilities.
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Corporate Governance Guidelines
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The Board of Directors has adopted a Charter that establishes
various corporate governance guidelines relating to, among other
things, the composition and organization of the Board of
Directors, the duties and responsibilities of the Board of
Directors and the resources and authority of the Board of
Directors. Under the Board of Directors Charter, which is
available on our website at www.novelis.com and is available in
print upon request from our shareholders from our Corporate
Secretary, every meeting of the Board of Directors is to be
followed by an executive session at which no executive Directors
or other members of management are present. These executive
sessions are designed to ensure free and open discussion and
communication among the non-management directors. Presently, the
Chairman of the Board of Directors leads these meetings.
Stockholders and other interested parties may communicate with
the Board of Directors or any individual member or committee
thereof at the address of our headquarters, care of Corporate
Secretary or by sending an email to david.kennedy@novelis.com.
All such communications will be received by the Corporate
Secretary, who will promptly forward relevant communications to
the appropriate director or Board committee.
104
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Independence of Our Board of Directors
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To assist in determining the independence of its members, our
Board of Directors has established Guidelines on the
Independence of the Directors of Novelis. The definition of an
independent director under the Guidelines on Independence
encompasses both the definition of an unrelated
director within the meaning of the TSX Guidelines and of an
independent director within the meaning of the rules
of the New York Stock Exchange. Such a director must not have
any material relationship with us, either directly or as a
partner, shareholder or officer of a company that has a
relationship with us and must not have an interest or
relationship which could reasonably be perceived to interfere
with his or her ability to act in the best interests of our
company (an independent director). Under the
Guidelines on Independence, the following relationships
generally will be considered not to be material relationships
that would impair a directors independence: (1) if a
director is an officer, partner or significant shareholder in an
entity that does business with us and the annual sales or
purchases, for goods or services, to or from us are less than
two percent of the consolidated gross annual revenues of that
entity; (2) if a director is a limited partner, a
non-managing member or occupies a similar position in an entity
that does business with us, or has a shareholding in such entity
which is not significant, and who, in each case, has no active
role in sales to or in providing services to us and derives no
direct material personal benefit from the same; and (3) if
a director services as an officer, director or trustee of a
charitable organization and our charitable contributions to the
organization are less than two percent of that
organizations total consolidated gross annual revenues.
For purposes of the Guidelines on Independence, a
significant shareholding means direct or indirect
beneficial ownership of five percent or more of the outstanding
equity or voting rights of the relevant entity. Our Board of
Directors has determined that all members of the board of
directors with the exception of Brian W. Sturgell, are
independent directors.
The Guidelines on Independence establish standards for members
of our Audit, Human Resources and Nominating Committees. This
definition of independence corresponds to the Audit Committee
member independence qualification under the
U.S. Sarbanes-Oxley Act of 2002 (SOX). To meet the SOX
Audit Committee qualification, a director must not, directly or
indirectly, accept any consulting, advisory or other
compensatory fee from us (except in his or her capacity as
director) and may not be an affiliated person of our company or
any subsidiary other than in his or her capacity as a member of
the Board or any committee of the Board.
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Committees of Our Board of Directors
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Our Board of Directors has established four standing committees:
an Audit Committee, a Corporate Governance Committee, a Human
Resources Committee and a Customer Relations Committee. Each
committee is constituted by its own charter which is available
on our website at www.novelis.com and is available in print upon
request from our shareholders from our Corporate Secretary. All
four standing committees are required to be made up exclusively
of independent directors. Environment, health and safety matters
(in addition to matters relating to compensation) are dealt with
by the Human Resources Committee.
According to their mandates as set out in their charters, the
Board and each of its Committees may engage outside advisors at
the expense of Novelis.
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Audit Committee and Financial Expert
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Our Board of Directors has a separately-designated standing
Audit Committee established in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
as amended, the requirements of the CBCA and stock exchange
rules. The members of the audit committee are J.E. Newall,
O.C., Charles G. Cavell, David J. FitzPatrick, Suzanne Labarge,
Rudolf Rupprecht and Edward V. Yang. Our Board of Directors has
determined that Suzanne Labarge is an audit committee financial
expert as defined by the rules of the Securities and Exchange
Commission and that each member of the Audit Committee is
independent within the meaning of the applicable New York Stock
Exchange and Toronto Stock Exchange listing standards.
105
The Audit Committees main objective is to provide an
effective overview of our financial reporting process and
internal control functions. It will assist our Board of
Directors in fulfilling its functions relating to corporate
accounting and reporting practices, as well as overseeing
financial and accounting controls and reviewing and approving
financial statements and proposals for the issuance of
securities. The Audit Committee will also identify the principal
risks of our business such as volatility in metal price, raw
material and energy costs and foreign exchange rates and will
oversee the implementation of appropriate measures to manage
such risks, including policies and standards relating to risk
management.
With respect to compliance and disclosure matters, the Audit
Committee will assist management in ensuring that we make timely
disclosure of activities that would materially impact our
financial statements, that all potential claims against us have
been properly evaluated, accounted for and disclosed, and that
regular updates are received regarding certain of our policies
and practices.
The Audit Committee will review financial information prepared
in accordance with U.S. GAAP and non-GAAP financial
information in its various forms, including quarterly earnings
releases. It will also review major accounting issues that arise
and expected changes in accounting standards and processes that
may impact our company.
The Audit Committee has direct communication with our external
and internal auditors and will meet privately on a regular basis
with each of the external and internal auditors and senior
members of financial management. It will recommend external
auditors for appointment by our shareholders, review their
degrees of independence and receive and review regular reports
from them. The chairman of the Audit Committee will review the
terms of engagement of our external auditors and sign the
external auditors audit engagement letter. The Audit
Committee will also discuss with our external auditors the
quality and not just the acceptability of our accounting
principles and obtain their assurance that the audit was
conducted in a manner consistent with applicable laws and
regulations. We expect to implement a formal procedure that
establishes rules on our employment of former employees of our
auditors.
The Audit Committee will assist us in ensuring that our process
for monitoring compliance with, and dealing with violations of,
our code of conduct, which is described below, is established
and updated. In particular, the Audit Committee will establish
procedures in relation to complaints or concerns that may be
received by us involving accounting, internal accounting
controls or audit matters, including the anonymous handling
thereof.
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Corporate Governance Committee
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The Corporate Governance Committee has the broad responsibility
of regularly reviewing the companys corporate governance
practices in general. Our Corporate Governance Committee is
composed entirely of independent directors.
The Corporate Governance Committees main duties are to
oversee the composition and size of our Board of Directors and
nominate new directors. It will review candidates for nomination
as directors and recommend candidates for election to our Board
of Directors. The Corporate Governance Committee will develop
position descriptions for our Board of Directors, the chairman
of our Board of Directors and our chief executive officer and
approve our chief executive officers corporate objectives.
The Corporate Governance Committee is allowed to employ search
firms for identifying and evaluating Director nominees. We do
not anticipate having a specific policy regarding nominations to
our Board of Directors made by our shareholders. However,
shareholders representing five percent or more of our shares
entitled to vote may propose nominees for election as directors
by following the procedures set out in the CBCA.
The Corporate Governance Committee assesses and ensures on an
annual basis the effectiveness of our Board of Directors as a
whole, of each committee of our Board of Directors and the
contribution of individual directors, including our chief
executive officer. Each director will complete a survey of Board
effectiveness on an annual basis which we anticipate will cover
the subjects under the categories of Board composition,
responsibility, meetings and committees. As part of this survey,
each of our directors will be asked to complete a
self-evaluation and an evaluation of other individual members of
our Board of
106
Directors. The Corporate Governance Committee will also assess
our Boards relationship with management and recommend,
where necessary, limits on our managements authority to
act without explicit approval of our Board of Directors.
The Corporate Governance Committees mandate also includes
recommending levels of compensation for our directors. To this
end, the Corporate Governance Committee considers
recommendations from the Human Resources Committee and considers
factors such as time commitment, risks and responsibilities.
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Human Resources Committee
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The Human Resources Committee has the broad responsibility to
review human resources policy and employee relations matters and
makes recommendations with respect to such matters to our Board
of Directors or our chief executive officer, as appropriate. The
Human Resources Committee is composed entirely of independent
directors. Its specific roles and responsibilities are set out
in its charter. The Human Resources Committee will periodically
review the effectiveness of our overall management organization
structure and succession planning for senior management, review
recommendations for the appointment of executive officers, and
consider and make recommendations to our Board of Directors
based on trends and developments in the area of human resource
management.
The Human Resources Committee will establish our general
compensation philosophy and oversee the development and
implementation of compensation policies and programs. It also
will review and approve the level of and/or changes in the
compensation of individual executive officers, except that in
the case of the chief executive officer and chief operating
officer, it will make recommendations regarding compensation and
objectives to the Board of Directors, in each case taking into
consideration individual performance and competitive
compensation practices.
The Human Resources Committee has the responsibility of
reviewing our policy, management practices and performance in
environment, health and safety matters and making
recommendations to our Board of Directors on such matters in
light of current and changing requirements. The Human Resources
Committee also will review, assess and provide advice to our
Board of Directors on policy, legal, regulatory and consumer
trends and developments related to the environment, as they
impact us, our employees, businesses, processes and products.
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Customer Relations Committee
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In an advisory capacity, the Customer Relations Committee
reviews information furnished by management, provides advice and
counsel, and serves as a conduit for communications with the
Board of Directors for the purposes of deepening the
Boards understanding of (a) key end-use markets
served by us (and new markets that, in the foreseeable future,
may be served by us), (b) our existing and prospective
customers in such markets, (c) the nature of our
relationships with such customers (and efforts to further
develop such relationships), (d) the needs of, and trends
facing, our customers and key end-use markets, (e) the fact
base regarding new markets and customers that, in the
foreseeable future, may be served by the Company, and
(f) our efforts to identify and implement best practices in
the areas of marketing and sales.
We have adopted a Code of Conduct that governs all our employees
as well as our directors. As an annex to the Code of Conduct and
supplemental thereto, we will adopt additional standards that
are specifically tailored to our business operations around the
globe. We also have a code of ethics for senior financial
officers, including the chief executive officer, the chief
financial officer and the controller. Copies of these codes are
posted on our Internet site to emphasize the importance we place
on adherence to the highest ethical standards. We will promptly
disclose any future amendments to the codes on our Internet site
as well as any waivers from the Code for executive officers and
directors. Copies of the codes are also available in print upon
request from our shareholders from our Corporate Secretary.
107
We also expect to adopt whistleblower procedures so
that an employee can anonymously report concerns that he or she
may have regarding compliance with corporate policies, the code
of conduct, applicable laws or auditing, internal accounting
controls and accounting matters.
Director Compensation
Each non-executive director of our company is entitled to
receive compensation equal to $150,000 per year, payable
quarterly, except that the directors who are members of our
audit committee are entitled to $155,000. The chairman of our
board of directors is to receive compensation equal to
$350,000 per year, and the chairman of our audit committee
is entitled to receive $175,000 per year. We have adopted a
non-executive deferred share unit plan. 50% of our
directors compensation is required to be paid in the form
of directors deferred share units, or DDSUs, and 50% in
the form of either cash or additional DDSUs at the election of
each non-executive director. An employee of our company who is a
director is not entitled to receive fees for serving on our
board of directors.
Because at least half of the non-executive directors
compensation will be paid in DDSUs, they are not required to own
a specific amount of our shares. DDSUs are the economic
equivalent of shares. A director cannot redeem the accumulated
DDSUs until he or she ceases to be a member of our board of
directors.
Our board of directors believes that compensation in the form of
DDSUs together with the requirement for our non-executive
directors to retain all DDSUs until retirement help to align the
interests of our non-executive directors with those of our
shareholders.
The number of DDSUs to be credited each quarter will be
determined by dividing the quarterly amount payable by the
average per share price of our shares on the Toronto and New
York stock exchanges on the last five trading days of the
quarter. Additional DDSUs will be credited to each non-executive
director corresponding to dividends declared on our shares. The
DDSUs are redeemable only upon termination of the directorship
as a result of retirement, resignation or death, and may be
redeemed in cash or our shares, at the election of the director.
The amount to be paid by us upon redemption will be calculated
by multiplying the accumulated balance of DDSUs by the average
per share price of our shares on those exchanges at the time of
redemption. As at June 30, 2005, approximately
14,077 units had been granted. On July 1, 2005,
approximately 12,655 additional units were granted to our
non-executive directors.
Our non-executive directors are entitled to reimbursement for
transportation and other expenses incurred in attending meetings
of our board of directors and meetings of committees of our
board of directors. Our non-executive directors who are not
Canadian residents are entitled to reimbursement for tax advice
related to compensation.
Executive Compensation
The human resources committee is responsible for administering
the compensation program for our executive officers. Our
executive compensation program will be based upon a
pay-for-performance philosophy. Under our program, an
executives compensation is based on three components,
namely, base salary, annual incentives and long term incentives.
We anticipate that the target salary will be the mid-point of a
salary range for an executive officer and reflect the
competitive level of similar positions in the compensation peer
groups. The companies identified as part of our peer group are
comparable to us in terms of size, industry sector and level of
international sophistication. Actual base salaries for executive
officers will reflect the individuals performance and
contribution to our company. Base salaries of our executive
officers will be reviewed annually and any proposed changes will
be approved by the human resources committee.
108
Our short term incentive plan is administered by the human
resources committee, and has two components, each based on a
different aspect of our performance: (1) 90% of the
incentive opportunity of an executive will be based on our
overall profitability as measured against cash flow and economic
value added targets and (2) 10% of the incentive
opportunity will be based on the achievement of environment,
health and safety objectives as measured against pre-established
targets. For each position, a target award will be set
(expressed as percent of target base salary)
reflecting both the responsibilities of the position and the
competitive compensation levels.
We expect to review our annual incentives program during 2005 in
order to make recommendations to our human resources committee
by the end of 2005. We expect these recommendations will be
implemented by January 2006.
The purpose of our long-term incentives is to attract and retain
employees and to encourage them to contribute to our growth and
long term success. We anticipate that our long term incentives
will include stock options. On January 5, 2005, our board
of directors adopted the Novelis Conversion Plan of 2005 to
allow for all Alcan stock options held by employees of Alcan who
became employees of our company following our separation from
Alcan to be replaced with options to purchase our common shares
and for new options to be granted. New options granted under the
Novelis Conversion Plan of 2005 will have a vesting period
determined by our human resources committee and will expire no
more than ten years after the date of grant, except in the case
of death or retirement, in which case the options will expire
not later than five years after the earlier of such death or
retirement. In the case of an unsolicited change of control of
our company, vesting will accelerate. The number of options
granted will be based on the level of an executives
position, the executives performance in the prior year and
the executives potential for continued sustained
contributions to our success. Stock options will only produce
value to executives if our share price appreciates, thereby
directly linking the interests of executives with those of our
shareholders. The number of shares underlying options available
for grant under the Novelis Conversion Plan of 2005 at
June 30, 2005 is 2,219,667. We anticipate further that
stock price appreciation units may be granted instead of options
to certain employees due to certain local conditions of their
country of residence. A stock price appreciation unit is a right
to receive cash in an amount equal to the excess of the per
share market value of our shares on the date of exercise of a
stock price appreciation unit over the per share market value of
our shares as of the date of grant of such stock price
appreciation unit.
On March 24, 2005, our board of directors adopted the
Novelis Founders Performance Award Plan to allow for a one-time
additional compensation opportunity for certain of our
executives, including those listed in the compensation table
below. Participants are awarded performance share units if share
price improvement targets for 2006, 2007 and 2008 are achieved.
Performance share units will not be awarded unless the share
price improvement targets are achieved. A performance share unit
is the right to receive cash in an amount equal to the market
price of one of our shares at the time of payment. The share
price improvement targets for 2006 have been achieved and
performance share units were awarded on June 20, 2005.
Performance share units are settled in cash at the times
prescribed in the plan.
109
The following table sets forth compensation information for our
chief executive officer and our four other executive officers
who, based on the salary and bonus compensation received from
Alcan, were the most highly compensated of our executive
officers for the year ended December 31, 2004. All
information set forth in this table reflects compensation earned
by these individuals for service with Alcan for the years ended
December 31, 2004 and December 31, 2003.
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Long Term |
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Annual Compensation |
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Compensation Awards(i) |
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Bonus |
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Shares Underlying |
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(Executive |
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Options |
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Performance |
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Other Annual |
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Restricted |
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Granted/Stock |
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All Other |
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Salary |
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Award)(ii) |
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Compensation |
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Share Units |
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Price Appreciation |
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Compensation |
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Name and Principal Position |
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Year |
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(In $) |
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(In $) |
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(In $)(iii) |
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(CAN$) |
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Units(iv (#)) |
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(In $) |
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Brian W. Sturgell,
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2004 |
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781,200 |
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932,257 |
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280,686 |
(v) |
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0 |
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221,100 |
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41,301 |
(vi) |
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Director and Chief
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2003 |
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600,000 |
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561,845 |
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254,115 |
(v) |
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404,815 |
(vii) |
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69,600 |
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29,679 |
(vi) |
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Executive Officer
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Martha Finn Brooks,
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2004 |
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514,400 |
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631,538 |
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50,723 |
(viii) |
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0 |
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78,600 |
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14,666 |
(ix) |
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Chief Operating Officer
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2003 |
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440,000 |
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445,608 |
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32,661 |
(viii) |
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0 |
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36,000 |
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16,440 |
(ix) |
Chris Bark-Jones,
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2004 |
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440,600 |
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395,210 |
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43,892 |
(x) |
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0 |
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64,200 |
(xi) |
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0 |
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Senior Vice President and |
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2003 |
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375,000 |
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465,972 |
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9,659 |
(x) |
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0 |
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27,600 |
(xi) |
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8,348 |
(xii) |
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President Europe |
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Pierre Arseneault,
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2004 |
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300,000 |
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257,731 |
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37,285 |
(xiii) |
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0 |
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23,700 |
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12,214 |
(xiv) |
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Vice President |
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2003 |
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272,000 |
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186,045 |
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23,145 |
(xiii) |
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0 |
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9,900 |
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10,880 |
(xiv) |
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Strategic Planning and
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Information Technology
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Jack Morrison,
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2004 |
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251,088 |
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206,150 |
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329,512 |
(xv) |
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0 |
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15,000 |
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12,346 |
(xvi) |
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Senior Vice President and |
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2003 |
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239,013 |
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145,290 |
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292,892 |
(xv) |
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0 |
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8,400 |
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13,588 |
(xvi) |
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President Asia |
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(i) |
There were no long term incentive plan payouts. |
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(ii) |
Alcans executive performance award plan, or EPA Plan, has
two components, each based on a different aspect of performance:
(1) the profitability of Alcan as measured by economic
value added, or EVA (a registered trademark of Stern
Stewart & Co.), and (2) the performance of Alcan
relative to environment, health and safety, or EHS, objectives.
For each position a target award is set (expressed as
percent of target base salary) reflecting both the
responsibilities of the position and the competitive
compensation levels. The first component is 90% of the incentive
compensation opportunity of an executive and is based on the
overall profitability of Alcan as measured against the
quantifiable financial metric EVA. The incentive compensation
for executive officers who are part of Alcans corporate
head office is contingent upon performance versus the
pre-established EVA target for Alcan, while the incentive
compensation for executive officers who are responsible for a
business group is contingent on meeting the pre-established EVA
objectives of their respective business group. The second
component is 10% of the incentive compensation opportunity of an
executive and is based on the achievement of the EHS objectives
as measured against pre-established targets. The overall award
paid is the sum of the weighted results of each component (i.e.,
EVA and EHS) modified by the rating for the individual
performance and contribution to Alcan. The award paid may vary
from zero when the results achieved are less than the minimum
threshold set by Alcans human resources committee, to 200%
of the target award when the results achieved are at or exceed
the maximum level which was set by Alcans human resources
committee. |
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(iii) |
Included in this column for one or more executive officers are
amounts relating to professional financial advice, club
memberships, tax equalization (amounts paid such that net income
after taxes was not less than it would have been in the United
States), expatriate-related compensation, relocation allowances
and housing (including interest on housing-related loans
transferred to third party financial institutions). |
110
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(iv) |
See Grants of Alcan Stock Price Appreciation
Units below for a description of the stock price
appreciation unit plan. The Alcan executive share option plan
provides for the granting to senior employees of
non-transferable options to purchase Alcan common shares.
Certain executive officers and other management employees of
Alcan have received over the years options under one or more of
the six classes of Alcan options, namely A, B, C, D, E and F
Options. With respect to the five executive officers named
in the table above, only the C Options are applicable for the
years 2004 and 2003. See Grants of Alcan Stock
Options below for a description of the C Options. |
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(v) |
Amounts include $254,756 (in 2004) and $219,155 (in 2003) for
tax equalization. |
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(vi) |
Amounts for 2004 include $27,225 in respect of savings plans and
$14,076 in respect of life insurance. Amounts for 2003 include
$25,875 in respect of savings plans and $3,804 in respect of
life insurance. |
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(vii) |
Granted as 7,175 Alcan restricted share units based on the
market value of the Alcan shares on the date of grant, which was
CAN$56.42. Alcan employees who became Novelis employees at the
separation and who held restricted share units were entitled to
receive a payment of the value of those units from Alcan. |
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(viii) |
Amounts for 2004 include $18,211 for tax equalization. Amounts
for 2003 include $11,520 in a plan for professional financial
advice and for club membership fees and $13,033 for housing
assistance. |
|
(ix) |
Amounts for 2004 include $12,902 in respect of savings plans and
$1,764 in respect of life insurance. Amounts for 2003 include
$15,480 in respect of savings plans and $960 in respect of life
insurance. |
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(x) |
Amounts for 2004 include $38,015 for exchange rate equalization.
Amounts for 2003 include $4,839 for automobile usage and $3,217
for professional financial advice. |
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(xi) |
Granted as Alcan stock price appreciation units, or SPAUs. |
(xii) Amount relates to tuition for training programs.
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(xiii) |
Amounts for 2004 include $23,341 for expatriate-related
compensation. Amounts for 2003 include $7,008 in a plan for
professional financial advice and club membership fees. |
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(xiv) |
Amounts for 2004 include $10,804 in respect of savings plans and
$1,410 in respect of life insurance. Amounts for 2003 include
$9,240 in respect of savings plans and $1,640 in respect of life
insurance. |
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(xv) |
Amounts for 2004 include $132,763 for housing expenses and
$110,422 for expatriate-related compensation. Amounts for 2003
include $146,081 for housing expenses and $110,574 for
expatriate-related compensation. |
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(xvi) |
Amounts for 2004 include $11,119 in respect of savings plans and
$1,227 in respect of life insurance. Amounts for 2003 include
$12,149 in respect of savings plans and $1,439 in respect of
life insurance. |
In addition to benefits under stock option or stock price
appreciation unit plans, compensation benefits made available to
senior employees will include (1) retirement benefit plans,
(2) life insurance plans, (3) savings plans,
(4) plans for the use of automobiles, (5) plans for
professional financial advice and for club membership fees, and
(6) in applicable cases, expatriate benefits, tax
equalization payments and housing assistance.
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Grants of Alcan Stock Options
|
The Alcan executive share option plan provides for the granting
to senior employees of non-transferable options to purchase
Alcan common shares. Throughout the years, various series with
each its own conditions have been granted to senior employees.
Since September 23, 1998, the Alcan executive
111
share option plan has provided for options referred to as C
Options. C Options are the only class of Alcan options
applicable for the executive officers named in the compensation
table under Executive Compensation for
2004 and 2003. The exercise price per Alcan common share under C
Options is set at not less than 100% of the market value of the
Alcan common share on the effective date of the grant of each C
Option. The C Option is exercisable (not earlier than three
months after the effective date) in respect of one-third of the
grant when the market value of the Alcan common share has
increased by 20% over the exercise price, two-thirds of the
grant when the market value of the Alcan common share has so
increased by 40% and the entire amount of the grant when the
market value of the Alcan common share has so increased by 60%.
The market value of Alcan common shares must exceed those
thresholds for at least 21 consecutive trading days. Those
thresholds are waived 12 months prior to the expiry date,
which is 10 years after the effective date. In the event of
death or retirement, any remainder of this 10-year period in
excess of five years is reduced to five years, and the relevant
thresholds are waived.
The following table shows all grants of options to purchase
Alcan common shares granted to the executive officers named in
the compensation table under Executive
Compensation above for the year ended December 31,
2004 under the Alcan executive share option plan.
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Potential Realizable Value at |
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Percentage of |
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Assumed Annual Rates of |
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Shares |
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Total Options |
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Share Price Appreciation for |
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Under |
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Granted to Alcan |
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Option Term (CAN$)(ii) |
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Option |
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Employees in |
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Exercise Price |
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Name |
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Granted (#) |
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2004 |
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(CAN$/Share) |
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Expiration Date |
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5% |
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10% |
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B. W. Sturgell
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(i)221,100 |
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8.3 |
% |
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58.15 |
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September 21, 2014 |
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8,085,676 |
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20,490,691 |
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M. F. Brooks
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(i) 78,600 |
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2.9 |
% |
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58.15 |
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September 21, 2014 |
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2,874,419 |
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7,284,343 |
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P. Arseneault
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(i) 23,700 |
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0.9 |
% |
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58.15 |
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September 21, 2014 |
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|
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866,714 |
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2,196,424 |
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J. Morrison
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(i) 15,000 |
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0.6 |
% |
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58.15 |
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September 21, 2014 |
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548,553 |
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1,390,142 |
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(i) |
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Date of grant: September 22, 2004. |
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(ii) |
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Reflects the value of the stock option on the date of grant
assuming (1) for the 5% column, a 5% annual rate of
appreciation in Alcan common shares over the term of the option
and (2) for the 10% column, a 10% annual rate of
appreciation in Alcan common shares over the term of option, in
each case without discounting to net present value and before
income taxes associated with the exercise. The 5% and 10%
assumed rates of appreciation are based on the rules of the SEC
and do not represent our estimate or projection of the future
price of Alcan common shares. The amounts in this table may not
necessarily be achieved. |
112
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Exercise of Alcan Stock Options
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The following table shows aggregate exercises of options to
purchase Alcan common shares in the fiscal year ended
December 31, 2004 by the executive officers named in the
compensation table under Executive
Compensation above.
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Value of Unexercised |
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Shares Underlying |
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In-the-Money |
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Shares |
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Value |
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Unexercised |
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Options at |
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Acquired on |
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Realized |
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Options at |
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December 31, 2004(i) |
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Name |
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Exercise (#) |
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(CAN$) |
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Dec. 31, 2004(i) (#) |
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(CAN$) |
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B. W. Sturgell
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167,450 |
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2,734,759 |
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E: 0 |
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E: 0 |
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U: 379,700 |
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U: 1,945,328 |
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M. F. Brooks
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25,934 |
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561,082 |
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E: 45,334 |
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E: 13,147 |
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U: 150,232 |
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U: 560,170 |
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C. Bark-Jones
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10,367 |
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156,618 |
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E: 0 |
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E: 0 |
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U: 2,333 |
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U: 29,372 |
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P. Arseneault
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11,134 |
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216,628 |
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E: 0 |
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E: 0 |
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|
|
|
|
|
|
|
|
|
|
U: 44,866 |
|
|
|
U: 254,768 |
|
J. Morrison
|
|
|
39,300 |
|
|
|
575,712 |
|
|
|
E: 0 |
|
|
|
E: 0 |
|
|
|
|
|
|
|
|
|
|
|
|
U: 35,300 |
|
|
|
U: 235,853 |
|
|
|
(i) |
E: Exercisable U: Unexercisable |
The above table summarizes, for each of the executive officers,
(1) the number of Alcan common shares acquired by options
exercised during 2004, (2) the aggregate value realized
upon exercise, which is the difference between the market value
of the underlying shares on the exercise date and the exercise
price of the option, (3) the total number of shares
underlying unexercised options held at December 31, 2004
and (4) the aggregate value of unexercised in-the-money
options at December 31, 2004, which is the difference
between the exercise price of the options and the market value
of the shares on December 31, 2004, which was
CAN$58.97 per share. The aggregate values indicated with
respect to unexercised in-the-money options at year-end have not
been, and may never be, realized. These options have not been,
and may never be exercised, and actual gains, if any, on
exercise will depend on the value of the shares on the date of
exercise.
|
|
|
Treatment of Alcan Stock Options
|
As of the separation date, we replaced all of the options
granted under the Alcan Executive Share Option Plan held by
employees of Alcan immediately prior to the separation who
became our employees, including our executive officers, with
options to purchase our common shares. As of June 30, 2005
our employees held stock options covering 2,719,814 common
shares at a weighted average exercise price per share of $21.58.
Under the Alcan Executive Share Option Plan, options vested
based upon Alcans stock price performance. All converted
options that were vested on the separation date continued to be
vested. Any that were unvested will vest in four equal
installments on the anniversary of the separation date on each
of the next four years. In the case of an unsolicited change of
control of our company, vesting will accelerate. At
June 30, 2005, 322,106 of these options were exercisable at
a weighted average exercise price of $20.09.
|
|
|
Alcan Stock Price Appreciation Units
|
|
|
|
Grants of Alcan Stock Price Appreciation Units
|
The Alcan stock price appreciation unit plan, or SPAU Plan,
provides for the granting to senior employees of Alcan stock
price appreciation units, or SPAUs. The SPAU Plan is
administered by the Alcan human resources committee. A SPAU is a
right to receive cash in an amount equal to the excess of
113
|
|
|
|
|
the market value of Alcan common shares on the date of exercise
of a SPAU over the market value of Alcan common shares as of the
date of grant of such SPAU. SPAUs may be exercised in the same
manner as C Options, described above. Grants are made under the
SPAU Plan instead of under the Alcan executive share option plan
due to certain local conditions of countries of the
employees residence. |
The following table shows all grants of SPAUs granted to the
executive officers named in the compensation table under
Executive Compensation above for the
year ended December 31, 2004 under the SPAU Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Realizable Value at |
|
|
|
Shares |
|
|
Percentage of |
|
|
Exercise Price |
|
|
|
|
Assumed Rates of Share |
|
|
|
Granted |
|
|
Total SPAUs |
|
|
and Market |
|
|
|
|
Price Appreciation for |
|
|
|
Under |
|
|
Granted to |
|
|
Value on Date |
|
|
|
|
Option Term (CAN$)(ii) |
|
|
|
SPAUs |
|
|
Employees in |
|
|
of Grant |
|
|
|
|
|
|
Name |
|
(#) |
|
|
2004 |
|
|
(CAN$/Share) |
|
|
Expiration Date |
|
|
5% |
|
|
10% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C. Bark-Jones
|
|
|
64,200 |
|
|
|
23.4 |
% |
|
|
58.15 |
|
|
|
September 21, 2014 |
|
|
|
2,347,808 |
|
|
|
5,949,807 |
|
|
|
(i) |
Date of grant: September 22, 2004 |
|
|
|
(ii) |
|
Reflects the value of the SPAU on the date of grant assuming
(1) for the 5% column, a 5% annual rate of appreciation in
Alcan common shares over the term of the option and (2) for
the 10% column, a 10% annual rate of appreciation in Alcan
common shares over the term of the SPAU, in each case without
discounting to net present value and before income taxes
associated with the exercise. The 5% and 10% assumed rates of
appreciation are based on the rules of the SEC and do not
represent our estimate or projection of the future price of
Alcan common shares. The amounts in this table may not
necessarily be achieved. |
|
|
|
Exercise of Alcan Stock Price Appreciation Units
|
The following table shows aggregate exercises of SPAUs in the
fiscal year ended December 31, 2004 by the executive
officers named in the compensation table under
Executive Compensation above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of |
|
|
|
|
|
|
|
|
|
Unexercised |
|
|
|
|
|
Aggregate |
|
|
Unexercised |
|
|
In-the-Money |
|
|
|
SPAUs |
|
|
Value |
|
|
SPAUs at |
|
|
SPAUs at |
|
|
|
Exercised |
|
|
Realized |
|
|
December 31, 2004(i) |
|
|
December 31, 2004 |
|
Name |
|
(#) |
|
|
(CAN$) |
|
|
(#) |
|
|
(CAN$)(i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C. Bark-Jones
|
|
|
23,434 |
|
|
|
521,503 |
|
|
|
E: 0 |
|
|
|
E: 0 |
|
|
|
|
|
|
|
|
|
|
|
|
U: 107,766 |
|
|
|
U: 504,985 |
|
|
|
(i) |
E: Exercisable U: Unexercisable |
The above table summarizes, for Mr. Bark-Jones (1) the
number of SPAUs exercised during 2004, (2) the aggregate
value realized upon exercise, which is the difference between
the market value of the underlying shares on the exercise date
and the exercise price of the SPAUs, (3) the total number
of SPAUs unexercised held at December 31, 2004 and
(4) the aggregate value of unexercised in-the-money SPAUs
at December 31, 2004, which is the difference between the
exercise price of the SPAUs and the market value of the shares
on December 31, 2004 which was CAN$58.97 per share.
The aggregate values indicated with respect to unexercised
in-the-money SPAUs at fiscal year-end have not been, and may
never be, realized. These SPAUs have not been, and may never be
exercised, and actual gains, if any, on exercise will depend on
the value of the shares on the date of exercise.
|
|
|
Treatment of Alcan Stock Price Appreciation Units
|
As of the separation date, we replaced all of the Alcan stock
price appreciation units held by employees of Alcan immediately
prior to the separation who became our employees, including our
executive officers, with our stock price appreciation units. As
of June 30, 2005 our employees held approximately 418,777
stock price appreciation units at a weighted average exercise
price per SPAU of $22.04.
114
|
|
|
Alcan Total Shareholder Return Performance Plan
|
The Alcan total shareholder return performance plan, or TSR
Plan, is a cash incentive plan that provides performance awards
to eligible employees based on the Alcan share price and
cumulative dividend yield performance relative to the
performance of the companies included in the S&P Industrials
Composite Index over a three-year period. The award amount, if
any, is based on Alcans relative total shareholder return
performance, as defined in the TSR Plan, and ranking of Alcan
against the other companies in the S&P Industrials Composite
Index at the end of the performance period. If Alcans
total shareholder return performance ranks below the 30th
percentile, the employee will not receive any award for that
performance period. At the 30th percentile rank, the employee
will be paid an award equal to 60% of the target for that
performance period. At the 50th percentile rank, the employee
will earn a payout of 100% of the target, and at or above the
75th percentile rank, the employee will earn a payout of 300%,
which is the maximum payout. The actual amount of award (if any)
will be prorated between the percentile rankings. No amounts
were awarded to the executive officers named in the compensation
table under Executive Compensation above
under the TSR Plan in 2004.
|
|
|
Treatment of Incentives Granted under the Alcan Total
Shareholder Return Performance Plan
|
As of the separation date, our employees who were eligible to
participate in the TSR Plan ceased to actively participate in,
and accrue benefits under, the TSR Plan. The current three-year
performance periods, namely 2002 to 2005 and 2003 to 2006, were
truncated as of the date of the separation. The accrued award
amounts for each participant in the TSR were converted into
restricted share units in our company, which will vest at the
end of each performance period, 2005 or 2006, as applicable. At
the end of each performance period, each holder of restricted
share units will receive the net proceeds based on our common
share price at that time, including declared dividends.
|
|
|
Novelis Pension and Retirement Benefits Plans
|
Pension Plan for Officers. Our human resources committee
designates participants to the pension plan for officers, or
PPO. This plan provides for pensions calculated on service up to
20 years as an officer of our company or of Alcan and
eligible earnings which consist of the excess of the average
annual salary and target short term incentive award during the
60 consecutive months when they were the greatest over eligible
earnings in the U.S. Plan or the U.K. Plan, as applicable.
Both the U.S. Plan and U.K. Plan are described below. Each
provides for a maximum on eligible earnings that is set with
reference to the position of the officer prior to being
designated a PPO participant. The following table shows the
percentage of eligible earnings in the PPO, payable upon normal
retirement age after 60 according to years of service as an
officer of our company or of Alcan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years as Officer |
|
|
|
5 |
|
|
10 |
|
|
15 |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
15% |
|
|
|
30% |
|
|
|
40% |
|
|
|
50% |
|
The normal form of payment of pensions is a lifetime annuity.
Pensions are not subject to any deduction for social security or
other offset amounts.
Brian W. Sturgell and Christopher Bark-Jones are currently the
only participants in the PPO. At age 65, the estimated
credited years of service for Mr. Sturgell would be
approximately 18 years and the estimated credited years of
service for Mr. Bark-Jones would be approximately
10 years. Eligible earnings under the PPO for 2004 for
Mr. Sturgell were $306,420 and were $175,570 for
Mr. Bark-Jones.
U.S. Plan. During 2005, those of our employees
previously participating in the Alcancorp Pension Plan and the
Alcan Supplemental Executive Retirement Plan (collectively
referred to as the U.S. Plan) will receive up to one year
of additional service under each plan to the extent that such
employees
115
continue to be employed by us during the year. We will pay Alcan
the normal cost (in the case of the Alcancorp Pension Plan) and
the current service cost (in the case of the Alcan Supplemental
Executive Retirement Plan) with respect to those employees. The
U.S. Plan provides for pensions calculated on service with
us or Alcan of up to 35 years. Eligible earnings consist of
the average annual salary and the short term incentive award up
to its target during the 3 consecutive calendar years when they
were the greatest, subject to a cap for those participating in
the PPO.
The following table shows estimated retirement benefits,
expressed as a percentage of eligible earnings, payable upon
normal retirement at age 65 according to years of service.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years of Service |
|
|
|
10 |
|
|
15 |
|
|
20 |
|
|
25 |
|
|
30 |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17% |
|
|
|
25% |
|
|
|
34% |
|
|
|
42% |
|
|
|
51% |
|
|
|
59% |
|
The normal form of payment of pensions is a lifetime annuity
with either a guaranteed minimum of 60 monthly payments or
a 50% lifetime pension to the surviving spouse.
At age 65, the estimated credited years of service for
Brian W. Sturgell, Martha Finn Brooks, Pierre Arseneault
and Jack Morrison would be approximately 25 years,
22 years, 40 years and 36 years, respectively.
Eligible earnings under the plan for 2004 for Mr. Sturgell,
Ms. Brooks, Mr. Arseneault and Mr. Morrison were
$928,980, $823,850, $455,595 and $380,088, respectively.
Individual Pension Undertakings. In addition to
participation in the U.S. Plan described above, Martha Finn
Brooks will receive from us a supplemental pension equal to the
excess, if any, of the pension she would have received from her
employer prior to joining Alcan had she been covered by this
employers pension plan until her termination/retirement
from our company, over the sum of her pension from the
U.S. Plan and the pension rights actually accrued with her
previous employer.
As a rehired retiree of Alcan, Geoffrey Batt continues to
receive monthly pension benefits in respect of his former
service with Alcan, and he is eligible for a supplemental
retirement benefit based on his service with us for as long as
we retain a defined benefit pension plan.
U.K. Plan. The U.K. Plan, which was transferred to us
from Alcan in connection with the separation, provides for
pensions calculated on service of up to 40 years and
eligible earnings, which consist of the average annual salary
and the short term incentive award up to its target during the
last 12 months before retirement, subject to a cap for
those participating in the PPO.
The following table shows estimated retirement benefits,
expressed as a percentage of eligible earnings, payable upon
normal retirement at age 65 according to years of service.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years of Service |
|
|
|
10 |
|
|
15 |
|
|
20 |
|
|
25 |
|
|
30 |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17% |
|
|
|
26% |
|
|
|
35% |
|
|
|
43% |
|
|
|
52% |
|
|
|
60% |
|
The normal form of payment of pensions is a lifetime annuity
with a guaranteed minimum of 60 monthly payments and a 60%
lifetime pension to the surviving spouse.
Christopher Bark-Jones is the only executive officer entitled to
participate in the U.K. Plan. At age 65, the estimated
credited years of service for Mr. Bark-Jones would be
approximately 34 years and his eligible earnings in 2004
were $494,700.
We have entered into employment agreements with Brian W.
Sturgell, our chief executive officer, Martha Finn Brooks, our
chief operating officer, Chris Bark-Jones, president of our
European operations, Pierre Arseneault, our vice president
strategic planning and information technology, Geoffrey P. Batt,
our chief financial officer, Jack Morrison, president of our
Asian operations and other executive officers, setting out the
terms and conditions of their employment. Under their respective
employment agreements, Brian W. Sturgell will be entitled to a
base salary of $985,000, Martha Finn Brooks will be entitled to a
116
base salary of $655,000, Chris Bark-Jones will be entitled to a
base salary of $440,611, Pierre Arseneault will be entitled to a
base salary of $300,000, Geoffrey P. Batt will be entitled to a
base salary of $460,000 and Jack Morrison will be entitled to a
base salary of $277,000 with an expatriate premium of $27,700.
Each of these officers will also be entitled to annual bonus,
long term incentives and other types of compensation that
reflect the competitive level of similar positions in the
compensation peer groups and that are expected to be similar to
the benefits they received from Alcan. The companies identified
as part of our peer group are comparable to us in terms of size
and industry sector.
Certain of our executive officers also have entered into change
of control agreements that provide for payment upon the
termination of the executive officers employment with us
by us without cause or by the executive officer for good reason.
Except in the case of Brian W. Sturgell, upon the occurrence of
such an event, the executive would be entitled to an amount
equal to 24 months of their base salary and target short
term incentive award and other applicable incentive plan
guideline amounts. Brian W. Sturgell would be entitled to an
amount equal to 36 months of his base salary and target
short term incentive award and other applicable incentive plan
guideline amounts. In the case of executive officers other than
Brian W. Sturgell, change in control provisions will expire
after 24 months of employment with us, and in the case of
Brian W. Sturgell, after 12 months.
On July 1, 2002, Alcancorp, a wholly-owned subsidiary of
Alcan Inc., entered into a Deferred Share Agreement with Martha
Finn Brooks pursuant to which Alcancorp agreed to grant to
Ms. Brooks 33,500 shares of Alcan common stock on
August 1, 2005, the date of her third anniversary of
employment, as compensation for the loss by Ms. Brooks of
accrued benefits and unvested restricted stock at her former
employer. In connection with our separation from Alcan, on
January 6, 2005, we assumed Alcancorps obligations
under the Deferred Share Agreement and the 33,500 shares of
Alcan common stock to be granted were converted into
66,477.4 shares of our common stock. On July 27, 2005,
the Deferred Share Agreement was amended to provide that we
will, in lieu of granting Ms. Brooks 66,477.4 shares
of our common stock, pay Ms. Brooks cash in an amount equal
to the value of such shares based on the closing price of such
shares on the New York Stock Exchange on August 1, 2005,
subject to applicable withholding taxes.
117
OWNERSHIP OF OUR STOCK
The following table sets forth information with respect to the
beneficial ownership of our outstanding common shares as of
June 30, 2005, by:
|
|
|
|
|
each person who is known by us to be the beneficial owner of
5 percent or more of our common shares; |
|
|
|
each director, each director nominee, our chief executive
officer and our four other most highly compensated officers
identified in Management Executive
Compensation above; and |
|
|
|
all of our directors, director nominees and executive officers
as a group. |
Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power
with respect to securities. Common shares and options, warrants
and convertible securities that are currently exercisable or
convertible within 60 days of June 30, 2005 into our
common shares are deemed to be outstanding and to be
beneficially owned by the person holding the options, warrants
or convertible securities for the purpose of computing the
percentage ownership of the person, but are not treated as
outstanding for the purpose of computing the percentage
ownership of any other person.
Except as otherwise noted in the footnotes below, the individual
director or executive officer or the director or executive
officers family member identified below has sole voting
and investment power with respect to such securities. As of
June 30, 2005, we had 73,993,006 shares outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
Our Common |
|
|
|
|
|
Shares |
|
|
|
|
|
Beneficially |
|
|
Percentage of |
|
Name and Address of Beneficial Owner* |
|
Owned |
|
|
Class |
|
|
|
|
|
|
|
|
FMR Corp.(i)
|
|
|
7,827,454 |
|
|
|
10.579 |
% |
|
82 Devonshire Street |
|
|
|
|
|
|
|
|
|
Boston, MA 02109 |
|
|
|
|
|
|
|
|
Brian W. Sturgell,
|
|
|
17,684 |
|
|
|
** |
|
|
Director and Chief Executive Officer(ii) |
|
|
|
|
|
|
|
|
J.E. Newall, O.C.,
|
|
|
29,234 |
|
|
|
** |
|
|
Non-Executive Chairman of the Board(iii) |
|
|
|
|
|
|
|
|
Jacques Bougie, O.C.,
|
|
|
3,221 |
|
|
|
** |
|
|
Director(iv) |
|
|
|
|
|
|
|
|
Charles G. Cavell,
|
|
|
1,664 |
|
|
|
** |
|
|
Director(v) |
|
|
|
|
|
|
|
|
Clarence J. Chandran,
|
|
|
4,021 |
|
|
|
** |
|
|
Director(vi) |
|
|
|
|
|
|
|
|
C. Roberto Cordaro,
|
|
|
1,610 |
|
|
|
** |
|
|
Director(vii) |
|
|
|
|
|
|
|
|
Helmut Eschwey,
|
|
|
1,610 |
|
|
|
** |
|
|
Director(viii) |
|
|
|
|
|
|
|
|
David J. FitzPatrick,
|
|
|
6,068 |
|
|
|
** |
|
|
Director(ix) |
|
|
|
|
|
|
|
|
Suzanne Labarge,
|
|
|
4,879 |
|
|
|
** |
|
|
Director(x) |
|
|
|
|
|
|
|
|
William T. Monahan,
|
|
|
4,610 |
|
|
|
** |
|
|
Director(xi) |
|
|
|
|
|
|
|
|
Rudolf Rupprecht,
|
|
|
1,664 |
|
|
|
** |
|
|
Director(xii) |
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
Our Common |
|
|
|
|
|
Shares |
|
|
|
|
|
Beneficially |
|
|
Percentage of |
|
Name and Address of Beneficial Owner* |
|
Owned |
|
|
Class |
|
|
|
|
|
|
|
|
Edward V. Yang,
|
|
|
1,664 |
|
|
|
** |
|
|
Director(xiii) |
|
|
|
|
|
|
|
|
Martha Finn Brooks,
|
|
|
95,960 |
|
|
|
** |
|
|
Chief Operating Officer(xiv)) |
|
|
|
|
|
|
|
|
Chris Bark-Jones,
|
|
|
20 |
|
|
|
** |
|
|
Senior Vice President and President Europe(xv) |
|
|
|
|
|
|
|
|
Pierre Arseneault,
|
|
|
0 |
|
|
|
0 |
% |
|
Vice President Strategic Planning and Information Technology(xvi) |
|
|
|
|
|
|
|
|
Jack Morrison,
|
|
|
0 |
|
|
|
0 |
% |
|
Senior Vice President and President Asia(xvii) |
|
|
|
|
|
|
|
|
Directors and executive officers as a group (26 persons)(xviii)
|
|
|
228,321 |
|
|
|
** |
|
|
|
|
|
* |
The address for each individual listed is c/o Novelis Inc.,
3399 Peachtree Road NE, Suite 1500, Atlanta, GA 30326. |
|
|
** |
Indicates less than 1% of the class. |
|
(i) |
The following information is based on the Schedule 13G,
filed on June 10, 2005 with the Securities and Exchange
Commission by FMR Corp. Fidelity Management & Research
Company (Fidelity), 82 Devonshire Street, Boston,
Massachusetts 02109, a wholly-owned subsidiary of FMR Corp., is
the beneficial owner of 5,253,892 common shares as a result of
acting as investment adviser to various investment companies.
The ownership of one investment company, FA Mid Cap Stock Fund,
82 Devonshire Street, Boston, Massachusetts 02109, amounted to
5,211,460 shares. Edward C. Johnson 3d, FMR Corp., through
its control of Fidelity, and the funds each has sole power to
dispose of the 5,253,892 shares owned by the Funds. Neither
FMR Corp., nor Edward C. Johnson 3d, Chairman of FMR Corp.,
has the sole power to vote or direct the voting of the shares
owned directly by the Fidelity Funds, which power resides with
the Funds Boards of Trustees. Fidelity carries out the
voting of the shares under written guidelines established by the
Funds Boards of Trustees. Fidelity Management Trust
Company, 82 Devonshire Street, Boston, Massachusetts 02109,
a wholly-owned subsidiary of FMR Corp., is the beneficial owner
of 1,604,362 common shares as a result of its serving as
investment manager of the institutional account(s). Edward C.
Johnson 3d and FMR Corp., through its control of Fidelity
Management Trust Company, each has sole dispositive power over
1,604,362 shares and sole power to vote or to direct the
voting of 1,604,362 shares owned by the institutional
account(s). Members of the Edward C. Johnson 3d family are the
predominant owners of Class B shares of common stock of FMR
Corp., representing approximately 49% of the voting power of FMR
Corp. Mr. Johnson 3d owns 12.0% and Abigail Johnson owns
24.5% of the aggregate outstanding voting stock of
FMR Corp. Abigail Johnson is a Director of FMR Corp. The
Johnson family group and all other Class B shareholders
have entered into a shareholders voting agreement under
which all Class B shares will be voted in accordance with
the majority vote of Class B shares. Accordingly, through
their ownership of voting common stock and the execution of the
shareholders voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of 1940,
to form a controlling group with respect to FMR Corp. Fidelity
International (FIL), Pembroke Hall, 42 Crowlane,
Hamilton, Bermuda, and various foreign-based subsidiaries
provide investment advisory and management services to a number
of non-U.S. investment companies and certain institutional
investors. FIL is the beneficial owner of 969,200 common shares
and has the sole power to vote and dispose of such shares. FMR
Corp. and FIL are of the view that they are not acting as a
group for purposes of Section 13(d) under the
Securities Exchange Act of 1934 and that they are not otherwise
required to attribute to each other the beneficial
ownership of |
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securities beneficially owned by the other
corporation within the meaning of Rule 13d-3 under the
Securities Exchange Act. The Schedule 13G states that FMR
Corp. is making the filing on a voluntary basis as if all the
shares are beneficially owned by FMR Corp. and FIL on a joint
basis. |
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(ii) |
Does not include options to purchase 753,477 of our shares
that are not currently exercisable and are not exercisable
within 60 days. |
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(iii) |
Includes 20,800 common shares held by Waskesiu East Holdings
Inc., the shares of which are held by Mr. Newall and his
children. Includes approximately 7,516 directors
deferred share units, or DDSUs, that become redeemable only upon
termination of the directorship as a result of retirement,
resignation or death. See Management Director
Compensation. |
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(iv) |
Includes approximately 3,221 DDSUs that become redeemable only
upon termination of the directorship as a result of retirement,
resignation or death. See Management Director
Compensation. |
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(v) |
Includes approximately 1,664 DDSUs that become redeemable only
upon termination of the directorship as a result of retirement,
resignation or death. See Management Director
Compensation. |
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(vi) |
Includes approximately 3,221 DDSUs that become redeemable only
upon termination of the directorship as a result of retirement,
resignation or death. See Management Director
Compensation. |
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(vii) |
Includes approximately 1,610 DDSUs that become redeemable only
upon termination of the directorship as a result of retirement,
resignation or death. See Management Director
Compensation. |
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(viii) |
Includes approximately 1,610 DDSUs that become redeemable only
upon termination of the directorship as a result of retirement,
resignation or death. See Management Director
Compensation. |
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(ix) |
Includes approximately 1,068 DDSUs that become redeemable only
upon termination of the directorship as a result of retirement,
resignation or death. See Management Director
Compensation. |
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(x) |
Includes approximately 1,879 DDSUs that become redeemable only
upon termination of the directorship as a result of retirement,
resignation or death. See Management Director
Compensation. |
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(xi) |
Includes approximately 1,610 DDSUs that become redeemable only
upon termination of the directorship as a result of retirement,
resignation or death. See Management Director
Compensation. |
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(xii) |
Includes approximately 1,664 DDSUs that become redeemable only
upon termination of the directorship as a result of retirement,
resignation or death. See Management Director
Compensation. |
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(xiii) |
Includes approximately 1,664 DDSUs that become redeemable only
upon termination of the directorship as a result of retirement,
resignation or death. See Management Director
Compensation. |
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(xiv) |
Includes options to purchase 89,960 of our common shares
that are currently exercisable. Does not include options to
purchase 298,121 of our shares that are not currently
exercisable and are not exercisable within 60 days. |
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(xv) |
Does not include options to purchase 4,630 of our shares
that are not currently exercisable and are not exercisable
within 60 days. |
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(xvi) |
Does not include options to purchase 89,032 of our shares
that are not currently exercisable and are not exercisable
within 60 days. |
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(xvii) |
Does not include options to purchase 70,049 of our shares
that are not currently exercisable and are not exercisable
within 60 days. |
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(xviii) |
Our directors and executive officers as a group hold 55,648 of
our shares. 300 of such shares are shares over which the officer
has sole investment power but does not have voting power. Our
directors and executive officers as a group hold options to
purchase 142,946 of our shares that are currently
exercisable or are exercisable within 60 days. Our
directors as a group hold approximately 26,727 DDSUs that become
redeemable only upon termination of the directorship as a result
of retirement, resignation or death. Our directors and executive
officers as a group hold options to purchase 1,476,248 of
our shares that are not currently exercisable and are not
exercisable within 60 days. |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Some of our directors and executive officers own Alcan common
shares and vested Alcan options or are employees or former
employees of Alcan. Ownership of Alcan common shares and Alcan
shares by our directors and officers could create, or appear to
create, potential conflicts of interest for such directors and
officers when faced with decisions that could have disparate
implications for Alcan and us.
Alcan Aluminum Corporation, or Alcancorp, a wholly-owned
subsidiary of Alcan (now known as Novelis Corporation),
established a real estate loan program to assist relocating
employees in the United States. Under the program, an
employee was permitted to obtain an interest-free loan from
Alcancorp, the proceeds of which were to be used only to
purchase a new principal residence. The loan is secured by a
mortgage on the new principal residence. On July 1, 2003,
Jo-Ann Longworth, our Vice President and Controller following
the separation, received a loan from Alcancorp in the amount of
$75,000 under this program. As of December 31, 2004, the
amount outstanding under the loan was $73,125. The largest
amount outstanding under the loan in 2004 was $75,000. On
August 9, 2000, Pierre Arseneault, our Vice President,
Strategic Planning and Information Technology following the
separation, received a loan from Alcancorp in the amount of
$75,000 under this program. As of December 31, 2004, the
amount outstanding under the loan was $58,342. The largest
amount outstanding under the loan in 2004 was $63,748. In
connection with our separation from Alcan, these loans were
transferred to a third-party bank, at which point they became
interest-bearing loans. We will pay the interest on these loans.
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DESCRIPTION OF MATERIAL INDEBTEDNESS
In connection with the reorganization transactions, we and
certain of our subsidiaries entered into senior secured credit
facilities providing for aggregate loans of up to
$1.8 billion. These facilities consist of a
$1.3 billion seven-year senior secured Term Loan B
facility, all of which we borrowed upon our separation from
Alcan, and a $500 million five-year multi-currency
revolving credit facility, none of which was borrowed in
connection with the reorganization transactions. The Term
Loan B facility consists of an $825 million
U.S. Term Loan B and a $475 million Canadian Term
Loan B. The proceeds from the Term Loan B facility
were used in connection with the reorganization transactions and
our separation from Alcan and to pay related fees and expenses.
Borrowings under the revolving credit facility will be used for
working capital and general corporate purposes. As of
June 30, 2005, no amounts were outstanding under the
revolving credit facility.
The revolving credit facility and the Term Loan B
facilities have maturities of 5 years and 7 years,
respectively. The Term Loan B facility will amortize in
quarterly installments in an amount equal to 1% per annum
for the first six years and nine months with the balance due at
maturity. We made an optional prepayments totaling
$175 million of the Term Loan B in the first half of
fiscal year 2005 and applied the prepayment against our
amortization requirements in chronological order. Required
amortization under the Canadian Term Loan B, including
amounts due under any mandatory prepayments, will be limited
such that no more that 25% of the initial amount of the Canadian
Term Loan B will be subject to amortization and mandatory
prepayments within the first 5 years of the facility. Any
amounts in excess of 25% will be applied to the amortization of
the U.S. Term Loan B until the fifth anniversary of
the funding of the Canadian Term Loan B.
The credit agreement relating to the senior secured credit
facilities includes customary affirmative and negative
covenants, as well as financial covenants relating to our
maximum total leverage ratio, minimum interest coverage ratio,
and minimum fixed charge coverage ratio. Several of the
covenants use Adjusted EBITDA as a measure. As defined in the
credit agreement, EBITDA means, for any period, consolidated net
income plus, to the extent included in the calculation of
consolidated net income, (i) any provision for income
taxes, (ii) interest expense, (iii) loss from
extraordinary items, (iv) depreciation, depletion and
amortization expenses, (v) all other non-cash expenses,
charges and losses that are not payable in cash in any
subsequent period and (vi) non-recurring cash restructuring
expenses, charges and losses, minus, to the extent included in
the calculation of such consolidated net income, (a) any
credit for income tax, (b) interest income, (c) gains
from extraordinary items, (d) any aggregate net gain (but
not any aggregate net loss) from the sale exchange or other
disposition of capital assets, (e) any other non-cash gains
or other items which have been added in determining consolidated
net income. Adjusted EBITDA means EBITDA for such period,
provided that consolidated net income for such period includes
(i) 100% of the net income of our joint venture
subsidiaries in Malaysia and Korea less (ii) the amount of
any dividends or distributions paid to the holder of any
minority interest in our Malaysian or Korean joint ventures,
plus our proportional share of EBITDA of our Norf joint venture
as long as Norf is in compliance with certain covenants
specified in the credit agreement. In addition, during a
transitional period, for any calculation of Adjusted EBITDA that
includes quarters ended prior to the date the credit agreement
was executed, the amount of Adjusted EBITDA will be reduced by
an amount equal to $6.25 million multiplied by the number
of quarters ended prior to the execution of the credit agreement
that are included in the calculation.
The senior secured credit facilities (i) are guaranteed by
our principal wholly-owned subsidiaries organized in the United
States, Canada, the United Kingdom, Germany, Ireland, Brazil and
Switzerland; and (ii) are secured by certain of our assets,
including stock of our subsidiaries and intercompany notes
representing amounts owed by our subsidiaries to us, and the
assets of certain of our subsidiaries, including stock in other
subsidiaries, who have guaranteed the senior secured credit
facilities. Our subsidiaries organized in France, Luxembourg,
Belgium, Italy and Mexico have not guaranteed the senior secured
credit facilities. Our non-wholly owned subsidiaries and joint
ventures, including Logan Aluminum Inc. (U.S.A.), Aluminium Norf
GmbH (Germany), Petrocoque S.A., Consorcio Candonga (Brazil),
Novelis
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Korea Limited, Alcom Nikkei Specialty Coatings SDN Berhad
(Malaysia) and Aluminum Company of Malaysia Berhad have not and
will not guarantee the senior secured credit facilities.
We also issued the Alcan Note on January 6, 2005 in respect
of $1.375 billion that we owed Alcan in connection with the
reorganization transactions. We used the proceeds of the
offering of the old notes to repay the principal and accrued
unpaid interest on the Alcan Note.
Our Korean subsidiary had an aggregate of $185 million
outstanding at June 30, 2005, principally under four
separate three-year floating rate term loans. We have swapped
interest payments on $183 million of floating rate term
loans in Korea in exchange for fixed interest payments, and
$70 million of U.S. dollar denominated Korean term
loans in exchange for Korean Won denominated debt. Following
these swaps, the effective weighted average fixed rate on the
three-year Korean term loans is 4.8%. The proceeds of the Korean
term loans were used to refinance existing debt of our Korean
subsidiary. The Korean term loans are unsecured.
Our subsidiaries in Malaysia and Brazil have access to committed
local credit lines totaling $32 million.
124
THE EXCHANGE OFFER
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Purpose of the Exchange Offer
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The sole purpose of the exchange offer is to fulfill our
obligations with respect to the registration of the old notes.
We originally issued and sold the old notes on February 3,
2005. We did not register those sales under the Securities Act,
in reliance upon the exemption provided in section 4(2) of
the Securities Act and Rule 144A and Regulation S
promulgated under the Securities Act. In connection with the
sale of the old notes, we agreed to file with the SEC an
exchange offer registration statement relating to the exchange
offer. Under the exchange offer registration statement, we will
offer the Notes, in exchange for the old notes, as evidence of
the same continuing indebtedness.
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How to Determine If You Are Eligible to Participate in the
Exchange Offer
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We hereby offer to exchange, upon the terms and subject to the
conditions set forth in this prospectus and in the letter of
transmittal accompanying it, $1,000 in principal amount of Notes
for each $1,000 in principal amount of the old notes that you
hold. The terms of the Notes are substantially identical to the
terms of the old notes that you may exchange pursuant to this
exchange offer, except that, generally, you may freely transfer
the Notes, and you will not be entitled to certain registration
rights and certain other provisions which are applicable to the
old notes under the registration rights agreement. The Notes
will be entitled to the benefits of the indenture. See
Description of the Notes.
We are not making the exchange offer to, nor will we accept
surrenders for exchange from, holders of outstanding old notes
in any jurisdiction in which this exchange offer or the
acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
We are not making the exchange offer conditional upon the
holders tendering, or us accepting, any minimum aggregate
principal amount of old notes.
Under existing SEC interpretations, the Notes would generally be
freely transferable after the exchange offer without further
registration under the Securities Act, except that
broker-dealers receiving the Notes in the exchange offer will be
subject to a prospectus delivery requirement with respect to
their resale. This view is based on interpretations by the staff
of the SEC in no-action letters issued to other issuers in
exchange offers like this one. We have not, however, asked the
SEC to consider this particular exchange offer in the context of
a no-action letter. Therefore, the SEC might not treat it in the
same way it has treated other exchange offers in the past. You
will be relying on the no-action letters that the SEC has issued
to third parties in circumstances that we believe are similar to
ours. Based on these no-action letters, the following conditions
must be met:
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you must not be a broker-dealer that acquired the old notes from
us or in market-making transactions; |
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you must acquire the Notes in the ordinary course of your
business; |
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you must have no arrangements or understandings with any person
to participate in the distribution of the Notes within the
meaning of the Securities Act; and |
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you must not be an affiliate of ours, as defined in
Rule 405 under the Securities Act. |
If you wish to exchange old notes for Notes in the exchange
offer you must represent to us that you satisfy all of the above
listed conditions. If you do not satisfy all of the above listed
conditions:
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you cannot rely on the position of the SEC set forth in the
no-action letters referred to above; and |
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you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a resale
of the Notes. |
The SEC considers broker-dealers that acquired old notes
directly from us, but not as a result of market-making
activities or other trading activities, to be making a
distribution of the Notes if they
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participate in the exchange offer. Consequently, these
broker-dealers must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a
resale of the Notes.
A broker-dealer that has bought old notes for market-making or
other trading activities must deliver a prospectus in order to
resell any Notes it receives for its own account in the exchange
offer. The SEC has taken the position that broker-dealers may
fulfill their prospectus delivery requirements with respect to
the Notes by delivering the prospectus contained in the
registration statement for the exchange offer. Each
broker-dealer that receives Notes for its own account pursuant
to this exchange offer, where such securities were acquired by
such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Notes. See
Plan of Distribution. The letter of transmittal
states that by so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities
Act. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with
resales of Notes received in exchange for old notes where such
old notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. We have
agreed that, starting on the expiration date of this exchange
offer and ending on the close of business one year after the
expiration date, or such shorter period as will terminate when
(i) all of the Notes covered by the exchange offer
registration statement of which this prospectus forms a part
have been distributed pursuant thereto and (ii) an
exchanging dealer (meaning any holder of the old notes (which
may include the initial purchasers of the old notes) that is a
broker-dealer and elects to exchange for Notes any old notes
that it acquired for its own account as a result of
market-making activities or other trading activities (but not
directly from us or our affiliates)) is no longer required to
deliver a prospectus in connection with sales of the Notes, we
will make this prospectus available to any broker-dealer for use
in connection with any such resale.
By tendering old notes for exchange, you will exchange, assign
and transfer the old notes to us and irrevocably appoint the
exchange agent as your agent and attorney-in-fact to assign,
transfer and exchange the old notes. You will also represent and
warrant that you have full power and authority to tender,
exchange, assign and transfer the old notes and to acquire Notes
issuable upon the exchange of such tendered old notes. The
letter of transmittal requires you to agree that, when we accept
your old notes for exchange, we will acquire good, marketable
and unencumbered title to them, free and clear of all security
interests, liens, restrictions, charges and encumbrances and
that they are not subject to any adverse claim.
You will also warrant that you will, upon our request, execute
and deliver any additional documents that we believe are
necessary or desirable to complete the exchange, assignment and
transfer of your tendered old notes. You must further agree that
our acceptance of any tendered old notes and the issuance of
Notes in exchange for them will constitute performance in full
by us of our obligations under the registration rights agreement
and that we will have no further obligations or liabilities
under that agreement, except in certain limited circumstances.
All authority conferred by you will survive your death,
incapacity, liquidation, dissolution, winding up or any other
event relating to you, and every obligation of you shall be
binding upon your heirs, personal representatives, successors,
assigns, executors and administrators.
If you are tendering old notes, we will not require you to pay
brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the
exchange of the old notes pursuant to the exchange offer. Each
of the Notes will bear interest from the most recent date
through which interest has been paid on the old notes for which
they were exchanged, or if no interest has been paid, from
February 3, 2005, which was the date of original issuance
of the old notes. If we accept your old notes for exchange, you
will waive the right to have interest accrue, or to receive any
payment in respect to interest, on the old notes from the most
recent interest payment date to the date of the issuance of the
Notes. Interest on the Notes is payable semiannually in arrears
on February 15 and August 15.
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Information About the Expiration Date of the Exchange Offer
and Changes to It
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The exchange offer expires on the expiration date, which is
5:00 p.m., Eastern Standard Time, on
October , 2005, unless we, in
our sole discretion, extend the period during which the exchange
offer is open. If we extend the expiration date for the exchange
offer, the term expiration date means the latest
time and date on which the exchange offer, as so extended,
expires. We reserve the right to extend the exchange offer at
any time and from time to time prior to the expiration date by
giving written notice to The Bank of New York Trust Company,
N.A., which is the exchange agent, and by timely public
announcement communicated by no later than 9:00 a.m.
Eastern Standard Time on the next business day following the
expiration date, unless applicable law or regulation requires
otherwise, by making a release to the Dow Jones News Service.
During any extension of the exchange offer, all old notes
previously tendered pursuant to the exchange offer will remain
subject to the exchange offer.
The initial exchange date will be the first business day
following the expiration date. We expressly reserve the right to
terminate the exchange offer and not accept for exchange any old
notes for any reason, including if any of the events set forth
below under We may modify or terminate the exchange offer
under some circumstances have occurred and we have not
waived them. We also reserve the right to amend the terms of the
exchange offer in any manner, whether before or after any tender
of the old notes. If we terminate or amend the exchange offer,
we will notify the exchange agent in writing and will either
issue a press release or give written notice to you as a holder
of the old notes as promptly as practicable. Unless we terminate
the exchange offer prior to 5:00 p.m., Eastern Standard
Time, on the expiration date, we will exchange the Notes for old
notes on the exchange date.
We will mail this prospectus and the related letter of
transmittal and other relevant materials to you as a record
holder of old notes and we will furnish these items to brokers,
banks and similar persons whose names, or the names of whose
nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of old notes.
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How to Tender Your Old Notes
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If you tender to us any of your old notes pursuant to one of the
procedures set forth below, that tender will constitute an
agreement between you and us in accordance with the terms and
subject to the conditions that we describe below and in the
letter of transmittal for the exchange offer.
You may tender old notes by properly completing and signing the
letter of transmittal or a facsimile of it. All references in
this prospectus to the letter of transmittal include
a facsimile of the letter. You must deliver it, together with
the certificate or certificates representing the old notes that
you are tendering and any required signature guarantees, or a
timely confirmation of a book-entry transfer pursuant to the
procedure that we describe below, to the exchange agent at its
address set forth on the back cover of this prospectus on or
prior to the expiration date. You may also tender old notes by
complying with the guaranteed delivery procedures that we
describe below.
Your signature does not need to be guaranteed if you registered
your old notes in your name, you will register the Notes in your
name and you sign the letter of transmittal. In any other case,
the registered holder of your notes must endorse them or send
them with duly executed written instruments of transfer in the
form satisfactory to us. Also, an eligible
institution, such as a bank, broker, dealer, credit union,
savings association, clearing agency or other institution that
is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the
Exchange Act must guarantee the signature on the endorsement or
instrument of transfer. If you want us to deliver the Notes or
non-exchanged old notes to an address other than that of the
registered holder appearing on the note register for the old
notes, an eligible institution must guarantee the
signature on the letter of transmittal.
If your old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and you
wish to tender old notes, you should contact the registered
holder promptly and instruct the holder to tender old notes on
your behalf. If you wish to tender your old notes yourself, you
must, prior to completing and executing the letter of
transmittal and delivering your old notes, either make
127
appropriate arrangements to register ownership of the old notes
in your name or follow the procedures described in the
immediately preceding paragraph. Transferring record ownership
from someone elses name to your name may take considerable
time.
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How to Tender If You Hold Your Old Notes Through a
Broker or Other Institution and You Do Not Have the Actual Old
Notes
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Any financial institution that is a participant in DTCs
systems may make book-entry delivery of your old notes by
causing DTC to transfer your old notes into the exchange
agents account at DTC in accordance with DTCs
procedures for transfer. Although you may deliver your old notes
through book-entry transfer at DTC, you still must send the
letter of transmittal, with any required signature guarantees
and any other required documents, to the exchange agent at the
address specified on the back cover of this prospectus on or
prior to the expiration date and the exchange agent must receive
these documents on time. If you will not be able to send all the
documents on time, you can still tender your old notes by using
the guaranteed delivery procedures described below.
You assume the risk of choosing the method of delivery of old
notes and all other documents. If you send your old notes and
your documents by mail, we recommend that you use registered
mail, return receipt requested, you obtain proper insurance, and
you mail these items sufficiently in advance of the expiration
date to permit delivery to the exchange agent on or before the
expiration date.
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How to Use the Guaranteed Delivery Procedures if You Will Not
Have Enough Time to Send All Documents to Us
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If you desire to accept the exchange offer, and time will not
permit a letter of transmittal or old notes to reach the
exchange agent before the expiration date, you may tender your
old notes if the exchange agent has received at its office
listed on the letter of transmittal on or prior to the
expiration date a letter, telegram or facsimile transmission
from an eligible institution setting forth your name and
address, the principal amount of the old notes that you are
tendering, the names in which you registered the old notes and,
if possible, the certificate numbers of the old notes that you
are tendering.
The eligible institutions correspondence to the exchange
agent must state that the correspondence constitutes the tender
and guarantee that within three New York Stock Exchange trading
days after the date that the eligible institution executes such
correspondence, the eligible institution will deliver the old
notes, in proper form for transfer, together with a properly
completed and duly executed letter of transmittal and any other
required documents. We may, at our option, reject the tender if
you do not tender your old notes and accompanying documents by
either the above-described method or by a timely book-entry
confirmation, and if you do not deposit your old notes and
tender documents with the exchange agent within the time period
set forth above. Copies of a notice of guaranteed delivery that
eligible institutions may use for the purposes described in this
paragraph are available from the exchange agent.
Valid receipt of your tender will occur as of the date when the
exchange agent receives your properly completed letter of
transmittal, accompanied by either the old notes or a timely
book-entry confirmation. We will issue Notes in exchange for old
notes that you tendered pursuant to a notice of guaranteed
delivery or correspondence to similar effect as described above
by an eligible institution only against deposit of the letter of
transmittal, any other required documents and either the
tendered old notes or a timely book-entry confirmation.
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We Reserve the Right to Determine Validity of All Tenders
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We will be the sole judge of all questions as to the validity,
form, eligibility, including time of receipt, and acceptance for
exchange of your tender of old notes and our judgment will be
final and binding. We reserve the absolute right to reject any
or all of your tenders that are not in proper form or the
acceptances for exchange of which may, in our opinion or in the
opinion of our counsel, be unlawful. We also reserve the
absolute right to waive any of the conditions of the exchange
offer or any defect or irregularities in your case. Neither we,
the exchange agent nor any other person will be under any duty
to give you
128
notification of any defects or irregularities in tenders nor
shall any of us incur any liability for failure to give you any
such notification. Our interpretation of the terms and
conditions of the exchange offer, including the letter of
transmittal and its instructions, will be final and binding.
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If You Tender Old Notes Pursuant to the Exchange Offer,
You May Withdraw Them at any Time Prior to the Expiration
Date
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For your withdrawal to be effective, the exchange agent must
timely receive your written or fax notice of withdrawal prior to
the expiration date at the exchange agents address set
forth on the back cover page of this prospectus. Your notice of
withdrawal must specify the following information:
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The person named in the letter of transmittal as tendering old
notes you are withdrawing; |
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The certificate numbers of old notes you are withdrawing; |
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The principal amount of old notes you are withdrawing; |
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A statement that you are withdrawing your election to have us
exchange such old notes; and |
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The name of the registered holder of such old notes, which may
be a person or entity other than you, such as your broker-dealer. |
The person or persons who signed your letter of transmittal,
including any eligible institutions that guaranteed signatures
on your letter of transmittal, must sign the notice of
withdrawal in the same manner as their original signatures on
the letter of transmittal including any required signature
guarantees. If such persons and eligible institutions cannot
sign your notice of withdrawal, you must send it with evidence
satisfactory to us that you now hold beneficial ownership of the
old notes that you are withdrawing. The exchange agent will
return the properly withdrawn old notes promptly following
receipt of notice of withdrawal. We will determine all questions
as to the validity of notices of withdrawals, including time of
receipt, and our determination will be final and binding on all
parties.
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How We Will Either Exchange Your Old Notes for Notes or
Return Them to You
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On the exchange date, we will determine which old notes the
holders validly tendered, and we will issue Notes in exchange
for the validly tendered old notes. The exchange agent will act
as your agent for the purpose of receiving Notes from us and
sending the old notes to you in exchange for Notes promptly
after acceptance of the tendered old notes. If we do not accept
your old notes for exchange, we will return them without expense
to you. If you tender your old notes by book-entry transfer into
the exchange agents account at DTC pursuant to the
procedures described above and we do not accept your old notes
for exchange, DTC will credit your non-exchanged old notes to an
account maintained with DTC. In either case, we will return your
non-exchanged old notes to you promptly following the expiration
of the exchange offer.
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We May Modify or Terminate the Exchange Offer Under Some
Circumstances
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We are not required to issue Notes in respect of any properly
tendered old notes that we have not previously accepted and we
may terminate the exchange offer or, at our option, we may
modify or otherwise amend the exchange offer. If we terminate
the exchange offer, it will be by oral or written notice to the
exchange agent and by timely public announcement communicated no
later than 5:00 p.m. on the next business day following the
expiration date, unless applicable law or regulation requires us
to terminate the exchange offer in the following circumstances:
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Any court or governmental agency brings a legal action seeking
to prohibit the exchange offer or assessing or seeking any
damages as a result of the exchange offer, or resulting in a
material delay in our ability to accept any of the old notes for
exchange offer; or |
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Any government or governmental authority, domestic or foreign,
brings or threatens any law or legal action that in our sole
judgment, might directly or indirectly result in any of the
consequences |
129
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referred to above; or, if in our sole judgment, such activity
might result in the holders of Notes having obligations with
respect to resales and transfers of Notes that are greater than
those we described above in the interpretations of the staff of
the SEC or would otherwise make it inadvisable to proceed with
the exchange offer; or |
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A material adverse change has occurred in our business,
condition (financial or otherwise), operations or prospects. |
The foregoing conditions are for our sole benefit and we may
assert them with respect to all or any portion of the exchange
offer regardless of the circumstances giving rise to such
condition. We also reserve the right to waive these conditions
in whole or in part at any time or from time to time in our
discretion. Our failure at any time to exercise any of the
foregoing rights will not be a waiver of any such right, and
each right will be an ongoing right that we may assert at any
time or from time to time. In addition, we have reserved the
right, notwithstanding the satisfaction of each of the foregoing
conditions, to terminate or amend the exchange offer.
Any determination by us concerning the fulfillment or
nonfulfillment of any conditions will be final and binding upon
all parties.
In addition, we will not accept for exchange any tendered old
notes, and we will not issue Notes in exchange for any such old
notes, if at that time there is, or the SEC has threatened, any
stop order with respect to the registration statement that this
prospectus is a part of, or if qualification of the indenture is
required under the Trust Indenture Act of 1939.
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Where to Send Your Documents for the Exchange Offer
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We have appointed The Bank of New York Trust Company, N.A. as
the exchange agent for the exchange offer. You must send your
letter of transmittal to the exchange agent at:
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The Bank of New York Trust Company, N.A. |
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Corporate Trust Operations |
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Reorganization Unit |
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101 Barclay Street 7 East |
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New York, NY 10286 |
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Attn: Randolph Holder |
To Confirm by Telephone:
Facsimile Transmissions (eligible institutions only):
If you send your documents to any other address or fax number,
you will have not validly delivered them and you will not
receive Notes in exchange for your old notes. We will return
your old notes to you.
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We Are Paying our Costs for the Exchange Offer
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We have not retained any dealer-manager or similar agent in
connection with the exchange offer and will not make any
payments to brokers, dealers or others for soliciting
acceptances of the exchange offer. We will, however, pay the
exchange agent reasonable and customary fees for its services
and will reimburse it for reasonable out-of-pocket expenses. We
will also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses that they
incur in forwarding tenders for their customers. We will pay the
expenses incurred in connection with the exchange offer,
including the fees and expenses of the exchange agent and
printing, accounting, investment banking and legal fees. We
estimate that these fees are approximately $500,000.
No person has been authorized to give you any information or to
make any representations to you in connection with the exchange
offer other than those that this prospectus contains.
130
If anyone else gives you information or representations about
the exchange offer, you should not rely upon that information or
representation or assume that we have authorized it. Neither the
delivery of this prospectus nor any exchange made hereunder
shall, under any circumstances, create any implication that
there has been no change in our affairs since the respective
dates as of which this prospectus gives information. We are not
making the exchange offer to, nor will we accept tenders from or
on behalf of, holders of old notes in any jurisdiction in which
it is unlawful to make the exchange offer or to accept it.
However, we may, at our discretion, take such action as we may
deem necessary to make the exchange offer in any such
jurisdiction and extend the exchange offer to holders of old
notes in such jurisdiction. In any jurisdiction where the
securities laws or blue sky laws require a licensed broker or
dealer to make the exchange offer one or more registered brokers
or dealers that are licensed under the laws of that jurisdiction
is making the exchange offer on our behalf.
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There Are No Dissenter or Appraisal Rights
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Holders of old notes will not have dissenters rights or
appraisal rights in connection with the exchange offer.
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Canadian Federal and United States Federal Income Tax
Consequences to You
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Your exchange of old notes for Notes should not be a taxable
exchange for United States federal income tax purposes, and you
should not recognize any taxable gain or loss for United States
federal income tax purposes as a result of the exchange.
Similarly, your exchange of old notes for Notes will not
constitute a disposition of the old notes for Canadian federal
income tax purposes, and therefore you will not recognize a
taxable capital gain for Canadian federal income tax purposes,
or otherwise be subject to Canadian federal income tax as a
result of the exchange. See Important Canadian Federal and
United States Federal Income Tax Considerations below.
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This Is the Only Exchange Offer for the Old Notes that We Are
Required to Make
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Your participation in the exchange offer is voluntary, and you
should carefully consider whether to accept the terms and
conditions of it. You are urged to consult your financial and
tax advisors in making your own decisions on what action to take
with respect to the exchange offer. If you do not tender your
old notes in the exchange offer, you will continue to hold such
old notes and you will be entitled to all the rights and
limitations applicable to the old notes under the indenture. All
non-exchanged old notes will continue to be subject to the
restriction on transfer set forth in the indenture. If we
exchange old notes in the exchange offer, the trading market, if
any, for any remaining old notes could be much less liquid.
We may in the future seek to acquire non-exchanged old notes in
the open market or privately negotiated transactions, through
subsequent exchange offers or otherwise. We have no present plan
to acquire any old notes that are not exchanged in the exchange
offer.
We will record the Notes at the same carrying value as the old
notes, as reflected in our accounting records on the date of the
exchange. Accordingly, we will not recognize any gain or loss
for accounting purposes. The expenses of the exchange offer will
be expensed as incurred.
131
DESCRIPTION OF THE NOTES
The Company will issue the Notes under the indenture dated as of
February 3, 2005 (the Indenture), among the
Company, the Subsidiary Guarantors and The Bank of New York
Trust Company, N.A., as trustee (the Trustee). The
Indenture complies with the Trust Indenture Act of 1939 (the
Trust Indenture Act). The terms of the Notes include
those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act. The terms of
the Notes will be substantially identical to the terms of the
old notes. However, the Notes will not be subject to transfer
restrictions or registration rights unless held by certain
broker-dealers, the Companys affiliates or certain other
persons.
The following description is a summary of the material
provisions of the Indenture. It does not restate the Indenture
in its entirety. You should read the Indenture and the
Registration Rights Agreement referred to under
Registration Rights below because those documents,
and not this description, define your rights as a holder of the
Notes. Copies of the Indenture and Registration Rights Agreement
are available upon request to the Company at the address
indicated under Where You Can Find More Information.
You can find the definitions of certain terms used in this
description under the subheading Certain
Definitions. In this description, the term
Company refers only to Novelis Inc. and not to any
of its subsidiaries.
Principal, Maturity and Interest
The Company is offering to exchange, upon the terms and subject
to the conditions of this prospectus and the accompanying letter
of transmittal, the Notes for all of the outstanding old notes.
In addition, subject to compliance with the limitations
described under Certain Covenants
Limitation on Debt, the Company can issue an unlimited
principal amount of additional Notes at later dates under the
same Indenture (the Additional Notes). The Company
can issue the Additional Notes as part of the same series or as
an additional series. Any Additional Notes that the Company
issues in the future will be identical in all respects to the
Notes that the Company is issuing now, except that Notes issued
in the future will have different issuance dates and may have
different issuance prices. The Company will issue Notes only in
fully registered form without coupons, in denominations of
$1,000 and integral multiples of $1,000.
The Notes will mature on February 15, 2015.
Interest on the Notes will accrue at a rate of
71/4% per
annum and will be payable semi-annually in arrears on February
15 and August 15, commencing on August 15, 2005. Each
of the Notes will bear interest from the most recent date
through which interest has been paid on the old notes for which
they were exchanged, or if no interest has been paid, from
February 3, 2005, which was the date of original issuance
of the old notes. If we accept your old notes for exchange, you
will waive the right to have interest accrue, or to receive any
payment in respect to interest, on the old notes from the most
recent interest payment date to the date of the issuance of the
Notes. The Company will pay interest to those persons who were
holders of record on the February 1 or August 1 immediately
preceding each interest payment date.
Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The interest rate on the old notes and the Notes, as applicable,
will increase if:
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(1) the Company does not file within the required time
period either: |
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(A) a registration statement to allow for an exchange
offer or |
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(B) a resale shelf registration statement for the Notes; |
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(2) one of the registration statements referred to above is
not declared effective within the required time period; |
132
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(3) the exchange offer referred to above is not consummated
or the resale shelf registration statement referred to above is
not declared effective within the required time period; or |
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(4) certain other conditions are not satisfied as described
under Registration Rights. |
Any additional interest payable as a result of any such event is
referred to as Special Interest and all references
to interest in this description include any Special Interest
that becomes payable. You should refer to the description under
the heading Registration Rights for a more detailed description
of the circumstances under which the interest rate will increase.
Ranking
The Notes will be:
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senior, unsecured obligations of the Company; |
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effectively junior in right of payment to all existing and
future secured debt of the Company (including the Senior Credit
Facility) to the extent of the value of the assets securing that
debt; |
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equal in right of payment (pari passu) with all
existing and future senior debt of the Company; |
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senior in right of payment to all future subordinated debt of
the Company; and |
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guaranteed on a senior, unsecured basis by the Subsidiary
Guarantors. |
As of June 30, 2005, the Company and its subsidiaries on a
consolidated basis, had $1.1 billion of senior secured debt
outstanding none of which would have been subordinated to the
Notes or the Subsidiary Guaranties.
Most of the operations of the Company will be conducted through
its subsidiaries. Therefore, the Companys ability to
service its debt, including the Notes, will depend substantially
upon the cash flows of its subsidiaries and their ability to
distribute those cash flows to the Company as dividends, loans
or other payments. Certain laws restrict the ability of the
Companys subsidiaries to pay dividends or to make loans
and advances to it. The Companys ability to use the cash
flows of those subsidiaries to make payments on the Notes will
be limited to the extent of any such restrictions. Furthermore,
in certain circumstances, bankruptcy, fraudulent
conveyance laws or other similar laws could invalidate or
limit the efficacy of the Subsidiary Guaranties. Any of the
situations described above could make it more difficult for the
Company to service its debt, including the Notes.
Except to the extent of any intercompany loans or other
advances, the Company only has a stockholders claim in the
assets of its subsidiaries. Its rights as a stockholder are
junior in right of payment to the valid claims of creditors of
the Companys subsidiaries against those subsidiaries.
Holders of the Notes will only be creditors of the Company and
those subsidiaries of the Company that are Subsidiary
Guarantors. In the case of subsidiaries of the Company that are
not Subsidiary Guarantors, all the existing and future
liabilities of those subsidiaries, including any claims of trade
creditors and preferred stockholders, will effectively rank
senior to the Notes.
As of June 30, 2005, the Company had $4.8 billion in
total consolidated debt and other liabilities (excluding
inter-company balances), of which $5.6 billion (including
inter-company balances) was debt and other liabilities of the
Company and the Subsidiary Guarantors, $1.1 billion
(including inter-company balances) of which was debt and other
liabilities of the Companys other subsidiaries and
($1.9) billion was intercompany balances. The Subsidiary
Guarantors and the Companys other subsidiaries have other
liabilities, including contingent liabilities, that may be
significant. The Indenture limits the amount of additional Debt
that the Company and the Restricted Subsidiaries may Incur.
Notwithstanding these limitations, the Company and its
Subsidiaries may Incur substantial additional Debt. Debt may be
Incurred either by Subsidiary Guarantors or by the
Companys other subsidiaries.
The Notes and the Subsidiary Guaranties are unsecured
obligations of the Company and the Subsidiary Guarantors,
respectively. Secured Debt of the Company and the Subsidiary
Guarantors,
133
including their obligations under the Senior Credit Facility,
will be effectively senior to the Notes and the Subsidiary
Guaranties to the extent of the value of the assets securing
such Debt.
As of June 30, 2005, the outstanding secured Debt of the
Company and the Subsidiary Guarantors on a consolidated basis
was $1.1 billion.
See Risk Factors We are a holding company and
depend on our subsidiaries to generate sufficient cash flow to
meet our debt service obligations, including payments on the
Notes, Fraudulent conveyance laws and
other legal restrictions may permit courts to void our
subsidiaries guarantees of the Notes in specific
circumstances, which would interfere with payment under our
subsidiaries guarantees.
Subsidiary Guaranties
The obligations of the Company under the Indenture, including
the repurchase obligation resulting from a Change of Control,
will be fully and unconditionally guaranteed, jointly and
severally, on a senior unsecured basis, by: (a) all the
existing and all future Canadian Restricted Subsidiaries and
U.S. Restricted Subsidiaries of the Company;
(b) Novelis do Brasil Ltda, Novelis UK Ltd., Novelis Europe
Holdings Ltd., Novelis Aluminium Holding Company, Novelis
Deutschland GmbH, Novelis Switzerland S.A., Novelis Technology
AG and Novelis AG; and (c) any other Restricted
Subsidiaries of the Company that Guarantee Debt in the future
under Credit Facilities, provided that the borrower of
such Debt is the Company or a Canadian Restricted Subsidiary or
a U.S. Restricted Subsidiary. See Certain
Covenants Future Subsidiary Guarantors. The
liability of each Subsidiary Guarantor under its Subsidiary
Guaranty will be subject to the limitations applicable under
local law, including limitations related to insolvency, minimum
capital requirements, and fraudulent conveyances. For example,
with respect to Novelis Deutschland GmbH, its liability under
its Subsidiary Guaranty will be limited to the extent that its
net assets (Eigenkapital) may not fall below the amount
of its stated share capital (Stammkapital) as a result of
the enforcement of the Subsidiary Guaranty and that such an
enforcement must not result in a breach of the prohibition of
insolvency causing intervention (Verbot des
existenzvernichtenden Eingriffs) by depriving Novelis
Deutschland GmbH of the liquidity necessary to fulfill its
financial liabilities to its creditors. With respect to the
Subsidiary Guarantors organized under Swiss law, namely, Novelis
AG, Novelis Switzerland S.A. and Novelis Technology AG, the
liability of each such Subsidiary Guarantor under its Subsidiary
Guaranty will be limited to the maximum amount of its profits
and reserves available for distribution.
The Subsidiary Guarantors currently generate most of the
Companys consolidated sales and operating revenue and own
most of its assets. The subsidiaries of the Company that will
not be Subsidiary Guarantors at the consummation of this
exchange offer represented the following approximate percentages
of (a) sales and operating revenues, (b) income before
income taxes and other items and interest, and (c) assets
of the Company, on an historical combined and consolidated basis:
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27% and 28%
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of the Companys combined and consolidated total sales and
operating revenues represented by sales to third parties by
subsidiaries that are not Subsidiary Guarantors (for the year
ended December 31, 2004 and the six months ended
June 30, 2005) |
26%
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of the Companys consolidated income before income taxes
and other items and interest represented by subsidiaries that
are not Subsidiary Guarantors for the six months ended
June 30, 2005. For the year ended December 31, 2004,
the Companys subsidiaries that are not Subsidiary
Guarantors had a combined loss before income taxes and other
items and interest totaling $50 million. |
36%
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of the Companys consolidated assets represented by
subsidiaries that are not Subsidiary Guarantors (at
June 30, 2005) |
134
If the Company or a Subsidiary Guarantor, sells or otherwise
disposes of either:
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(1) its ownership interest in a Subsidiary
Guarantor, or |
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(2) all or substantially all the assets of a Subsidiary
Guarantor, then the Subsidiary Guarantor so sold or disposed of
will be released from all of its obligations under its
Subsidiary Guaranty. In addition, if, consistent with the
requirements of the Indenture, the Company redesignates a
Subsidiary Guarantor as an Unrestricted Subsidiary, the
redesignated Subsidiary Guarantor will be released from all its
obligations under its Subsidiary Guaranty. See
Certain Covenants Designation of
Restricted and Unrestricted Subsidiaries,
Limitation on Issuance or Sale of Capital
Stock of Restricted Subsidiaries and
Merger, Consolidation and Sale of
Property. |
Optional Redemption
Except as set forth in this section and below under
Tax Redemption, the Notes will not be
redeemable at the option of the Company prior to
February 15, 2010. Starting on that date, the Company may
redeem all or any portion of the Notes, at once or over time,
after giving the required notice under the Indenture. The Notes
may be redeemed at the redemption prices set forth below, plus
accrued and unpaid interest, including Special Interest, if any,
to but excluding the redemption date (subject to the right of
holders of record on the relevant record date to receive
interest due on the relevant interest payment date). The
following prices are for Notes redeemed during the 12-month
period commencing on February 15 of the years set forth below,
and are expressed as percentages of principal amount:
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Redemption |
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Price |
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2010
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103.625% |
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2011
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102.417% |
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2012
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101.208% |
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2013 and thereafter
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100.000% |
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At any time prior to February 15, 2010, the Company may
from time to time redeem all or any portion of the Notes after
giving the required notice under the Indenture at a redemption
price equal to the greater of:
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(a) 100% of the principal amount of the Notes to be
redeemed, and |
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(b) the sum of the present values of (1) the
redemption price of the Notes at February 15, 2010 (as set
forth in the preceding paragraph) and (2) the remaining
scheduled payments of interest from the redemption date through
February 15, 2010, but excluding accrued and unpaid
interest through the redemption date, discounted to the
redemption date (assuming a 360day year consisting of
twelve 30day months), at the Treasury Rate plus
50 basis points, |
plus, in either case, accrued and unpaid interest, including
Special Interest, if any, to but excluding the redemption date
(subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest
payment date).
Any notice to holders of Notes of such a redemption shall
include the appropriate calculation of the redemption price, but
need not include the redemption price itself. The actual
redemption price, calculated as described above, shall be set
forth in an Officers Certificate delivered to the Trustee
no later than two business days prior to the redemption date
unless clause (b) of the definition of Comparable
Treasury Price is applicable, in which such Officers
Certificate should be delivered on the redemption date.
In addition, at any time and from time to time prior to
February 15, 2008, the Company may redeem up to a maximum
of 35% of the original aggregate principal amount of the old
notes and the Notes (as well as any Additional Notes) with the
proceeds of one or more Public Equity Offerings at a redemption
price equal to 107.250% of the principal amount of the notes to
be redeemed, plus accrued and unpaid interest, including Special
Interest, if any, to the redemption date (subject to the right
of holders of record
135
on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that after
giving effect to any such redemption, at least 65% of the
original aggregate principal amount of the old notes and the
Notes (as well as any Additional Notes) remains outstanding.
Notice of any such redemption shall be made within 90 days
of such Public Equity Offering and such redemption shall be
effected upon not less than 30 nor more than 60 days
prior notice.
Tax Redemption
The Company may, at its option, at any time redeem in whole but
not in part the outstanding old notes and Notes at a redemption
price equal to 100% of the principal amount thereof plus accrued
and unpaid interest, including Special Interest, if any, to the
redemption date (subject to the right of holders of record on
the relevant record date to receive interest due on the relevant
interest payment date) if it has become obligated to pay any
Additional Amounts (as defined herein) in respect of the notes
as a result of:
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(a) any change in or amendment to the laws (or regulations
promulgated thereunder) of any Taxing Jurisdiction, or |
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(b) any change in or amendment to any official position
regarding the application or interpretation of such laws or
regulations, which change or amendment is announced or is
effective on or after the Issue Date. |
See Additional Amounts.
Additional Amounts
The Indenture provides that payments made by or on behalf of the
Company under or with respect to the Notes will be made free and
clear of and without withholding or deduction for or on account
of any Taxes imposed or levied by or on behalf of a Taxing
Jurisdiction, unless the Company or any Subsidiary Guarantor is
required by law to withhold or deduct Taxes from any payment
made under or with respect to the Notes or by the interpretation
or administration thereof. If, after the Issue Date, the Company
or any Subsidiary Guarantor is so required to withhold or deduct
any amount for or on account of Taxes from any payment made
under or with respect to the Notes, the Company or such
Subsidiary Guarantor will pay to each holder of Notes that are
outstanding on the date of the required payment, such additional
amounts (Additional Amounts) as may be necessary so
that the net amount received by such holder (including the
Additional Amounts) after such withholding or deduction will not
be less than the amount such holder would have received if such
Taxes had not been withheld or deducted; provided that no
Additional Amounts will be payable with respect to a payment
made to a holder of the Notes (an Excluded holder):
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(a) with which the Company or such Subsidiary Guarantor
does not deal at arms length (within the meaning of the
Income Tax Act (Canada)) at the time of making such
payment, or |
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(b) which is subject to such Taxes by reason of its being
connected with the relevant Taxing Jurisdiction otherwise than
by the mere acquisition, holding or disposition of the Notes or
the Subsidiary Guaranty or the receipt of payments thereunder. |
The Company and the Subsidiary Guarantors will also:
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(a) make such withholding or deduction, and |
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(b) remit the full amount deducted or withheld to the
relevant authority in accordance with applicable law. |
The Company and the Subsidiary Guarantors will furnish to the
Trustee, or cause to be furnished to the Trustee, within
30 days after the date the payment of any Taxes is due
pursuant to applicable law, certified copies of tax receipts
evidencing that such payment has been made by the Company or any
such Subsidiary Guarantor or other evidence of such payment
satisfactory to the Trustee. The Trustee shall
136
make such evidence available upon the written request of any
holder of the Notes that are outstanding on the date of any such
withholding or deduction.
The Company and the Subsidiary Guarantors will indemnify and
hold harmless each holder of Notes that are outstanding on the
date of the required payment (other than an Excluded holder) and
upon written request reimburse each such holder for the amount
of:
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(a) any Taxes so levied or imposed by or on behalf of a
Taxing Jurisdiction and paid by such holder as a result of
payments made under or with respect to the Notes and any
liability (including penalties, interest and expense) arising
therefrom or with respect thereto, and |
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(b) any Taxes (other than Taxes on such holders
profits or net income) imposed with respect to any reimbursement
under clause (a) above so that the net amount received by
such holder after such reimbursement will not be less than the
net amount such holder would have received if such reimbursement
had not been imposed. |
At least 30 days prior to each date on which any payment
under or with respect to the Notes is due and payable, if the
Company or any such Subsidiary Guarantor becomes obligated to
pay Additional Amounts with respect to such payment, the Company
or such Subsidiary Guarantor will deliver to the Trustee an
Officers Certificate stating the fact that such Additional
Amounts will be payable, and the amounts so payable and will set
forth such other information as is necessary to enable the
Trustee to pay such Additional Amounts to the holders of the
Notes on the payment date. Whenever in the Indenture there is
mentioned, in any context:
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(a) the payment of principal (and premium, if any), |
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(b) purchase prices in connection with a repurchase of
Notes, |
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(c) interest, or |
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(d) any other amount payable on or with respect to any of
the Notes, |
such mention shall be deemed to include mention of the payment
of Additional Amounts provided for in this section to the extent
that, in such context, Additional Amounts are, were or would be
payable in respect thereof.
Sinking Fund
There will be no mandatory sinking fund payments for the Notes.
Change of Control Offer
Upon the occurrence of a Change of Control, the Company will be
required to make an offer to each holder of Notes to repurchase
all or any part (of $1,000 or any integral multiple thereof) of
such holders Notes pursuant to the offer described below
(the Change of Control Offer) at a purchase price
(the Change of Control Purchase Price) equal to 101%
of the principal amount thereof, plus accrued and unpaid
interest, including Special Interest, if any, to the repurchase
date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest
payment date).
Within 30 days following any Change of Control, the Company
shall:
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(a) cause a notice of the Change of Control Offer to be
sent at least once to the Dow Jones News Service or similar
business news service in the United States; and |
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(b) send, by first-class mail, with a copy to the Trustee,
to each holder of Notes, at such holders address appearing
in the Security Register, a notice stating: |
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(1) that a Change of Control has occurred and a Change of
Control Offer is being made pursuant to the covenant entitled
Change of Control Offer and that all Notes timely
tendered will be accepted for payment; |
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(2) the Change of Control Purchase Price and the repurchase
date, which shall be, subject to any contrary requirements of
applicable law, a business day no earlier than 30 days nor
later than 60 days from the date such notice is mailed; |
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(3) the circumstances and relevant facts regarding the
Change of Control (including, if applicable, information with
respect to pro forma historical income, cash flow and
capitalization after giving effect to the Change of
Control); and |
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(4) the procedures that holders of Notes must follow in
order to tender their Notes (or portions thereof) for payment,
and the procedures that holders of Notes must follow in order to
withdraw an election to tender Notes (or portions thereof) for
payment. |
The Company will not be required to make a Change of Control
Offer following a Change of Control if a third party makes the
Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not
withdrawn under such Change of Control Offer.
The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any
other securities laws or regulations in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To
the extent that the provisions of any securities laws or
regulations conflict with the provisions of this covenant, the
Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its
obligations under this covenant by virtue of such compliance.
Subject to compliance with the other covenants described in this
prospectus, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control
under the Indenture, but that could increase the amount of debt
outstanding at such time or otherwise affect the Companys
liquidity, capital structure or credit ratings.
The definition of Change of Control includes a phrase relating
to the sale, transfer, assignment, lease, conveyance or other
disposition of all or substantially all the Property
of the Company and the Restricted Subsidiaries, considered as a
whole. Although there is a body of case law interpreting the
phrase substantially all, there is no precise
established definition of the phrase under applicable law.
Accordingly, if the Company and the Restricted Subsidiaries,
considered as a whole, dispose of less than all this Property by
any of the means described above, the ability of a holder of
Notes to require the Company to repurchase its Notes may be
uncertain. In such a case, holders of the Notes may not be able
to resolve this uncertainty without resorting to legal action.
The Senior Credit Facility provides that certain of the events
that would constitute a Change of Control would also constitute
a default under the Senior Credit Facility and entitle the
lenders under that facility to require that such debt be repaid.
Other future debt of the Company may prohibit certain events
that would constitute a Change of Control or require such debt
to be repurchased or repaid upon a Change of Control. Moreover,
if holders of Notes exercise their right to require the Company
to repurchase such Notes, the Company could be in breach of
obligations under existing and future debt of the Company.
Finally, the Companys ability to pay cash to holders of
Notes upon a repurchase may be limited by the Companys
then existing financial resources. The Company cannot assure you
that sufficient funds will be available when necessary to make
any required repurchases. The Companys failure to
repurchase Notes, as required following a Change of Control
Offer, would result in a default under the Indenture. Such a
default would, in turn, constitute a default under the Senior
Credit Facility and other existing debt of the Company and may
constitute a default under future debt as well. The
Companys obligation to make an offer to repurchase the
Notes as a result of a Change of Control may be waived or
modified at any time prior to the occurrence of such Change of
Control with the written consent of the holders of at least a
majority in aggregate principal amount of the old notes and
Notes. See Amendments and Waivers.
138
Certain Covenants
Covenant Termination and Suspension. The Indenture
provides that the covenants set forth in this section will be
applicable to the Company and its Restricted Subsidiaries unless
the Company reaches Investment Grade Status. After the Company
has reached Investment Grade Status, and notwithstanding that
the Company may later cease to have an Investment Grade Rating
from either or both of the Rating Agencies, the Company and the
Restricted Subsidiaries will be under no obligation to comply
with the covenants set forth in this section, except for the
covenants described under the following headings:
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the second paragraph under Limitation on
Liens, |
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the second paragraph under Limitation on Sale
and Leaseback Transactions, |
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Designation of Restricted and Unrestricted
Subsidiaries (other than clause (x) of the third
paragraph (and such clause (x) as referred to in
the first paragraph thereunder)), and |
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Future Subsidiary Guarantors. |
The Company and the Subsidiary Guarantors will also, upon
reaching Investment Grade Status, remain obligated to comply
with the provisions described under Merger,
Consolidation and Sale of Property (other than
clause (e) of the first and second paragraphs thereunder).
If, prior to the Company reaching Investment Grade Status, the
Notes receive an Investment Grade Rating from one of the Rating
Agencies and no Default or Event of Default has occurred and is
continuing then, beginning on that day and continuing until the
Investment Grade Rating assigned by that Rating Agency to the
Notes subsequently decline as a result of which the Notes do not
carry an Investment Grade Rating from at least one Rating Agency
(such period being referred to as a (Suspension
Period), the covenants set forth in the Indenture, except
for those specifically listed above, will be suspended and will
not be applicable during that Suspension Period.
In the event that the Company and the Restricted Subsidiaries
are not subject to the suspended covenants for any period of
time as a result of the preceding paragraph and, subsequently,
the Rating Agency withdraws its ratings or downgrades the
ratings assigned to the Notes below the required Investment
Grade Ratings or a Default or Event of Default occurs and is
continuing, then the Company and the Restricted Subsidiaries
will from such time and thereafter again be subject to the
suspended covenants, and compliance with the suspended covenants
with respect to Restricted Payments made after the time of such
withdrawal, downgrade, Default or Event of Default will be
calculated in accordance with the terms of the covenant
described below under Limitation on Restricted
Payments as though such covenant had been in effect during
the entire period of time from the Issue Date.
There can be no assurance that the Notes will ever achieve an
Investment Grade Rating from one or both Ratings Agencies.
Limitation on Debt. The Company shall not, and shall not
permit any Restricted Subsidiary to, Incur, directly or
indirectly, any Debt unless, after giving effect to the
application of the proceeds thereof, no Default or Event of
Default would occur as a consequence of such Incurrence or be
continuing following such Incurrence and either:
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(1) such Debt is Debt of the Company or a Subsidiary
Guarantor and, after giving effect to the Incurrence of such
Debt and the application of the proceeds thereof, the
Consolidated Interest Coverage Ratio would be greater than 2.00:
1.00, or |
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(2) such Debt is Permitted Debt. |
The term Permitted Debt is defined to include the
following:
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(a) (i) Debt of the Company evidenced by the old notes
and the Notes issued in exchange for such old notes and in
exchange for any Additional Notes and (ii) Debt of the
Subsidiary Guarantors evidenced by Subsidiary Guaranties
relating to the old notes and the Notes issued in exchange for
such old notes and in exchange for any Additional Notes; |
139
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(b) Debt of the Company or a Restricted Subsidiary under
Credit Facilities, provided that the aggregate principal amount
of all such Debt under Credit Facilities at any one time
outstanding shall not exceed $2.1 billion, which amount
shall be permanently reduced by the amount of Net Available Cash
used to Repay Debt under Credit Facilities and not subsequently
reinvested in Additional Assets or used to purchase Notes or
Repay other Debt, pursuant to the covenant described under
Limitation on Asset Sales; |
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(c) Debt of the Company or a Restricted Subsidiary in
respect of Capital Lease Obligations and Purchase Money Debt,
provided that: |
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(1) the aggregate principal amount of such Debt does not
exceed the cost of construction, acquisition or improvement of
the Property acquired, constructed or leased together with the
reasonable costs of acquisition, and |
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(2) the aggregate principal amount of all Debt Incurred and
then outstanding pursuant to this clause (c) (together with
all Permitted Refinancing Debt Incurred and then outstanding in
respect of Debt previously Incurred pursuant to this
clause (c)) does not exceed 5% of Consolidated Net Tangible
Assets; |
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(d) Debt of the Company owing to and held by any Wholly
Owned Restricted Subsidiary and Debt of a Restricted Subsidiary
owing to and held by the Company or any Wholly Owned Restricted
Subsidiary; provided, however, that any subsequent issue
or transfer of Capital Stock or other event that results in any
such Wholly Owned Restricted Subsidiary ceasing to be a Wholly
Owned Restricted Subsidiary or any subsequent transfer of any
such Debt (except to the Company or a Wholly Owned Restricted
Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Debt by the issuer thereof; |
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(e) Debt of a Restricted Subsidiary outstanding on the date
on which such Restricted Subsidiary is acquired by the Company
or otherwise becomes a Restricted Subsidiary (other than Debt
Incurred as consideration in, or to provide all or any portion
of the funds or credit support utilized to consummate, the
transaction or series of transactions pursuant to which such
Restricted Subsidiary became a Subsidiary of the Company or was
otherwise acquired by the Company), provided that at the time
such Restricted Subsidiary is acquired by the Company or
otherwise becomes a Restricted Subsidiary and after giving
effect to the Incurrence of such Debt, the Company would have
been able to Incur $1.00 of additional Debt pursuant to
clause (1) of the first paragraph of this covenant; |
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(f) Debt under Interest Rate Agreements entered into by the
Company or a Restricted Subsidiary for the purpose of limiting
interest rate risk in the ordinary course of the financial
management of the Company or such Restricted Subsidiary and not
for speculative purposes, provided that the obligations under
such agreements are directly related to payment obligations on
Debt otherwise permitted by the terms of this covenant; |
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(g) Debt under Currency Exchange Protection Agreements
entered into by the Company or a Restricted Subsidiary for the
purpose of limiting currency exchange rate risks directly
related to transactions entered into by the Company or such
Restricted Subsidiary in the ordinary course of business and not
for speculative purposes; |
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(h) Debt under Commodity Price Protection Agreements
entered into by the Company or a Restricted Subsidiary in the
ordinary course of the financial management of the Company or
such Restricted Subsidiary and not for speculative purposes; |
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(i) Debt in connection with one or more standby letters of
credit or performance bonds issued by the Company or a
Restricted Subsidiary in the ordinary course of business or
pursuant to self-insurance obligations and not in connection
with the borrowing of money or the obtaining of advances or
credit; |
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(j) Debt Incurred by a Securitization Entity in a Qualified
Securitization Transaction that is not recourse to the Company
or any Restricted Subsidiary (except for Standard Securitization
Undertakings); |
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(k) Debt of the Company or a Restricted Subsidiary
outstanding on the Issue Date not otherwise described in
clauses (a) through (j) above (including in such
clauses (a) through (j), but not limited to, any Debt
incurred under Credit Facilities prior to the Issue Date); |
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(l) Debt of the Company or a Restricted Subsidiary in an
aggregate principal amount outstanding at any one time not to
exceed $150.0 million; and |
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(m) Permitted Refinancing Debt Incurred in respect of Debt
Incurred pursuant to clause (1) of the first paragraph of
this covenant and clauses (a), (c) and (k) above. |
Notwithstanding anything to the contrary contained in this
covenant, accrual of interest, accretion or amortization of
original issue discount and the payment of interest or dividends
in the form of additional Debt, will be deemed not to be an
Incurrence of Debt for purposes of this covenant.
For purposes of determining compliance with this covenant, in
the event that an item of Debt meets the criteria of more than
one of the categories of Permitted Debt described in
clauses (a) through (m) above or is entitled to be
incurred pursuant to clause (l) of the first paragraph of
this covenant, the Company shall, in its sole discretion,
classify (and may later reclassify in whole or in part, in its
sole discretion) such item of Debt in any manner that complies
with this covenant; provided, however, that any
incurrences of Debt under Credit Facilities prior to the Issue
Date shall be treated as having been incurred under
clause (b) above.
Limitation on Restricted Payments. The Company shall not
make, and shall not permit any Restricted Subsidiary to make,
directly or indirectly, any Restricted Payment if at the time
of, and after giving effect to, such proposed Restricted Payment,
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(a) a Default or Event of Default shall have occurred and
be continuing, |
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(b) the Company could not Incur at least $1.00 of
additional Debt pursuant to clause (1) of the first
paragraph of the covenant described under
Limitation on Debt, or |
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(c) the aggregate amount of such Restricted Payment and all
other Restricted Payments declared or made since the Issue Date
(the amount of any Restricted Payment, if made other than in
cash, to be based upon Fair Market Value at the time of such
Restricted Payment) would exceed an amount equal to the sum of: |
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(1) 50% of the aggregate amount of Consolidated Net Income
accrued during the period (treated as one accounting period)
from the beginning of the fiscal quarter during which the Issue
Date occurs to the end of the most recent fiscal quarter for
which financial statements have been provided (or if the
aggregate amount of Consolidated Net Income for such period
shall be a deficit, minus 100% of such deficit), plus |
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(2) 100% of the Capital Stock Sale Proceeds, plus |
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(3) the sum of: |
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(A) the aggregate net cash proceeds received by the Company
or any Restricted Subsidiary from the issuance or sale after the
Issue Date of convertible or exchangeable Debt that has been
converted into or exchanged for Capital Stock (other than
Disqualified Stock) of the Company, and |
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(B) the aggregate amount by which Debt (other than
Subordinated Debt) of the Company or any Restricted Subsidiary
is reduced on the Companys consolidated balance sheet on
or after the Issue Date upon the conversion or exchange of any
Debt issued or sold on or prior to the Issue Date that is
convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company, |
141
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excluding, in the case of clause (A) or (B): |
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(x) any such Debt issued or sold to the Company or a
Subsidiary of the Company or an employee stock ownership plan or
trust established by the Company or any such Subsidiary for the
benefit of their employees, and |
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(y) the aggregate amount of any cash or other Property
distributed by the Company or any Restricted Subsidiary upon any
such conversion or exchange, plus |
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(4) an amount equal to the sum of: |
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(A) the net reduction in Investments in any Person other
than the Company or a Restricted Subsidiary resulting from
dividends, repayments of loans or advances or other transfers of
Property, in each case to the Company or any Restricted
Subsidiary from such Person, and |
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(B) the portion (proportionate to the Companys equity
interest in such Unrestricted Subsidiary) of the Fair Market
Value of the net assets of an Unrestricted Subsidiary at the
time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not
exceed, in the case of any Person, the amount of Investments
previously made (and treated as a Restricted Payment) by the
Company or any Restricted Subsidiary in such Person. |
Notwithstanding the foregoing limitation, the Company may:
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(a) pay dividends on its Capital Stock within 60 days
of the declaration thereof if, on the declaration date, such
dividends could have been paid in compliance with the Indenture;
provided, however, that at the time of such payment of such
dividend, no other Default or Event of Default shall have
occurred and be continuing (or result therefrom); provided
further, however, that such dividend shall be included in
the calculation of the amount of Restricted Payments; |
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(b) purchase, repurchase, redeem, legally defease, acquire
or retire for value Capital Stock of the Company or Subordinated
Debt in exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock
issued or sold to a Subsidiary of the Company or an employee
stock ownership plan or trust established by the Company or any
such Subsidiary for the benefit of their employees);
provided, however, that |
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(1) such purchase, repurchase, redemption, legal
defeasance, acquisition or retirement shall be excluded in the
calculation of the amount of Restricted Payments, and |
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(2) the Capital Stock Sale Proceeds from such exchange or
sale shall be excluded from the calculation pursuant to
clause (c)(2) above; and |
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(c) purchase, repurchase, redeem, legally defease, acquire
or retire for value any Subordinated Debt in exchange for, or
out of the proceeds of the substantially concurrent sale of,
Permitted Refinancing Debt; provided, however, that such
purchase, repurchase, redemption, legal defeasance, acquisition
or retirement shall be excluded in the calculation of the amount
of Restricted Payments; |
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(d) repurchase shares of, or options to purchase shares of,
common stock of the Company or any of its Subsidiaries from
current or former officers, directors or employees of the
Company or any of its Subsidiaries (or permitted transferees of
such current or former officers, directors or employees);
provided, however, that the aggregate amount of such
repurchases shall not exceed $10.0 million in any calendar
year and such repurchases shall be included in the calculation
of the amount of Restricted Payments; |
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(e) make payments in connection with the Reorganization
Transactions of not more than $2.7 billion in the aggregate
to Alcan and its subsidiaries as contemplated in this
prospectus, provided that such payment shall be excluded
from the calculation of the amount of Restricted Payments; |
142
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(f) make payments in connection with Specified Post Closing
Transactions; and |
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(g) make other Restricted Payments in an aggregate amount
after the Issue Date not to exceed $75.0 million. |
Limitation on Liens. Prior to the Notes achieving
Investment Grade Status and during any period other than a
Suspension Period (and during any period that this paragraph
shall apply when there is no election by the Company pursuant to
the following paragraph), the Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly,
Incur or suffer to exist, any Lien (other than Permitted Liens)
upon any of its Property (including Capital Stock of a
Restricted Subsidiary), whether owned at the Issue Date or
thereafter acquired, or any interest therein or any income or
profits therefrom, unless it has made or will make effective
provision whereby the Notes or the applicable Subsidiary
Guaranty will be secured by such Lien equally and ratably with
(or, if such other Debt constitutes Subordinated Debt, prior to)
all other Debt of the Company or any Restricted Subsidiary
secured by such Lien for so long as such other Debt is secured
by such Lien.
After the Notes achieve Investment Grade Status and during any
Suspension Period, the Company may elect by written notice to
the Trustee and the holders of the Notes to be subject to an
alternative covenant with respect to Limitation on
Liens, in lieu of the preceding paragraph. Under this
alternative covenant, the Company will not, and will not permit
any Restricted Subsidiary to, create, incur, assume or suffer to
exist any Lien securing Debt (other than Permitted Liens
pursuant to clauses (c) through (j) and (l) (but
disregarding the reference to clause (b) therein) through
(s) (each inclusive) of the definition of Permitted
Liens) upon (1) any Principal Property of the Company
or any Restricted Subsidiary, (2) any Capital Stock of a
Restricted Subsidiary or (3) any Indebtedness of a
Restricted Subsidiary owed to us or another Restricted
Subsidiary, unless all payments due under the Indenture and the
Notes are secured on an equal and ratable basis with (or prior
to) the obligations so secured until such time as such other
obligations are no longer secured by such lien. Notwithstanding
the foregoing, after the Notes achieve Investment Grade Status
and during a Suspension Period, the Company and its Restricted
Subsidiaries will be permitted to create, incur, assume or
suffer to exist Liens, and renew, extend or replace such Liens,
in each case without complying with the foregoing; provided that
the aggregate amount of all Debt of the Company and its
Restricted Subsidiaries outstanding at such time that is secured
by these Liens (other than (1) Debt secured solely by
Permitted Liens pursuant to clauses (c) through
(j) and (l) (but disregarding the reference to
clause (b) therein) through (s) (each inclusive) of
the definition of Permitted Liens, (2) Debt
that is secured equally and ratably with (or on a basis
subordinated to) the Notes and (3) the Notes) plus the
aggregate amount of all Attributable Debt of the Company and our
Restricted Subsidiaries with respect to all Sale and Leaseback
Transactions outstanding at such time (other than Sale and
Leaseback Transactions permitted by the second paragraph under
Sale and Leaseback Transactions), would
not exceed the greater of 10% of Consolidated Net Tangible
Assets, determined based on the consolidated balance sheet of
the Company as of the end of the most recent fiscal quarter for
which financial statements have been filed or furnished, and
$400,000,000.
Limitation on Asset Sales. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or
indirectly, consummate any Asset Sale unless:
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(a) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to
the Fair Market Value of the Property subject to such Asset Sale; |
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(b) at least 75% of the consideration paid to the Company
or such Restricted Subsidiary in connection with such Asset Sale
is in the form of any one or a combination of the following:
(i) cash, Cash Equivalents or Additional Assets,
(ii) the assumption by the purchaser of liabilities of the
Company or any Restricted Subsidiary (other than contingent
liabilities or liabilities that are by their terms subordinated
to the Notes or the applicable Subsidiary Guaranty) as a result
of which the Company and the Restricted Subsidiaries are no
longer obligated with respect to such liabilities, or
(iii) securities, notes or other obligations received by
the Company or such Restricted Subsidiary to the extent such
securities, notes or other obligations are converted by the
Company or such Restricted Subsidiary into cash, Cash
Equivalents or Additional Assets within 90 days of such
Asset Sale; |
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(c) no Default or Event of Default would occur as a result
of such Asset Sale; and |
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(d) the Company delivers an Officers Certificate to
the Trustee certifying that such Asset Sale complies with the
foregoing clauses (a) and (c). |
The Net Available Cash (or any portion thereof, if any) from
Asset Sales may be applied by the Company or a Restricted
Subsidiary, to the extent the Company or such Restricted
Subsidiary elects (or is required by the terms of any Debt):
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(a) to Repay Senior Debt of the Company or any Subsidiary
Guarantor or Debt of any Restricted Subsidiary that is not a
Subsidiary Guarantor (excluding, in any such case, any Debt owed
to the Company or an Affiliate of the Company); or |
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(b) to reinvest in Additional Assets (including by means of
an Investment in Additional Assets by a Restricted Subsidiary
with Net Available Cash received by the Company or another
Restricted Subsidiary). |
Any Net Available Cash from an Asset Sale not applied in
accordance with the preceding paragraph within 365 days
from the date of the receipt of such Net Available Cash or that
is not segregated from the general funds of the Company for
investment in identified Additional Assets in respect of a
project that shall have been commenced and for which binding
contractual commitments have been entered into prior to the end
of such 365-day period and that shall not have been completed or
abandoned, shall constitute Excess Proceeds;
provided, however, that the amount of any Net Available
Cash that ceases to be so segregated as contemplated above and
any Net Available Cash that is segregated in respect of a
project that is abandoned or completed shall also constitute
Excess Proceeds at the time any such Net Available
Cash ceases to be so segregated or at the time the relevant
project is so abandoned or completed, as applicable; provided
further, however, that the amount of any Net Available Cash
that continues to be segregated for investment and that is not
actually reinvested within twenty-four months from the date of
the receipt of such Net Available Cash shall also constitute
Excess Proceeds.
When the aggregate amount of Excess Proceeds exceeds
$25.0 million, the Company will be required to make an
offer to repurchase (the Prepayment Offer) the
Notes, which offer shall be in the amount of the Allocable
Excess Proceeds (rounded to the nearest $1,000), on a pro
rata basis according to principal amount (of a minimum
$1,000 or any integral multiple thereof) at a purchase price
equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, including Special Interest, if any, to the
repurchase date (subject to the right of holders of record on
the relevant record date to receive interest due on the relevant
interest payment date), in accordance with the procedures
(including prorating in the event of oversubscription) set forth
in the Indenture. To the extent that any portion of the amount
of Net Available Cash remains after compliance with the
preceding sentence and provided that all holders of Notes
have been given the opportunity to tender their Notes for
repurchase in accordance with the Indenture, the Company or such
Restricted Subsidiary may use such remaining amount for any
purpose permitted by the Indenture, and the amount of Excess
Proceeds will be reset to zero; provided, however, that
the amount of the Unoffered Excess Proceeds (as defined herein)
shall constitute Excess Proceeds in respect of the Notes for
purposes of the first Prepayment Offer that is made after the
Fifth Anniversary (as defined herein).
The term Allocable Excess Proceeds shall mean the
product of:
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(a) the Excess Proceeds; and |
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(b) a fraction, |
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(1) the numerator of which is the aggregate principal
amount of the old notes and Notes outstanding on the date of the
Prepayment Offer, and |
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(2) the denominator of which is the sum of the aggregate
principal amount of the old notes and Notes outstanding on the
date of the Prepayment Offer and the aggregate principal amount
of other Debt of the Company outstanding on the date of the
Prepayment Offer that is pari passu |
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in right of payment with the old notes and Notes and subject to
terms and conditions in respect of Asset Sales similar in all
material respects to this covenant and requiring the Company to
make an offer to repurchase such Debt at substantially the same
time as the Prepayment Offer. |
Within five business days after the Company is obligated to make
a Prepayment Offer as described in the preceding paragraph, the
Company shall send a written notice, by first-class mail, to the
holders of Notes, accompanied by such information regarding the
Company and its Subsidiaries as the Company in good faith
believes will enable such holders to make an informed decision
with respect to such Prepayment Offer. Such notice shall state,
among other things, the purchase price and the repurchase date,
which shall be, subject to any contrary requirements of
applicable law, a business day no earlier than 30 days nor
later than 60 days from the date such notice is mailed.
Notwithstanding the foregoing, in no event shall the Company be
required to repurchase or make a Prepayment Offer or Prepayment
Offers (including, without limitation, with respect to the
proceeds of an Asset Sale arising from the issuance of shares of
Capital Stock of any Restricted Subsidiary) to purchase more
than 25% of the original aggregate principal amount of the old
notes on or prior to the fifth anniversary of the Issue Date
(the Fifth Anniversary). If the aggregate Allocable
Excess Proceeds (disregarding any resetting to zero pursuant to
the foregoing paragraphs) resulting from Asset Sales occurring
on or prior to the Fifth Anniversary that, but for the first
sentence of this paragraph, the Company would be required to
apply to repurchase or make an offer to purchase Notes, exceed
25% of the original aggregate principal amount of the old notes
and Notes, then, subject to and in accordance with the
procedures set forth in this covenant, within five Business Days
after the Fifth Anniversary the Company shall make a Prepayment
Offer for the old notes and Notes in an amount equal to such
excess (Unoffered Excess Proceeds).
The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any
other securities laws or regulations in connection with the
repurchase of Notes pursuant to this covenant. To the extent
that the provisions of any securities laws or regulations
conflict with provisions of this covenant, the Company will
comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under this
covenant by virtue thereof.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit
any Restricted Subsidiary to, directly or indirectly, create or
otherwise cause or suffer to exist any consensual restriction on
the right of any Restricted Subsidiary to:
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(a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock, or pay any
Debt or other obligation owed, to the Company or any other
Restricted Subsidiary; |
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(b) make any loans or advances to the Company or any other
Restricted Subsidiary; or |
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(c) transfer any of its Property to the Company or any
other Restricted Subsidiary. |
The foregoing limitations will not apply:
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(1) to restrictions or encumbrances existing under or by
reason of: |
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(A) agreements in effect on the Issue Date (including,
without limitation, restrictions pursuant to the Notes, the
Indenture, the Subsidiary Guaranties and the Senior Credit
Facility), and any amendments, modifications, restatements,
renewals, replacements, refundings, refinancings, increases or
supplements of those agreements, provided that the encumbrances
or restrictions contained in any such amendments, modifications,
restatements, renewals, replacements, refundings, refinancings,
increases or supplements taken as a whole, are not materially
more restrictive than the encumbrances or restrictions contained
in agreements to which they relate as in place on the date of
the Indenture, |
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(B) Debt or Capital Stock of a Restricted Subsidiary
existing at the time it became a Restricted Subsidiary or at the
time it merges with or into the Company or a Restricted
Subsidiary if such restriction was not created in connection
with or in anticipation of the |
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transaction or series of transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was
acquired by the Company, and any amendments, modifications,
restatements, renewals, replacements, refundings, refinancings,
increases or supplements of those instruments, provided that the
encumbrances or restrictions contained in any such amendments,
modifications, restatements, renewals, replacements, refundings,
refinancings, increases or supplements, taken as a whole, are
not materially more restrictive than the encumbrances or
restrictions contained in instruments in effect on the date of
acquisition, |
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(C) the Refinancing of Debt Incurred pursuant to an
agreement referred to in clause (1)(A) or (B) above or
in clause (2)(A) or (B) below, provided such restrictions
are not materially less favorable, taken as a whole to the
holders of Notes than those under the agreement evidencing the
Debt so Refinanced, |
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(D) any applicable law, rule, regulation or order, |
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(E) Permitted Refinancing Debt, provided that the
restrictions contained in the agreements governing such
Permitted Refinancing Debt, taken as a whole, are not materially
more restrictive than those contained in the agreements
governing the Debt being refinanced, |
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(F) Liens securing obligations otherwise permitted to be
incurred under the provisions of the covenant described above
under the caption Limitation on Liens or
below under the caption Limitation on Sale and
Leaseback Transactions that limit the right of the debtor
to dispose of the assets subject to such Liens, |
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(G) customary provisions limiting or prohibiting the
disposition or distribution of assets or property in joint
venture agreements, asset sale agreements, Sale and Leaseback
Transactions, stock sale agreements and other similar agreements
entered into in the ordinary course of business, which
limitation or prohibition is applicable only to the assets that
are the subject of such agreements, |
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(H) restrictions on cash or other deposits or net worth
imposed by customers or lessors under contracts or leases
entered into in the ordinary course of business, or |
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(I) arising under Debt or other contractual requirements of
a Securitization Entity in connection with a Qualified
Securitization Transaction; provided that such restrictions
apply only to such Securitization Entity, and |
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(2) with respect to clause (c) only, to restrictions
or encumbrances: |
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(A) relating to Debt that is permitted to be Incurred and
secured without also securing the Notes or the applicable
Subsidiary Guaranty pursuant to the covenants described under
Limitation on Debt and
Limitation on Liens that limit the right
of the debtor to dispose of the Property securing such Debt, |
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(B) encumbering Property at the time such Property was
acquired by the Company or any Restricted Subsidiary, so long as
such restrictions relate solely to the Property so acquired and
were not created in connection with or in anticipation of such
acquisition, |
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(C) resulting from customary provisions restricting
subletting or assignment of leases or customary provisions in
other agreements that restrict assignment of such agreements or
rights thereunder, |
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(D) customary restrictions contained in any asset purchase,
stock purchase, merger or other similar agreement, pending the
closing of the transaction contemplated thereby, or |
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(E) customary restrictions contained in joint venture
agreements entered into in the ordinary course of business in
good faith. |
Limitation on Transactions with Affiliates. The Company
shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, conduct any business or enter into or
suffer to exist any
146
transaction or series of transactions (including the purchase,
sale, transfer, assignment, lease, conveyance or exchange of any
Property or the rendering of any service) with, or for the
benefit of, any Affiliate of the Company (an Affiliate
Transaction), unless:
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(a) the terms of such Affiliate Transaction are no less
favorable to the Company or such Restricted Subsidiary, as the
case may be, than those that could be obtained in a comparable
arms-length transaction with a Person that is not an
Affiliate of the Company; |
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(b) if such Affiliate Transaction involves aggregate
payments or value in excess of $20.0 million, the Board of
Directors approves such Affiliate Transaction and, in its good
faith judgment, believes that such Affiliate Transaction
complies with clause (a) of this paragraph as evidenced by
a Board Resolution promptly delivered to the Trustee; and |
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(c) if such Affiliate Transaction involves aggregate
payments or value in excess of $50.0 million (1) the
Board of Directors (including at least a majority of the
disinterested members of the Board of Directors) approves such
Affiliate Transaction and, in its good faith judgment, believes
that such Affiliate Transaction complies with clause (a) of
this paragraph as evidenced by a Board Resolution promptly
delivered to the Trustee, or (2) the Company obtains a written
opinion from an Independent Financial Advisor to the effect that
the consideration to be paid or received in connection with such
Affiliate Transaction is fair, from a financial point of view,
to the Company and the Restricted Subsidiaries. |
Notwithstanding the foregoing limitation, the Company or any
Restricted Subsidiary may enter into or suffer to exist the
following, which shall not be deemed to be Affiliate
Transactions and therefore will not be subject to the provisions
of clauses (a), (b) and (c) above of this
covenant:
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(a) any transaction or series of transactions between the
Company and one or more Restricted Subsidiaries or between two
or more Restricted Subsidiaries in the ordinary course of
business, provided that no more than 10% of the total voting
power of the Voting Stock (on a fully diluted basis) of any such
Restricted Subsidiary is owned by an Affiliate of the Company
(other than a Restricted Subsidiary); |
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(b) any Restricted Payment permitted to be made pursuant to
the covenant described under Limitation on
Restricted Payments or any Permitted Investment; |
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(c) any employment, compensation, benefit or
indemnification agreement or arrangement (and any payments or
other transactions pursuant thereto) entered into by the Company
or any Restricted Subsidiary in the ordinary course of business
(or that is otherwise reasonable as determined in good faith by
the board of directors of the Company or the Restricted
Subsidiary, as the case may be) with an officer, employee,
consultant or director and any transactions pursuant to stock
option plans, stock ownership plans and employee benefit plans
or arrangements; |
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(d) loans and advances to employees made in the ordinary
course of business other than any loans or advances that would
be in violation of Section 402 of the Sarbanes-Oxley Act;
provided that the Dollar Equivalent of the aggregate principal
amount of such loans and advances do not exceed
$15.0 million in the aggregate at any time outstanding; |
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(e) any transactions between or among any of the Company,
any Restricted Subsidiary and any Securitization Entity in
connection with a Qualified Securitization Transaction, in each
case provided that such transactions are not otherwise
prohibited by terms of the Indenture; |
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(f) agreements in effect on the Issue Date and any
amendments, modifications, extensions or renewals thereto that
are no less favorable to the Company or any Restricted
Subsidiary than such agreements as in effect on the Issue Date; |
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(g) transactions with a Person that is an Affiliate of the
Company solely because the Company or a Restricted Subsidiary
owns Capital Stock of and/or controls, such Person; |
147
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(h) payment of fees and expenses to directors who are not
otherwise employees of the Company or a Restricted Subsidiary,
for services provided in such capacity, so long as the Board of
Directors or a duly authorized committee thereof shall have
approved the terms thereof; |
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(i) the granting and performance of registration rights for
shares of Capital Stock of the Company under a written
registration rights agreement approved by the Companys
Board of Directors as a duly authorized committee thereof; |
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(j) transactions with Affiliates solely in their capacity
as holders of Debt or Capital Stock of the Company or any of its
Subsidiaries, provided that a significant amount of the Debt or
Capital Stock of the same class is also held by persons that are
not Affiliates of the Company and those Affiliates are treated
no more favorably than holders of the Debt or Capital Stock
generally; and |
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(k) any action required to be taken in connection with the
Specified Post Closing Transactions. |
Limitation on Sale and Leaseback Transactions. Prior to
the Notes achieving Investment Grade Status and during any
period other than a Suspension Period, the Company shall not,
and shall not permit any Restricted Subsidiary to, enter into
any Sale and Leaseback Transaction with respect to any Property
unless:
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(a) the Company or such Restricted Subsidiary would be
entitled to: |
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(1) Incur Debt in an amount equal to the Attributable Debt
with respect to such Sale and Leaseback Transaction pursuant to
the covenant described under Limitation on
Debt, and |
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(2) create a Lien on such Property securing such
Attributable Debt without also securing the Notes or the
applicable Subsidiary Guaranty pursuant to the covenant
described under Limitation on
Liens, and |
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(b) such Sale and Leaseback Transaction is effected in
compliance with the covenant described under
Limitation on Asset Sales. |
After the Notes achieve Investment Grade Status or during any
Suspension Period, the Company will not, and will not permit any
Restricted Subsidiary to, enter into any Sale and Leaseback
Transaction involving any Principal Property, except for any
Sale and Leaseback Transaction involving a lease not exceeding
three years unless:
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(1) the Company or that Restricted Subsidiary, as
applicable, would at the time of entering into the transaction
be entitled to incur Debt secured by a Lien on that Principal
Property in an amount equal to the Attributable Debt with
respect to such Sale and Leaseback Transaction without equally
and ratably securing the Notes; or |
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(2) an amount equal to the net cash proceeds of the Sale
and Leaseback Transaction is applied within 180 days to: |
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(a) the voluntary retirement or prepayment of any Debt of
the Company or any Restricted Subsidiary maturing more than one
year after the date incurred, and which is senior to or pari
passu in right of payment with the Notes, or |
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(b) the purchase of other property that will constitute
Principal Property having a value (as determined in good faith
by the Board of Directors) in an amount at least equal to the
net cash proceeds of the Sale and Leaseback Transaction; or |
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(3) within the 180-day period specified in clause (2)
above, the Company or that Restricted Subsidiary, as applicable,
deliver to the trustee for cancellation old notes and Notes in
an aggregate principal amount at least equal to the net proceeds
of the Sale and Leaseback Transaction. |
Notwithstanding the foregoing, after the Notes achieve
Investment Grade Status or during any Suspension Period, the
Company and any Restricted Subsidiary may enter into Sale and
Leaseback Transactions that would not otherwise be permitted
under the limitations described in the preceding paragraph,
provided that
148
the sum of the aggregate amount of all Debt of the Company and
its Restricted Subsidiaries that is secured by Liens (other than
(1) Debt secured solely by Permitted Liens pursuant to
clauses (c) through (j) and (l) (but disregarding
the reference to clause (b) therein) through (s) of
the definition of Permitted Liens, (2) Debt
that is secured equally and ratably with (or on a basis
subordinated to) the Notes and (3) the Notes) and the
aggregate amount of all Attributable Debt of the Company and our
Restricted Subsidiaries with respect to all Sale and Leaseback
Transactions outstanding at such time (other than Sale and
Leaseback Transactions permitted by the preceding paragraph)
would not exceed 10% of the Consolidated Net Tangible Assets of
the Company and its Restricted Subsidiaries.
Designation of Restricted and Unrestricted Subsidiaries.
The Board of Directors may designate any Subsidiary of the
Company to be an Unrestricted Subsidiary if:
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(a) the Subsidiary to be so designated does not own any
Capital Stock or Debt of, or own or hold any Lien on any
Property of, the Company or any other Restricted
Subsidiary; and |
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(b) either: |
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(1) the Subsidiary to be so designated has total assets of
$1,000 or less, or |
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(2) such designation is effective immediately upon such
entity becoming a Subsidiary of the Company, or |
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(3) the Investment by the Company or another Restricted
Subsidiary in such Subsidiary is treated as a Restricted Payment
under the covenant described under Limitation
on Restricted Payments and such Restricted Payment is
permitted under such covenant at the time such Investment is
made. |
Unless so designated as an Unrestricted Subsidiary, any Person
that becomes a Subsidiary of the Company will be classified as a
Restricted Subsidiary; provided, however, that such
Subsidiary shall not be designated a Restricted Subsidiary and
shall be automatically classified as an Unrestricted Subsidiary
if either of the requirements set forth in
clauses (x) and (y) of the second immediately
following paragraph will not be satisfied after giving pro
forma effect to such classification or if such Person is a
Subsidiary of an Unrestricted Subsidiary.
Except as provided in the first sentence of the preceding
paragraph, no Restricted Subsidiary may be redesignated as an
Unrestricted Subsidiary, and neither the Company nor any
Restricted Subsidiary shall at any time be directly or
indirectly liable for any Debt that provides that the holder
thereof may (with the passage of time or notice or both) declare
a default thereon or cause the payment thereof to be accelerated
or payable prior to its Stated Maturity upon the occurrence of a
default with respect to any Debt, Lien or other obligation of
any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary). Upon
designation of a Restricted Subsidiary as an Unrestricted
Subsidiary in compliance with this covenant, such Restricted
Subsidiary shall, by execution and delivery of a supplemental
indenture in form satisfactory to the Trustee, be released from
any Subsidiary Guaranty previously made by such Restricted
Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary if, immediately after giving
pro forma effect to such designation,
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(x) the Company could Incur at least $1.00 of additional
Debt pursuant to clause (1) of the first paragraph of the
covenant described under Limitation on
Debt, and |
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(y) no Default or Event of Default shall have occurred and
be continuing or would result therefrom. |
149
Any such designation or redesignation by the Board of Directors
will be evidenced to the Trustee by filing with the Trustee a
Board Resolution giving effect to such designation or
redesignation and an Officers Certificate that:
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(a) certifies that such designation or redesignation
complies with the foregoing provisions, and |
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(b) gives the effective date of such designation or
redesignation, |
such filing with the Trustee to occur within 45 days after
the end of the fiscal quarter of the Company in which such
designation or redesignation is made (or, in the case of a
designation or redesignation made during the last fiscal quarter
of the Companys fiscal year, within 90 days after the
end of such fiscal year).
Future Subsidiary Guarantors. The Company shall cause
each Person that becomes (a) a Canadian Restricted
Subsidiary or U.S. Restricted Subsidiary or (b) a
Restricted Subsidiary that Guarantees Debt in the future under
Credit Facilities, provided that the borrower of such Debt is
the Company or a Canadian Restricted Subsidiary or
U.S. Restricted Subsidiary, in each case following the
Issue Date, to execute and deliver to the Trustee a Subsidiary
Guaranty at the time such Person becomes a Canadian Restricted
Subsidiary or U.S. Restricted Subsidiary or otherwise
becomes obligated to become a Subsidiary Guarantor under the
Indenture.
Merger, Consolidation and Sale of Property
The Company shall not merge, consolidate or amalgamate with or
into any other Person (other than a merger of a Wholly Owned
Restricted Subsidiary into the Company) or sell, transfer,
assign, lease, convey or otherwise dispose of all or
substantially all its Property in any one transaction or series
of transactions unless:
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(a) the Company shall be the Surviving Person in such
merger, consolidation or amalgamation, or the Surviving Person
(if other than the Company) formed by such merger, consolidation
or amalgamation or to which such sale, transfer, assignment,
lease, conveyance or disposition is made shall be a corporation
organized and existing under the laws of the United States, any
State thereof, the District of Columbia, Canada or any province
or territory of Canada; |
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(b) the Surviving Person (if other than the Company)
expressly assumes, by supplemental indenture in form
satisfactory to the Trustee, executed and delivered to the
Trustee by such Surviving Person, the due and punctual payment
of the principal of, and premium, if any, and interest on, all
the Notes, according to their tenor, and the due and punctual
performance and observance of all the covenants and conditions
of the Indenture to be performed by the Company; |
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(c) in the case of a sale, transfer, assignment, lease,
conveyance or other disposition of all or substantially all the
Property of the Company, such Property shall have been
transferred as an entirety or virtually as an entirety to one
Person; |
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(d) immediately before and after giving effect to such
transaction or series of transactions on a pro forma
basis (and treating, for purposes of this clause (d)
and clause (e) below, any Debt that becomes, or is
anticipated to become, an obligation of the Surviving Person or
any Restricted Subsidiary as a result of such transaction or
series of transactions as having been Incurred by the Surviving
Person or such Restricted Subsidiary at the time of such
transaction or series of transactions), no Default or Event of
Default shall have occurred and be continuing; |
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(e) immediately after giving effect to such transaction or
series of transactions on a pro forma basis, the Company
or the Surviving Person, as the case may be, would be able to
Incur at least $1.00 of additional Debt under clause (1) of
the first paragraph of the covenant described under
Certain Covenants Limitation on
Debt; |
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(f) the Company shall deliver, or cause to be delivered, to
the Trustee, in form and substance reasonably satisfactory to
the Trustee, an Officers Certificate and an Opinion of
Counsel, each stating |
150
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that such transaction or series of transactions and the
supplemental indenture, if any, in respect thereto comply with
this covenant and that all conditions precedent herein provided
for relating to such transaction or series of transactions have
been satisfied; |
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(g) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the holders will not
recognize income, gain or loss for U.S. Federal income tax
purposes as a result of such transaction or series of
transactions and will be subject to U.S. Federal income tax
on the same amounts, in the same manner and at the same times as
would be the case if the transaction or series of transactions
had not occurred; and |
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(h) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that holders of the Notes will
not recognize income, gain or loss for Canadian federal,
provincial or territorial income tax purposes as a result of
such transaction or series of transactions and will be subject
to Canadian federal, provincial or territorial income taxes
(including withholding taxes) on the same amounts, in the same
manner and at the same times as would be the case if such
transaction or series of transactions had not occurred. |
The Company shall not permit any Subsidiary Guarantor to merge,
consolidate or amalgamate with or into any other Person (other
than a merger of a Wholly Owned Restricted Subsidiary into the
Company or such Subsidiary Guarantor) or sell, transfer, assign,
lease, convey or otherwise dispose of all or substantially all
its Property in any one transaction or series of transactions
unless:
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(a) the Surviving Person (if not such Subsidiary Guarantor)
formed by such merger, consolidation or amalgamation or to which
such sale, transfer, assignment, lease, conveyance or
disposition is made shall be a corporation, company (including a
limited liability company) or partnership organized and existing
under the laws of the United States, any State thereof, the
District of Columbia or Canada or any province or territory of
Canada; |
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(b) the Surviving Person (if other than such Subsidiary
Guarantor) expressly assumes, by supplemental indenture in form
satisfactory to the Trustee, executed and delivered to the
Trustee by such Surviving Person, the due and punctual
performance and observance of all the obligations of such
Subsidiary Guarantor under its Subsidiary Guaranty; |
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(c) in the case of a sale, transfer, assignment, lease,
conveyance or other disposition of all or substantially all the
Property of such Subsidiary Guarantor, such Property shall have
been transferred as an entirety or virtually as an entirety to
one Person; |
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(d) immediately before and after giving effect to such
transaction or series of transactions on a pro forma basis (and
treating, for purposes of this clause (d) and
clause (e) below, any Debt that becomes, or is anticipated
to become, an obligation of the Surviving Person, the Company or
any Restricted Subsidiary as a result of such transaction or
series of transactions as having been Incurred by the Surviving
Person, the Company or such Restricted Subsidiary at the time of
such transaction or series of transactions), no Default or Event
of Default shall have occurred and be continuing; |
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(e) immediately after giving effect to such transaction or
series of transactions on a pro forma basis, the Company would
be able to Incur at least $1.00 of additional Debt under
clause (1) of the first paragraph of the covenant described
under Certain Covenants Limitation
on Debt; |
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(f) the Company shall deliver, or cause to be delivered, to
the Trustee, in form and substance reasonably satisfactory to
the Trustee, an Officers Certificate and an Opinion of
Counsel, each stating that such transaction or series of
transactions and such Subsidiary Guaranty, if any, in respect
thereto comply with this covenant and that all conditions
precedent herein provided for relating to such transaction or
series of transactions have been satisfied; |
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(g) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the holders will not
recognize income, gain or loss for U.S. Federal income tax
purposes as a result of such transaction or series of
transactions and will be subject to U.S. Federal income tax
on the same |
151
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amounts, in the same manner and at the same times as would be
the case if such transaction or series of transactions had not
occurred; and |
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(h) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that holders of the Notes will
not recognize income, gain or loss for Canadian federal,
provincial or territorial income tax purposes as a result of
such transaction or series of transactions and will be subject
to Canadian federal, provincial or territorial income taxes
(including withholding taxes) on the same amounts, in the same
manner and at the same times as would be the case if such
transaction or series of transactions had not occurred. |
The foregoing provisions of this paragraph (other than
clause (d)) shall not apply to any transaction or series of
transactions which constitute an Asset Sale if the Company has
complied with the covenant described under
Certain Covenants Limitation on
Asset Sales.
The Surviving Person shall succeed to, and be substituted for,
and may exercise every right and power of the Company under the
Indenture (or of the Subsidiary Guarantor under the Subsidiary
Guaranty, as the case may be), but the predecessor Company in
the case of:
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(a) a sale, transfer, assignment, conveyance or other
disposition (unless such sale, transfer, assignment, conveyance
or other disposition is of all the assets of the Company as an
entirety or virtually as an entirety), or |
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(b) a lease, |
shall not be released from any of the obligations or covenants
under the Indenture, including with respect to the payment of
the Notes.
Payments for Consents
The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise,
to any holder of any Notes for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is
offered to be paid or is paid to all holders of the Notes that
consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to such consent, waiver or
agreement.
SEC Reports
The Company shall provide the Trustee and holders of Notes,
within 15 days after it files with, or furnishes to, the
SEC, copies of its annual report and of the information,
documents and other reports (or copies of such portions of any
of the foregoing as the SEC may by rules and regulations
prescribe) which the Company is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act or is
required to furnish to the SEC pursuant to the Indenture.
Regardless of whether the Company is required to report on an
annual and quarterly basis on forms provided for such annual and
quarterly reporting pursuant to rules and regulations
promulgated by the SEC, the Indenture requires the Company to
continue to file with, or furnish to, the SEC and provide the
Trustee and holders of Notes:
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(a) within 90 days after the end of each fiscal year
(or such shorter period as the SEC may in the future prescribe),
an annual report containing substantially the same information
required to be contained in Form 10-K or Form 20-F (or
any successor form) that would be required if the Company were
subject to the reporting requirements of Section 13 or
15(d)) of the Exchange Act; and |
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(b) within 45 days after the end of each of the first
three fiscal quarters of each fiscal year (or such shorter
period as the SEC may in the future prescribe), a quarterly
report containing substantially the same information required to
be contained in Form 10-Q (or any successor form) that
would be required if the Company were organized in the United
States and subject to the reporting requirements of
Section 13 or 15(d)) of the Exchange Act, |
152
provided, however, that the Company shall not be so
obligated to file any of the foregoing reports with the SEC if
the SEC does not permit such filings.
Events of Default
Events of Default in respect of the Notes include:
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(1) failure to make the payment of any interest (including
Additional Amounts) or Special Interest, if any, on the Notes
when the same becomes due and payable, and such failure
continues for a period of 30 days; |
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(2) failure to make the payment of any principal of, or
premium, if any, on, any of the Notes when the same becomes due
and payable at its Stated Maturity, upon acceleration,
redemption, optional redemption, required repurchase or
otherwise; |
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(3) failure to comply with the covenant described under
Merger, Consolidation and Sale of
Property; |
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(4) failure to comply with any other covenant or agreement
in the Notes or in the Indenture (other than a failure that is
the subject of the foregoing clause (1), (2) or (3)),
and such failure continues for 60 days after written notice
is given to the Company as provided below; |
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(5) a default under any Debt by the Company or any
Restricted Subsidiary that results in acceleration of the
maturity of such Debt, or failure to pay any such Debt at
maturity, in an aggregate amount greater than $50.0 million
(the cross acceleration provisions); |
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(6) any judgment or judgments for the payment of money in
an aggregate amount in excess of $50.0 million that shall
be rendered against the Company or any Restricted Subsidiary and
that shall not be waived, satisfied or discharged for any period
of 60 consecutive days during which a stay of enforcement shall
not be in effect (the judgment default provisions); |
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(7) certain events involving bankruptcy, insolvency or
reorganization of the Company or any Significant Subsidiary (the
bankruptcy provisions); |
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(8) any Subsidiary Guaranty ceases to be in full force and
effect (other than in accordance with the terms of such
Subsidiary Guaranty) or any Subsidiary Guarantor denies or
disaffirms its obligations under its Subsidiary Guaranty (the
guaranty provisions); and |
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(9) any security interest securing the Notes or any
Subsidiary Guaranty that may be granted after the Issue Date
pursuant to the terms of the Indenture shall, at any time,
(A) cease to be in full force and effect for any reason
other than in accordance with its terms or the satisfaction in
full of all obligations under the Indenture and discharge of the
Indenture or (B) be declared invalid or unenforceable or
the Company or any Subsidiary Guarantor shall assert, in any
pleading in any court of competent jurisdiction, that any such
security interest is invalid or unenforceable (the
security default provisions). |
A Default under clause (4) is not an Event of Default until
the Trustee or the holders of not less than 25% in aggregate
principal amount of the old notes and Notes then outstanding
notify the Company of the Default and the Company does not cure
such Default within the time specified after receipt of such
notice. Such notice must specify the Default, demand that it be
remedied and state that such notice is a Notice of
Default.
The Company shall deliver to the Trustee annually a statement
regarding compliance with the Indenture. Upon an Officer
becoming aware of any Default or Event of Default, the Company
shall deliver to the Trustee, within 10 days of becoming so
aware, written notice in the form of an Officers
Certificate specifying such Default or Event of Default, its
status, and the action the Company proposes to take with respect
thereto.
153
If an Event of Default with respect to the Notes (other than an
Event of Default resulting from certain events involving
bankruptcy, insolvency or reorganization with respect to the
Company) shall have occurred and be continuing, the Trustee or
the registered holders of not less than 25% in aggregate
principal amount of the old notes and Notes then outstanding may
declare to be immediately due and payable the principal amount
of all the Notes then outstanding, plus accrued and unpaid
interest, including Special Interest, if any to the date of
acceleration. In case an Event of Default resulting from certain
events of bankruptcy, insolvency or reorganization with respect
to the Company shall occur, such amount with respect to all the
old notes and Notes shall be due and payable immediately without
any declaration or other act on the part of the Trustee or the
holders of the old notes and Notes. After any such acceleration,
but before a judgment or decree based on acceleration is
obtained by the Trustee, the registered holders of at least a
majority in aggregate principal amount of the old notes and
Notes then outstanding may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than
the nonpayment of accelerated principal, premium or interest,
have been cured or waived as provided in the Indenture.
Subject to the provisions of the Indenture relating to the
duties of the Trustee, in case an Event of Default shall occur
and be continuing, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the
request or direction of any of the holders of the Notes, unless
such holders shall have offered to the Trustee reasonable
indemnity. Subject to such provisions for the indemnification of
the Trustee, the holders of at least a majority in aggregate
principal amount of the old notes and Notes then outstanding
will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the
Trustee with respect to the Notes. The holders of a majority in
aggregate principal amount of the old notes and Notes then
outstanding by notice to the Trustee may on behalf of the
holders of all of the Notes waive any existing Default or Event
of Default and its consequences under the Indenture except a
continuing Default or Event of Default: (a) in the payment
of the principal or, premium, if any, or interest, including
Special Interest, if any, and (b) in respect of a covenant
or provision which under the Indenture cannot be modified or
amended without the consent of the holder of each Note affected
thereby.
No holder of Notes will have any right to institute any
proceeding with respect to the Indenture, or for the appointment
of a receiver or trustee, or for any remedy thereunder, unless:
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(a) such holder has previously given to the Trustee written
notice of a continuing Event of Default; |
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(b) the registered holders of at least 25% in aggregate
principal amount of the old notes and Notes then outstanding
have made a written request and offered reasonable indemnity to
the Trustee to institute such proceeding as trustee; and |
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(c) the Trustee shall not have received from the registered
holders of at least a majority in aggregate principal amount of
the old notes and Notes then outstanding a direction
inconsistent with such request and shall have failed to
institute such proceeding within 60 days. |
However, such limitations do not apply to a suit instituted by a
holder of any Note for enforcement of payment of the principal
of, and premium, if any, or interest, including Special
Interest, if any, on, such Note on or after the respective due
dates expressed in such Note.
No Personal Liability of Directors, Officers, Employees and
Stockholders
No director, officer, employee, incorporator, stockholder or
member of the Company or any Subsidiary or Affiliate of the
Company, as such, will have any liability for any obligations
under the Notes, the Indenture, the Subsidiary Guaranties, the
registration rights agreement, or for any claim based on, in
respect of, or by reason of, such obligations or their creation.
Each holder of Notes by accepting a Note waives and releases all
such liability. The waiver and release are part of the
consideration for issuance of the Notes.
154
Amendments and Waivers
Subject to certain exceptions, the Company and the Trustee with
the consent of the registered holders of at least a majority in
aggregate principal amount of the old notes and Notes then
outstanding (including consents obtained in connection with a
tender offer or exchange offer for the Notes) may amend the
Indenture and the old notes and Notes, and the registered
holders of at least a majority in aggregate principal amount of
the old notes and Notes outstanding may waive any past default
or compliance with any provisions of the Indenture and the Notes
(except a default in the payment of principal, premium,
interest, including Special Interest, if any, and certain
covenants and provisions of the Indenture which cannot be
amended without the consent of each holder of an outstanding
Note). However, without the consent of each holder of an
outstanding Note, no amendment may, among other things,
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(1) reduce the principal amount of Notes whose holders must
consent to an amendment, supplement or waiver; |
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(2) reduce the rate of, or extend the time for payment of,
interest, including Special Interest, if any, on, any Note; |
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(3) reduce the principal of, or extend the Stated Maturity
of, any Note, or alter the provisions with respect to the
redemption of the Notes; |
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(4) make any Note payable in money other than that stated
in the Note; |
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(5) impair the right of any holder of the Notes to receive
payment of principal of, premium, if any, and interest,
including Special Interest, if any, on, such holders Notes
on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such
holders Notes or any Subsidiary Guaranty; |
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(6) waive a Default or Event of Default in the payment of
principal of, premium, if any, and interest, including Special
Interest, if any, on such Notes (except a rescission of
acceleration of such Notes by the holders of at least a majority
in aggregate principal amount of the old notes and Notes and a
waiver of the payment default that resulted from such
acceleration); |
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(7) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of holders of
such Notes to receive payments of principal of, or interest or
premium or Special Interest, if any, on such Notes; |
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(8) subordinate the Notes or any Subsidiary Guaranty to any
other obligation of the Company or the applicable Subsidiary
Guarantor; |
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(9) release any security interest that may have been
granted in favor of the holders of the Notes other than pursuant
to the terms of such security interest; |
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(10) reduce the premium payable upon the redemption of any
Note or change the time at which any Note may be redeemed, as
described under Optional Redemption and
Additional Amounts; |
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(11) reduce the premium payable upon a Change of Control
or, at any time after a Change of Control has occurred, change
the time at which the Change of Control Offer relating thereto
must be made or at which the Notes must be repurchased pursuant
to such Change of Control Offer; |
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(12) at any time after the Company is obligated to make a
Prepayment Offer with the Excess Proceeds from Asset Sales,
change the time at which such Prepayment Offer must be made or
at which the Notes must be repurchased pursuant thereto; |
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(13) amend or modify the provisions described under
Additional Amounts; |
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(14) make any change in any Subsidiary Guaranty, that would
adversely affect the holders of the Notes; or |
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(15) make any change in the preceding amendment and waiver
provisions. |
155
The Indenture and the Notes may be amended by the Company and
the Trustee without the consent of any holder of the Notes to:
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(1) cure any ambiguity, omission, defect or inconsistency; |
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(2) provide for the assumption by a Surviving Person of the
obligations of the Company under the Indenture, provided,
that the Company delivers to the Trustee: |
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(A) an Opinion of Counsel to the effect that holders of the
Notes will not recognize income, gain or loss for
U.S. Federal income tax purposes as a result of such
assumption by a successor corporation and will be subject to
U.S. Federal income tax on the same amounts, in the same
manner and at the same times as would be the case if such
assumption had not occurred, and |
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(B) an Opinion of Counsel to the effect that holders of the
Notes will not recognize income, gain or loss for Canadian
federal, provincial or territorial income tax purposes as a
result of such assumption by a successor corporation and will be
subject to Canadian federal, provincial or territorial income
taxes (including withholding taxes) on the same amounts, in the
same manner and at the same times as would be the case if such
assumption had not occurred; |
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(3) provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the
uncertificated Notes are issued in registered form for purposes
of Section 163(f) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B)
of the Code); |
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(4) add additional Guarantees with respect to the Notes or
release Subsidiary Guarantors from Subsidiary Guaranties as
provided or permitted by the terms of the Indenture; |
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(5) secure the Notes, add to the covenants of the Company
for the benefit of the holders of the Notes or surrender any
right or power conferred upon the Company; |
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(6) make any change that does not adversely affect the
rights of any holder of the Notes; |
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(7) comply with any requirement of the SEC in connection
with the qualification of the Indenture under the Trust
Indenture Act; |
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(8) evidence or provide for a successor Trustee; or |
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(9) provide for the issuance of Additional Notes in
accordance with the Indenture. |
The consent of the holders of the Notes is not necessary to
approve the particular form of any proposed amendment,
supplement or waiver. It is sufficient if such consent approves
the substance of the proposed amendment, supplement or waiver.
After an amendment, supplement or waiver becomes effective, the
Company is required to mail to each registered holder of the
Notes at such holders address appearing in the Security
Register a notice briefly describing such amendment, supplement
or waiver. However, the failure to give such notice to all
holders of the Notes, or any defect therein, will not impair or
affect the validity of the amendment, supplement or waiver.
Defeasance
The Company may, at its option and at any time, terminate all
its obligations under the Notes and the Indenture (legal
defeasance), except for certain obligations, including
those respecting the defeasance trust and obligations to
register the transfer or exchange of the Notes, to replace
mutilated, destroyed, lost or stolen Notes and to maintain a
registrar and paying agent in respect of the Notes and to pay
Additional Amounts, if any. The Company at any time also may
terminate:
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(1) its obligations under the covenants described under
Change of Control Offer and
Certain Covenants, |
156
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(2) the operation of the cross acceleration provisions, the
judgment default provisions, the bankruptcy provisions with
respect to Significant Subsidiaries and the guaranty provisions,
in each case described under Events of
Default above, and |
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(3) the limitations contained in clause (e) under the
first paragraph of, and in the second paragraph of,
Merger, Consolidation and Sale of
Property above (covenant defeasance). |
The Company may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance
option.
If the Company exercises its legal defeasance option, payment of
the Notes may not be accelerated because of an Event of Default
with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clause (4)
(with respect to the covenants described under
Certain Covenants), (5), (6), (7) (with
respect only to Significant Subsidiaries), (8) or
(9) under Events of Default above
or because of the failure of the Company to comply with
clause (e) under the first paragraph of, or with the second
paragraph of, Merger, Consolidation and Sale
of Property above. If the Company exercises its legal
defeasance option or its covenant defeasance option, any
collateral then securing the Notes will be released and each
Subsidiary Guarantor will be released from all its obligations
under its Subsidiary Guaranty.
The legal defeasance option or the covenant defeasance option
may be exercised only if:
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(a) the Company irrevocably deposits in trust with the
Trustee money or U.S. Government Obligations for the
payment of principal of, premium, if any, and interest,
including Special Interest, if any, on the Notes to maturity or
redemption, as the case may be; |
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(b) the Company delivers to the Trustee a certificate from
a nationally recognized firm of independent certified public
accountants expressing their opinion that the payments of
principal, premium, if any, and interest when due and without
reinvestment on the deposited U.S. Government Obligations
plus any deposited money without investment will provide cash at
such times and in such amounts as will be sufficient to pay
principal, premium, if any, and interest when due on all the
Notes to be defeased to maturity or redemption, as the case may
be; |
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(c) 90 days pass after the deposit is made, and during
the 90-day period, no Default described in clause (7) under
Events of Default occurs with respect to
the Company or any other Person making such deposit which is
continuing at the end of the period; |
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(d) no Default or Event of Default has occurred and is
continuing on the date of such deposit and after giving effect
thereto; |
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(e) such deposit does not constitute a default under any
other agreement or instrument binding on the Company; |
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(f) the Company delivers to the Trustee an Opinion of
Counsel to the effect that the trust resulting from the deposit
does not constitute, or is qualified as, a regulated investment
company under the Investment Company Act of 1940; |
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(g) in the case of the legal defeasance option, the Company
delivers to the Trustee an Opinion of Counsel stating that: |
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(1) the Company has received from the Internal Revenue
Service a ruling, or |
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(2) since the date of the Indenture there has been a change
in the applicable Federal income tax law, to the effect, in
either case, that, and based thereon such Opinion of Counsel
shall confirm that, the holders of the Notes will not recognize
income, gain or loss for U.S. Federal income tax purposes
as a result of such defeasance and will be subject to
U.S. Federal income tax on the same amounts, in the same
manner and at the same time as would be the case if such
defeasance has not occurred; |
157
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(h) in the case of the covenant defeasance option, the
Company delivers to the Trustee an Opinion of Counsel to the
effect that the holders of the Notes will not recognize income,
gain or loss for U.S. Federal income tax purposes as a
result of such covenant defeasance and will be subject to
U.S. Federal income tax on the same amounts, in the same
manner and at the same times as would be the case if such
covenant defeasance had not occurred; |
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(i) the Company delivers to the Trustee an Opinion of
Counsel to the effect that holders of the Notes will not
recognize income, gain or loss for Canadian federal, provincial
or territorial tax purposes as a result of such deposit and
defeasance and will be subject to Canadian federal, provincial
or territorial taxes (including withholding taxes) on the same
amounts, in the same manner and at the same times as would be
the case if such deposit and defeasance had not
occurred; and |
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(j) the Company delivers to the Trustee an Officers
Certificate and an Opinion of Counsel, each stating that all
conditions precedent to the defeasance and discharge of the
Notes have been complied with as required by the Indenture. |
Satisfaction and Discharge
The Company may discharge the Indenture such that it will cease
to be of further effect, except as to surviving rights of
registration of transfer or exchange of the Notes, as to all
outstanding Notes when:
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(a) all the Notes previously authenticated (except lost,
stolen or destroyed Notes that have been replaced or paid and
Notes for whose payment money has previously been deposited in
trust or segregated and held in trust by the Company and is
thereafter repaid to the Company or discharged from the trust)
have been delivered to the Trustee for cancellation; or |
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(b) all Notes not previously delivered to the Trustee for
cancellation |
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(A) have become due and payable, or |
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(B) will become due and payable at their maturity within
one year, or |
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(C) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of
notice of a redemption by the Trustee, and |
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in the case of (A), (B) or (C), the Company has irrevocably
deposited or caused to be deposited with the Trustee as trust
funds in trust solely for the benefit of the holders, cash in
U.S. dollars, U.S. Government Obligations, or a
combination of such cash and U.S. Government Obligations,
in such amounts as will be sufficient without consideration of
any reinvestment of interest, to pay and discharge the entire
Debt on the Notes not previously delivered to the Trustee for
cancellation or redemption, for principal, premium, if any, and
interest and Special Interest, if any, on the Notes to the date
of deposit, in the case of Notes that have become due and
payable, or to the Stated Maturity or redemption date, as the
case may be; |
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(2) the Company has paid or caused to be paid all other
sums payable by it under the Indenture; and |
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(3) if required by the Trustee, the Company delivers to the
Trustee an Officers Certificate and Opinion of Counsel
stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have
been satisfied. |
Foreign Currency Equivalents
For purposes of determining compliance with any
U.S. dollar-denominated restriction or amount, the
U.S. dollar equivalent principal amount of any amount
denominated in a foreign currency will be the Dollar Equivalent
calculated on the date the Debt was incurred or other
transaction was entered into, or first committed, in the case of
revolving credit debt, provided that if any Permitted
Refinancing Debt is incurred to refinance Debt denominated in a
foreign currency, and such refinancing would cause the
158
applicable U.S. dollar-denominated restriction to be
exceeded if calculated on the date of such refinancing, such
U.S. dollar-denominated restriction will be deemed not have
been exceeded so long as the principal amount of such Permitted
Refinancing Debt does not exceed the principal amount of such
Debt being refinanced. Notwithstanding any other provision in
the Indenture, no restriction or amount will be exceeded solely
as a result of fluctuations in the exchange rate of currencies.
Consent to Jurisdiction and Service of Process
The Company will irrevocably appoint Corporation Service Company
as its agent for service of process in any suit, action or
proceeding with respect to the Indenture or the Notes brought in
any Federal or state court located in New York City and that
each of the parties submit to the jurisdiction thereof.
Enforceability of Judgments
Since most of the Companys assets are located outside the
United States, any judgment obtained in the United States
against it, including judgments with respect to the payment of
any principal, premium, interest, including Special Interest,
and Additional Amounts may not be collectible within United
States.
The Company has been advised by its counsel, Ogilvy Renault LLP,
that the laws of the Provinces of Québec, Ontario and
British Columbia and the federal laws of Canada applicable
therein permit an action to be brought in a court of competent
jurisdiction in the Provinces of Québec, Ontario and
British Columbia (a Canadian Court) on any final,
conclusive and enforceable judgment of any federal or state
court located in the Borough of Manhattan in The City of New
York (New York Court) that is subsisting and
unsatisfied, not impeachable as void or voidable under the
internal laws of the State of New York for a sum certain in
respect of the enforcement of the Indenture or the Notes if
(i) the court rendering such judgment had jurisdiction over
the judgment debtor, as recognized by a Canadian Court (and
submission by the Company in the Indenture to the non-exclusive
jurisdiction of the New York Court will be sufficient for such
purpose); (ii) such judgment was not obtained by fraud or
in a manner contrary to natural justice or in contravention of
the fundamental principles of procedure and the decision and the
enforcement thereof would not be inconsistent with public policy
as such term is understood under the laws of the Provinces of
Ontario and British Columbia, as the case may be (or in the
Province of Québec if the outcome of the decision of the
New York Court is not manifestly inconsistent with public order
as understood in international relations, as that term is
applied by a court of competent jurisdiction in the Province of
Québec); (iii) the enforcement of such judgment does
not constitute, directly or indirectly, the enforcement of
foreign revenue laws (including taxation laws), expropriatory or
penal laws; (iv) the action to enforce such judgment is
commenced within the applicable limitation period; (v) in
the Province of Québec, a dispute between the same parties,
based on the same facts and having the same object, has not
given rise to a decision rendered in the Province of
Québec, whether it has acquired the authority of a final
judgment or not, or is not pending before a Québec
authority, in the first instance, or has not been decided in a
third country and the decision has met the necessary conditions
for recognition in the Province of Québec; (vi) in the
Province of Québec, the decision has not been rendered by
default unless the plaintiff proves that the act of procedure
initiating the proceedings was duly served on the defaulting
party in accordance with the law of the place where the decision
was rendered, provided that the defaulting party does not prove
that, owing to the circumstances, it was unable to learn of the
act of procedure initiating the proceedings or was not given
sufficient time to offer its defense; and (vii) in the
Provinces of Ontario and British Columbia, a dispute between the
same parties based on the same subject matter has not given rise
to a decision rendered by the Canadian Court or been decided by
a foreign authority and the decision meets the necessary
conditions for recognition under the law of the relevant
province.
The Company has been advised by its counsel, Ogilvy Renault LLP,
that they know of no reason under the laws of the Provinces of
Québec, Ontario and British Columbia and the federal laws
of Canada applicable therein, for avoiding recognition of a
judgment of a New York Court to enforce the Indenture or the
Notes on the basis of public policy or public order, as these
terms are understood in international relations and under the
laws of the relevant province and the laws of Canada applicable
therein.
159
In addition, under the Currency Act (Canada), a Canadian Court
may only render judgment for a sum of money in Canadian
currency, and in enforcing a foreign judgment for a sum of money
in a foreign currency, a Canadian court will render its
decisions in the Canadian currency equivalent of such foreign
currency, calculated at the rate of exchange prevailing on the
date the judgment became enforceable at the place where it was
rendered.
Governing Law
The Indenture and the Notes are governed by the laws of the
State of New York.
The Trustee
The Bank of New York Trust Company, N.A. is the Trustee under
the Indenture.
Except during the continuance of an Event of Default, the
Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such of the rights and powers
vested in it under the Indenture and use the same degree of care
and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such persons own
affairs.
Certain Definitions
Set forth below is a summary of certain of the defined terms
used in the Indenture. Reference is made to the Indenture for
the full definition of all such terms as well as any other
capitalized terms used herein for which no definition is
provided. Unless the context otherwise requires, an accounting
term not otherwise defined has the meaning assigned to it in
accordance with GAAP.
Additional Assets means:
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(a) any Property (other than cash, Cash Equivalent and
securities) to be owned by the Company or any Restricted
Subsidiary and used in a Related Business; or |
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(b) Capital Stock of a Person that becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock
by the Company or another Restricted Subsidiary from any Person
other than the Company or an Affiliate of the Company; provided,
however, that, in the case of clause (b), such Restricted
Subsidiary is primarily engaged in a Related Business. |
Affiliate of any specified Person means:
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(a) any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with
such specified Person, or |
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(b) any other Person who is a director or officer of: |
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(1) such specified Person, |
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(2) any Subsidiary of such specified Person, or |
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(3) any Person described in clause (a) above. |
For the purposes of this definition, control, when
used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract
or otherwise; and the terms controlling and
controlled have meanings correlative to the
foregoing. For purposes of the covenants described under
Certain Covenants Limitation on
Transactions with Affiliates and Limitation on Asset
Sales and the definition of Additional Assets
only, Affiliate shall also mean any beneficial owner
of shares representing 10% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company and
any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof; provided, however,
that Alcan shall not be deemed to be an Affiliate of the Company
160
solely by virtue of the agreements it entered into with the
Company in connection with the Reorganization Transactions as
described in this prospectus.
Alcan means Alcan Inc., a corporation
organized under the laws of Canada.
Alternative Currency means any lawful
currency other than U.S. dollars that is freely
transferable into U.S. dollars.
Approved Member States means Belgium, France,
Germany, Italy, Luxembourg, The Netherlands, Spain, Sweden and
the United Kingdom.
Asset Sale means any sale, lease, transfer,
issuance or other disposition (or series of related sales,
leases, transfers, issuances or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to
for the purposes of this definition as a
disposition), of the following:
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(a) any shares of Capital Stock of a Restricted Subsidiary
(other than directors qualifying shares), or |
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(b) any other Property of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the
Company or such Restricted Subsidiary, other than, in the case
of clause (a) or (b) above, |
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(1) any disposition by a Restricted Subsidiary to the
Company or by the Company or a Restricted Subsidiary to a Wholly
Owned Restricted Subsidiary, |
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(2) any disposition that constitutes a Permitted Investment
or Restricted Payment permitted by the covenant described under
Certain Covenants Limitation on
Restricted Payments, |
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(3) any disposition effected in compliance with the first
or second paragraph of the covenant described under
Merger, Consolidation and Sale of
Property), |
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(4) any sale of accounts receivable and related assets
(including contract rights) of the type specified in the
definition of Qualified Securitization Transaction
to or by a Securitization Entity for the fair market value
thereof, |
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(5) any sale pursuant to any Specified Post Closing
Transactions; |
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(6) any sale of assets pursuant to a Sale and Leaseback
Transaction, provided that neither the Company nor any
Restricted Subsidiary shall, nor shall they permit any of their
respective Subsidiaries to, become or remain liable as lessee or
guarantor or other surety with respect to any operating lease,
unless the aggregate amount of all rents paid or accrued under
all such operating leases does not exceed $25.0 million in
any fiscal year; |
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(7) any sale or disposition of cash or Cash Equivalents; |
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(8) the granting of Liens not prohibited by the
Indenture; and |
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(9) any disposition in a single transaction or a series of
related transactions of assets for aggregate consideration of
less than $10.0 million. |
Attributable Debt in respect of a Sale and
Leaseback Transaction means, at any date of determination,
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(a) if such Sale and Leaseback Transaction is a Capital
Lease Obligation, the amount of Debt represented thereby
according to the definition of Capital Lease
Obligations, and |
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(b) in all other instances, the greater of: |
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(1) the Fair Market Value of the Property subject to such
Sale and Leaseback Transaction, and |
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(2) the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total
obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale and Leaseback
Transaction (including any period for which such lease has been
extended). |
Average Life means, as of any date of
determination, with respect to any Debt or Preferred Stock, the
quotient obtained by dividing:
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(a) the sum of the product of the numbers of years (rounded
to the nearest one-twelfth of one year) from the date of
determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment
with respect to such Preferred Stock multiplied by the amount of
such payment by |
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(b) the sum of all such payments. |
Board of Directors means the board of
directors of the Company.
Board Resolution of a Person means a copy of
a resolution certified by the secretary or an assistant
secretary (or individual performing comparable duties) of the
applicable Person to have been duly adopted by the board of
directors of such Person and to be in full force and effect on
the date of such certification.
Canadian Restricted Subsidiary means any
Restricted Subsidiary that is organized under the laws of Canada
or any province thereof.
Capital Lease Obligations means any
obligation under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP; and the
amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance
with GAAP; and the Stated Maturity thereof shall be the date of
the last payment of rent or any other amount due under such
lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty. For
purposes of Certain Covenants
Limitation on Liens, a Capital Lease Obligation shall be
deemed secured by a Lien on the Property being leased.
Capital Stock means, with respect to any
Person, any shares or other equivalents (however designated) of
any class of corporate stock or partnership interests or any
other participations, rights, warrants, options or other
interests in the nature of an equity interest in such Person,
including Preferred Stock, but excluding any debt security
convertible or exchangeable into such equity interest.
Capital Stock Equivalents means all
securities convertible into or exchangeable for Capital Stock
and all warrants, options or other rights to purchase or
subscribe for any Capital Stock, whether or not presently
convertible, exchangeable or exercisable.
Capital Stock Sale Proceeds means the
aggregate cash proceeds received by the Company from the
issuance or sale (other than to a Subsidiary of the Company or
an employee stock ownership plan or trust established by the
Company or any such Subsidiary for the benefit of their
employees) by the Company of its Capital Stock (other than
Disqualified Stock) after the Issue Date, net of attorneys
fees, accountants fees, underwriters or placement
agents fees, discounts or commissions and brokerage,
consultant and other fees and expenses actually incurred in
connection with such issuance or sale and net of Taxes paid or
payable as a result thereof.
Cash Equivalents means any of the following:
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(a) securities issued or fully guaranteed or insured by the
federal government of the United States, Canada,
Switzerland, any Approved Member State or any agency of the
foregoing maturing within 365 days of the date of
acquisition thereof; |
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(b) time deposit accounts, certificates of deposit,
eurocurrency time deposits, overnight bank deposits, money
market deposits and bankers acceptances maturing within
365 days of the date of acquisition thereof and issued by a
bank or trust company organized under the laws of Canada or any
province thereof, the United States, any state thereof, the
District of Columbia, any non-U.S. bank, or |
162
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its branches or agencies (fully protected against currency
fluctuations) that, at the time of acquisition, is rated at
least A-1 by S&P or P-1 by
Moodys (or such similar equivalent rating by at least one
nationally recognized statistical rating
organization (as defined in Rule 436 under the
Securities Act)) or the R-1 category by the Dominion
Bond Rating Service Limited and has capital, surplus and
undivided profits aggregating in excess of $500 million; |
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(c) shares of any money market fund that (i) has at
least 95% of its assets invested continuously in the types of
investments referred to in clauses (a) and (b) above,
(ii) has net assets that exceed $500 million and
(iii) is rated at least A-1 by S&P or
P-1 by Moodys; |
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(d) repurchase obligations with a term of not more than
30 days for underlying securities of the types described in
clause (a) entered into with: |
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(1) a bank meeting the qualifications described in
clause (b) above, or |
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(2) any primary government securities dealer reporting to
the Market Reports Division of the Federal Reserve Bank of New
York; |
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(e) commercial paper issued by a corporation (other than an
Affiliate of the Company) with a rating at the time as of which
any Investment therein is made of P-1 (or higher)
according to Moodys or A-1 (or higher)
according to S&P (or such similar equivalent rating by at
least one nationally recognized statistical rating
organization (as defined in Rule 436 under the
Securities Act)) or in the R-1 category by the
Dominion Bond Rating Service Limited; and |
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(f) direct obligations (or certificates representing an
ownership interest in such obligations) of any state of the
United States or the District of Columbia or any political
subdivision or instrumentality thereof (including any agency or
instrumentality thereof) or any province of Canada (including
any agency or instrumentality thereof) for the payment of which
the full faith and credit of such state or province is pledged
and maturing within 365 days of the date of acquisition
thereof, provided that the long-term debt of such state,
province or political subdivision is rated, in the case of a
state of the United States, one of the two highest ratings from
Moodys or S&P (or such similar equivalent rating by at
least one nationally recognized statistical rating
organization (as defined in Rule 436 under the
Securities Act)), or the R-1 category by the
Dominion Bond Rating Service Limited; |
provided, however, that, to the extent any cash is
generated through operations in a jurisdiction outside of the
United States, Canada, Switzerland or an Approved Member State,
such cash may be retained and invested in obligations of the
type described in clauses (a), (b) and (e) of
this definition to the extent that such obligations have a
credit rating equal to the sovereign rating of such jurisdiction.
Change of Control means the occurrence of any
of the following events:
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(a) any person or group (as such
terms are used in Section 13(d) and 14(d) of the Exchange
Act or any successor of the foregoing), including any group
acting for the purpose of acquiring, holding, voting or
disposing of securities within the meaning of
Rule 13d-5(b)(1) under the Exchange Act, becomes the
beneficial owner (as defined in Rule 13d-3
under the Exchange Act, except that a person will be deemed to
have beneficial ownership of all shares that any
such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time),
directly or indirectly, of 50% or more of the total voting power
of the Voting Stock of the Company (for purposes of this
clause (a), such person or group shall be deemed to
beneficially own any Voting Stock of a corporation held by any
other corporation (the parent corporation) so long
as such person or group beneficially owns, directly or
indirectly, in the aggregate at least a majority of the total
voting power of the Voting Stock of such parent
corporation); or |
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(b) the sale, transfer, assignment, lease, conveyance or
other disposition, directly or indirectly, of all or
substantially all the Property of the Company and the Restricted
Subsidiaries, considered as a whole (other than a disposition of
such Property as an entirety or virtually as an entirety to a
Wholly Owned Restricted Subsidiary), shall have occurred, or the
Company merges, consolidates or |
163
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amalgamates with or into any other Person or any other Person
merges, consolidates or amalgamates with or into the Company, in
any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is reclassified into or
exchanged for cash, securities or other Property, other than any
such transaction where: |
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(1) the outstanding Voting Stock of the Company is
reclassified into or exchanged for other Voting Stock of the
Company or for Voting Stock of the Surviving Person, and |
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(2) the holders of the Voting Stock of the Company
immediately prior to such transaction own, directly or
indirectly, not less than a majority of the Voting Stock of the
Company or the Surviving Person immediately after such
transaction; or |
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(c) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of
Directors (together with any new directors whose election or
appointment by such Board or whose nomination for election by
the shareholders of the Company was approved by a vote of not
less than three-fourths of the directors then still in office
who were either directors at the beginning of such period or
whose election or nomination for election was previously so
approved) cease for any reason to constitute at least a majority
of the Board of Directors then in office; or |
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(d) the shareholders of the Company shall have approved any
plan of liquidation or dissolution of the Company. |
Code means the Internal Revenue Code of 1986,
as amended.
Commodity Price Protection Agreement means,
in respect of a Person, any forward contract, commodity swap
agreement, commodity option agreement or other similar agreement
or arrangement designed to protect such Person against
fluctuations in commodity prices.
Comparable Treasury Issue means the
U.S. treasury security selected by an Independent
Investment Banker as having a maturity comparable to the
remaining term of the Notes that would be utilized, at the time
of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of such Notes.
Independent Investment Banker means one of
the Reference Treasury Dealers appointed by the Trustee after
consultation with the Company.
Comparable Treasury Price means, with respect
to any redemption date:
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(a) the average of the bid and ask prices for the
Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) on the third business day
preceding such redemption date, as set forth in the most
recently published statistical release designated
H.15(519) (or any successor release) published by
the Board of Governors of the Federal Reserve System and which
establishes yields on actively traded U.S. treasury
securities adjusted to constant maturity under the caption
Treasury Constant Maturities, or |
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(b) if such release (or any successor release) is not
published or does not contain such prices on such business day,
the average of the Reference Treasury Dealer Quotations for such
redemption date. |
Consolidated Current Liabilities means, as of
any date of determination, the aggregate amount of liabilities
of the Company and its consolidated Restricted Subsidiaries
which may properly be classified as current liabilities
(including taxes accrued as estimated), after eliminating:
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(a) all intercompany items between the Company and any
Restricted Subsidiary or between Restricted
Subsidiaries, and |
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(b) all current maturities of long-term Debt. |
164
Consolidated Interest Coverage Ratio means,
as of any date of determination, the ratio of:
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(a) the aggregate amount of EBITDA for the most recent four
consecutive fiscal quarters ending at least 45 days prior
to such determination date to |
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(b) Consolidated Interest Expense for such four fiscal
quarters; |
provided, however, that:
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(A) since the beginning of such period the Company or any
Restricted Subsidiary has Incurred any Debt that remains
outstanding or Repaid any Debt, or |
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(B) the transaction giving rise to the need to calculate
the Consolidated Interest Coverage Ratio is an Incurrence or
Repayment of Debt, |
Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to
such Incurrence or Repayment as if such Debt was Incurred or
Repaid on the first day of such period, provided that, in
the event of any such Repayment of Debt, EBITDA for such period
shall be calculated as if the Company or such Restricted
Subsidiary had not earned any interest income actually earned
during such period in respect of the funds used to Repay such
Debt, and
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(A) since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Sale or an
Investment (by merger or otherwise) in any Restricted Subsidiary
(or any Person which becomes a Restricted Subsidiary) or an
acquisition of Property which constitutes all or substantially
all of an operating unit of a business, |
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(B) the transaction giving rise to the need to calculate
the Consolidated Interest Coverage Ratio is such an Asset Sale,
Investment or acquisition, or |
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(C) since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with
or into the Company or any Restricted Subsidiary since the
beginning of such period) shall have made such an Asset Sale,
Investment or acquisition, |
then EBITDA for such period shall be calculated after giving pro
forma effect to such Asset Sale, Investment or acquisition as if
such Asset Sale, Investment or acquisition had occurred on the
first day of such period.
If any Debt bears a floating rate of interest and is being given
pro forma effect, the interest expense on such Debt shall be
calculated as if the base interest rate in effect for such
floating rate of interest on the date of determination had been
the applicable base interest rate for the entire period (taking
into account any Interest Rate Agreement applicable to such Debt
if such Interest Rate Agreement has a remaining term in excess
of 12 months). In the event the Capital Stock of any
Restricted Subsidiary is sold during the period, the Company
shall be deemed, for purposes of clause (1) above, to have
Repaid during such period the Debt of such Restricted Subsidiary
to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for such Debt after such sale.
Consolidated Interest Expense means, for any
period, the total interest expense of the Company and its
consolidated Restricted Subsidiaries, plus, to the extent not
included in such total interest expense, and to the extent
Incurred by the Company or its Restricted Subsidiaries,
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(a) interest expense attributable to leases constituting
part of a Sale and Leaseback Transaction and to Capital Lease
Obligations, |
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(b) amortization of debt discount and debt issuance cost,
including commitment fees, |
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(c) capitalized interest, |
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(d) non-cash interest expense, |
165
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(e) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers acceptance
financing, |
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(f) net costs associated with Hedging Obligations
(including amortization of fees), |
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(g) Disqualified Stock Dividends, |
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(h) Preferred Stock Dividends, |
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(i) interest Incurred in connection with Investments in
discontinued operations, |
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(j) interest accruing on any Debt of any other Person to
the extent such Debt is Guaranteed by the Company or any
Restricted Subsidiary, and |
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(k) the cash contributions to any employee stock ownership
plan or similar trust to the extent such contributions are used
by such plan or trust to pay interest or fees to any Person
(other than the Company) in connection with Debt Incurred by
such plan or trust. |
Consolidated Net Income means, for any
period, the net income (loss) of the Company and its
consolidated Restricted Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income:
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(a) any net income (loss) of any Person (other than the
Company) if such Person is not a Restricted Subsidiary, except
that: |
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(1) subject to the exclusion contained in clause (c)
below, equity of the Company and its consolidated Restricted
Subsidiaries in the net income of any such Person for such
period shall be included in such Consolidated Net Income up to
the aggregate amount of cash distributed by such Person during
such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to
the limitations contained in clause (b) below), and |
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(2) the equity of the Company and its consolidated
Restricted Subsidiaries in a net loss of any such Person other
than an Unrestricted Subsidiary for such period shall be
included in determining such Consolidated Net Income, |
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(b) any net income (loss) of any Restricted Subsidiary if
such Restricted Subsidiary is subject to restrictions, directly
or indirectly, on the payment of dividends or the making of
distributions, directly or indirectly, to the Company, except
that: |
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(1) subject to the exclusion contained in clause (c)
below, the equity of the Company and its consolidated Restricted
Subsidiaries in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash distributed by such
Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other
distribution to another Restricted Subsidiary, to the limitation
contained in this clause), and |
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(2) the equity of the Company and its consolidated
Restricted Subsidiaries in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income, |
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(c) any gain or loss realized upon the sale or other
disposition of any Property of the Company or any of its
consolidated Subsidiaries (including pursuant to any Sale and
Leaseback Transaction) that is not sold or otherwise disposed of
in the ordinary course of business (provided that sales
or other dispositions of assets in connection with any Qualified
Securitization Transaction shall be deemed to be in the ordinary
course), |
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(d) any extraordinary gain or loss, |
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(e) the cumulative effect of a change in accounting
principles, and |
166
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(f) any non-cash compensation expense realized for grants
of performance shares, stock options or other rights to
officers, directors and employees of the Company or any
Restricted Subsidiary, provided that such shares, options or
other rights can be redeemed at the option of the holder only
for Capital Stock of the Company (other than Disqualified Stock). |
Notwithstanding the foregoing, for purposes of the covenant
described under Certain Covenants
Limitation on Restricted Payments only, there shall be
excluded from Consolidated Net Income any dividends, repayments
of loans or advances or other transfers of Property from
Unrestricted Subsidiaries to the Company or a Restricted
Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (c)(4) thereof.
Consolidated Net Tangible Assets means, as of
any date of determination, the sum of the amounts that would
appear on a consolidated balance sheet of the Company and its
consolidated Restricted Subsidiaries as the total assets (less
accumulated depreciation and amortization, allowances for
doubtful receivables, other applicable reserves and other
properly deductible items) of the Company and its Restricted
Subsidiaries, after giving effect to purchase accounting and
after deducting therefrom Consolidated Current Liabilities and,
to the extent otherwise included, the amounts of (without
duplication):
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(a) the excess of cost over fair market value of assets or
businesses acquired; |
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(b) any revaluation or other write-up in book value of
assets subsequent to the last day of the fiscal quarter of the
Company immediately preceding the Issue Date as a result of a
change in the method of valuation in accordance with GAAP; |
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(c) unamortized debt discount and expenses and other
unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, copyrights, licenses, organization
or developmental expenses and other intangible items; |
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(d) minority interests in consolidated Subsidiaries held by
Persons other than the Company or any Restricted Subsidiary; |
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(e) treasury stock; |
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(f) cash or securities set aside and held in a sinking or
other analogous fund established for the purpose of redemption
or other retirement of Capital Stock to the extent such
obligation is not reflected in Consolidated Current
Liabilities; and |
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(g) Investments in and assets of Unrestricted Subsidiaries. |
Credit Facilities means, with respect to the
Company or any Restricted Subsidiary, one or more debt or
commercial paper facilities with banks or other institutional
lenders (including the Senior Credit Facility) or indentures, in
each case, providing for revolving credit loans, term loans,
receivables or inventory financing (including through the sale
of receivables or inventory to such lenders or to special
purpose, bankruptcy remote entities formed to borrow from such
lenders against such receivables or inventory) or trade letters
of credit, in each case together with any Refinancings thereof.
Currency Exchange Protection Agreement means,
in respect of a Person, any foreign exchange contract, currency
swap agreement, currency option or other similar agreement or
arrangement designed to protect such Person against fluctuations
in currency exchange rates.
Debt means, with respect to any Person on any
date of determination (without duplication):
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(a) the principal of and premium (if any) in respect of: |
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(1) debt of such Person for money borrowed, and |
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(2) debt evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is
responsible or liable; |
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(b) all Capital Lease Obligations of such Person and all
Attributable Debt in respect of Sale and Leaseback Transactions
entered into by such Person; |
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(c) all obligations of such Person representing the
deferred purchase price of Property, all conditional sale
obligations of such Person and all obligations of such Person
under any title retention agreement (but excluding trade
accounts payable arising in the ordinary course of business); |
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(d) all obligations of such Person for the reimbursement of
any obligor on any letter of credit, bankers acceptance or
similar credit transaction (other than obligations with respect
to letters of credit securing obligations (other than
obligations described in (a) through (c) above)
entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no
later than the third business day following receipt by such
Person of a demand for reimbursement following payment on the
letter of credit); |
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(e) the amount of all obligations of such Person with
respect to the Repayment of any Disqualified Stock or, with
respect to any Subsidiary of such Person, any Preferred Stock
(but excluding, in each case, any accrued dividends); |
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(f) all obligations of the type referred to in
clauses (a) through (e) above of other Persons and all
dividends of other Persons for the payment of which, in either
case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by
means of any Guarantee; |
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(g) all obligations of the type referred to in
clauses (a) through (f) above of other Persons secured
by any Lien on any Property of such Person (whether or not such
obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the Fair Market
Value of such Property and the amount of the obligation so
secured; and |
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(h) to the extent not otherwise included in this
definition, Hedging Obligations of such Person. |
The amount of Debt of any Person at any date shall be the
outstanding balance, or the accreted value of such Debt in the
case of Debt issued with original issue discount, at such date
of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such
date. The amount of Debt represented by a Hedging Obligation
shall be equal to:
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(1) zero if such Hedging Obligation has been Incurred
pursuant to clause (f), (g) or (h) of the second
paragraph of the covenant described under
Certain Covenants Limitation on
Debt, or |
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(2) the notional amount of such Hedging Obligation if not
Incurred pursuant to such clauses. |
Default means any event which is, or after
notice or passage of time or both would be, an Event of Default.
Disqualified Stock means any Capital Stock of
the Company or any of its Restricted Subsidiaries that by its
terms (or by the terms of any security into which it is
convertible or for which it is exchangeable, in either case at
the option of the holder thereof) or otherwise:
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(a) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, |
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(b) is or may become redeemable or repurchaseable at the
option of the holder thereof, in whole or in part, or |
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(c) is convertible or exchangeable at the option of the
holder thereof for Debt or Disqualified Stock, |
on or prior to, in the case of clause (a), (b) or (c),
the first anniversary of the Stated Maturity of the Notes.
Disqualified Stock Dividends means all
dividends with respect to Disqualified Stock of the Company held
by Persons other than a Wholly Owned Restricted Subsidiary. The
amount of any such
168
dividend shall be equal to the quotient of such dividend divided
by the difference between one and the maximum statutory federal
income tax rate (expressed as a decimal number between 1 and 0)
then applicable to the Company.
Dollar Equivalent of any amount means, at the
time of determination thereof, (a) if such amount is
expressed in U.S. dollars, such amount, (b) if such
amount is expressed in an Alternative Currency, the equivalent
of such amount in U.S. dollars determined by using the rate
of exchange quoted by Citibank in New York, New York at
11:00 a.m. (New York time) on the date of determination
(or, if such date is not a Business Day, the last Business Day
prior thereto) to prime banks in New York for the spot purchase
in the New York currency exchange market of such amount of
U.S. dollars with such Alternative Currency and (c) if
such amount is denominated in any other currency, the equivalent
of such amount in U.S. dollars as determined by the Trustee
using any method of determination it deems appropriate.
EBITDA means, for any period, an amount equal
to, for the Company and its consolidated Restricted Subsidiaries:
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(a) the sum of Consolidated Net Income for such period,
plus
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(1) any provision for taxes based on income or profits, |
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(2) Consolidated Interest Expense, |
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(3) loss from extraordinary items, |
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(4) depreciation, depletion and amortization expenses, |
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(5) all other non-cash expenses, charges and losses that
are not payable in cash in any subsequent period, and |
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(6) non-recurring cash restructuring expenses, charges and
losses, minus |
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(b) the sum of, in each case to the extent included in the
calculation of such Consolidated Net Income for such period, but
without duplication, (i) any credit for income tax,
(ii) interest income, (iii) gains from extraordinary
items, (iv) any aggregate net gain (but not any aggregate
net loss) from the sale, exchange or other disposition of
capital assets, (v) any other non-cash gains or other items
which have been added in determining Consolidated Net Income,
including any reversal of a change referred to in
clause (5) above by reason of a decrease in the value of
any Capital Stock or Capital Stock Equivalent. |
Notwithstanding the foregoing clause (a), the provision for
taxes and the depreciation, amortization and non-cash items of a
Restricted Subsidiary shall be added to Consolidated Net Income
to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary
was included in calculating Consolidated Net Income and only if
a corresponding amount would be permitted at the date of
determination to be dividend to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted
Subsidiary or its shareholders.
Event of Default has the meaning set forth
under Events of Default.
Exchange Act means the Securities Exchange
Act of 1934, as amended.
Fair Market Value means, with respect to any
Property, the price that could be negotiated in an
arms-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair
Market Value shall be determined, except as otherwise provided,
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(a) if such Property has a Fair Market Value equal to or
less than $50.0 million, by any Officer of the
Company, or |
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(b) if such Property has a Fair Market Value in excess of
$50.0 million, by at least a majority of the Board of
Directors and evidenced by a Board Resolution, dated within
45 days of the relevant transaction, delivered to the
Trustee. |
GAAP means U.S. generally accepted
accounting principles as in effect on the Issue Date, including
those set forth in:
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(a) the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants, |
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(b) the statements and pronouncements of the Financial
Accounting Standards Board, |
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(c) such other statements by such other entity as approved
by a significant segment of the accounting profession, and |
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(d) the rules and regulations of the SEC governing the
inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to
Section 13 of the Exchange Act, including opinions and
pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the SEC. |
Guarantee means any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any
Debt of any other Person and any obligation, direct or indirect,
contingent or otherwise, of such Person:
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(a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt of such other Person (whether
arising by virtue of partnership arrangements, or by agreements
to keep-well, to purchase assets, goods, securities or services,
to take-or-pay or to maintain financial statement conditions or
otherwise), or |
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(b) entered into for the purpose of assuring in any other
manner the obligee against loss in respect thereof (in whole or
in part); |
provided, however, that the term Guarantee
shall not include:
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(1) endorsements for collection or deposit in the ordinary
course of business, or |
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(2) a contractual commitment by one Person to invest in
another Person for so long as such Investment is reasonably
expected to constitute a Permitted Investment under
clause (a), (b) or (c) of the definition of
Permitted Investment. |
The term Guarantee used as a verb has a
corresponding meaning. The term Guarantor shall mean
any Person Guaranteeing any obligation.
Hedging Obligation of any Person means any
obligation of such Person pursuant to any Interest Rate
Agreement, Currency Exchange Protection Agreement, Commodity
Price Protection Agreement or any other similar agreement or
arrangement.
holder means a Person in whose name a Note is
registered in the Security Register.
Incur means, with respect to any Debt or
other obligation of any Person, to create, issue, incur (by
merger, conversion, exchange or otherwise), extend, assume,
Guarantee or become liable in respect of such Debt or other
obligation or the recording, as required pursuant to GAAP or
otherwise, of any such Debt or obligation on the balance sheet
of such Person (and Incurrence and
Incurred shall have meanings correlative to the
foregoing); provided, however, that a change in GAAP that
results in an obligation of such Person that exists at such
time, and is not theretofore classified as Debt, becoming Debt
shall not be deemed an Incurrence of such Debt; provided
further, however, that any Debt or other obligations of a
Person existing at the time such Person becomes a Subsidiary
(whether by merger, consolidation, acquisition or otherwise)
shall be deemed to be Incurred by such Subsidiary at the time it
becomes a Subsidiary; and provided further, however, that
solely for purposes of determining compliance with
Certain Covenants Limitation on
Debt, amortization of debt discount shall not be deemed to
be
170
the Incurrence of Debt, provided that in the case of Debt
sold at a discount, the amount of such Debt Incurred shall at
all times be the aggregate principal amount at Stated Maturity.
Independent Financial Advisor means an
investment banking firm of national standing or any third party
appraiser of national standing, provided that such firm or
appraiser is not an Affiliate of the Company.
Interest Rate Agreement means, for any
Person, any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement or other similar
agreement designed to protect against fluctuations in interest
rates.
Investment by any Person means any direct or
indirect loan (other than advances to customers in the ordinary
course of business that are recorded as accounts receivable on
the balance sheet of such Person), advance or other extension of
credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services
for the account or use of others, or otherwise) to, or
Incurrence of a Guarantee of any obligation of, or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other
securities or evidence of Debt issued by, any other Person. For
purposes of the covenants described under
Certain Covenants Limitation on
Restricted Payments and Designation of
Restricted and Unrestricted Subsidiaries and the
definition of Restricted Payment, the term
Investment shall include the portion (proportionate
to the Companys equity interest in such Subsidiary) of the
Fair Market Value of the net assets of any Subsidiary of the
Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the
Company shall be deemed to continue to have a permanent
Investment in an Unrestricted Subsidiary of an
amount (if positive) equal to:
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(a) the Companys Investment in such
Subsidiary at the time of such redesignation, less |
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(b) the portion (proportionate to the Companys equity
interest in such Subsidiary) of the Fair Market Value of the net
assets of such Subsidiary at the time of such redesignation. |
In determining the amount of any Investment made by transfer of
any Property other than cash, such Property shall be valued at
its Fair Market Value at the time of such Investment.
Investment Grade Rating means a rating equal
to or higher than Baa3 (or the equivalent) by Moodys and
BBB- (or the equivalent) by S&P.
Investment Grade Status shall be deemed to
have been reached on the date that the Notes have an Investment
Grade Rating from both Rating Agencies.
Issue Date means the date on which the old
notes were initially issued pursuant to the Indenture.
Lien means, with respect to any Property of
any Person, any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance,
preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever on or with respect
to such Property (including any Capital Lease Obligation,
conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing
or any Sale and Leaseback Transaction).
Moodys means Moodys Investors
Service, Inc. or any successor to the rating agency business
thereof.
Net Available Cash from any Asset Sale means
cash payments received therefrom (including any cash payments
received by way of deferred payment of principal pursuant to a
note or installment receivable or otherwise, but only as and
when received, but excluding any other consideration received in
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the form of assumption by the acquiring Person of Debt or other
obligations relating to the Property that is the subject of such
Asset Sale or received in any other non-cash form), in each case
net of:
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(a) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all
Federal, state, provincial, foreign and local taxes required to
be accrued as a liability under GAAP, as a consequence of such
Asset Sale, |
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(b) all payments made on or in respect of any Debt that is
secured by any Property subject to such Asset Sale, in
accordance with the terms of any Lien upon such Property, or
which must by its terms, or in order to obtain a necessary
consent to such Asset Sale, or by applicable law, be repaid out
of the proceeds from such Asset Sale, |
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(c) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Sale, and |
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(d) the deduction of appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against any
liabilities associated with the Property disposed of in such
Asset Sale and retained by the Company or any Restricted
Subsidiary after such Asset Sale. |
NKL means Novelis Korea Ltd.
Obligations means all obligations for
principal, premium, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the
documentation governing any Debt.
Officer means the Chief Executive Officer,
the President, the Chief Financial Officer or any other
executive officer of the Company.
Officers Certificate means a
certificate, in form and substance reasonably satisfactory to
the Trustee, signed by two Officers of the Company, at least one
of whom shall be the principal executive officer or principal
financial officer of the Company, and delivered to the Trustee.
Opinion of Counsel means a written opinion
from legal counsel who is reasonably acceptable to the Trustee.
The counsel may be an employee of or counsel to the Company or
the Trustee.
Permitted Investment means any Investment by
the Company or a Restricted Subsidiary in:
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(a) the Company or any Restricted Subsidiary; |
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(b) any Person that will, upon the making of such
Investment, become a Restricted Subsidiary; |
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(c) any Person if as a result of such Investment such
Person is merged or consolidated with or into, or transfers or
conveys all or substantially all its Property to, the Company or
a Restricted Subsidiary; |
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(d) Cash Equivalents; |
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(e) receivables owing to the Company or a Restricted
Subsidiary, if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade terms
may include such concessionary trade terms as the Company or
such Restricted Subsidiary deems reasonable under the
circumstances; |
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(f) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in
the ordinary course of business; |
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(g) loans and advances to employees made in the ordinary
course of business consistent with past practices of the Company
or such Restricted Subsidiary, as the case may be, provided
that such loans and advances do not exceed
$15.0 million in the aggregate at any one time outstanding; |
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(h) stock, obligations or other securities received in
settlement of debts created in the ordinary course of business
and owing to the Company or a Restricted Subsidiary or in
satisfaction of judgments; |
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(i) any Person to the extent such Investment represents the
non-cash portion of the consideration received in connection
with (A) an Asset Sale consummated in compliance with the
covenant described under Certain
Covenants Limitation on Asset Sales, or
(B) any disposition of Property not constituting an Asset
Sale; |
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(j) any Persons made for Fair Market Value that do not
exceed 5% of Consolidated Net Tangible Assets in the aggregate
outstanding at any one time; |
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(k) a Securitization Entity or any Investment by a
Securitization Entity in any other Person in connection with a
Qualified Securitization Transaction provided that any
Investment in a Securitization Entity is in the form of a
Purchase Money Note, contribution of additional receivables and
related assets or any equity interests; |
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(l) any Specified Post Closing Transactions; and |
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(m) other Investments made for Fair Market Value that do
not exceed $20.0 million in the aggregate outstanding at
any one time. |
Permitted Liens means:
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(a) Liens to secure Debt permitted to be Incurred under
clause (b) of the second paragraph of the covenant
described under Certain Covenants
Limitation on Debt; |
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(b) Liens to secure Debt permitted to be Incurred under
clause (c) of the second paragraph of the covenant
described under Certain Covenants
Limitation on Debt, provided that any such Lien may
not extend to any Property of the Company or any Restricted
Subsidiary, other than the Property acquired, constructed or
leased with the proceeds of such Debt and any improvements or
accessions to such Property; |
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(c) Liens for taxes, assessments or governmental charges or
levies on the Property of the Company or any Restricted
Subsidiary if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested
in good faith and by appropriate proceedings timely instituted
and diligently pursued, provided that any reserve or other
appropriate provision that shall be required in accordance with
GAAP shall have been established with respect thereto; |
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(d) Deposit account banks rights of set-off, Liens of
landlords arising by statute, Liens imposed by law, such as
carriers, warehousemens and mechanics Liens
and other similar Liens, on the Property of the Company or any
Restricted Subsidiary arising in the ordinary course of business
and securing payment of obligations that are not more than
60 days past due or are being contested in good faith and
by appropriate proceedings; |
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(e) Liens on the Property of the Company or any Restricted
Subsidiary Incurred in the ordinary course of business to secure
performance of obligations with respect to statutory or
regulatory requirements, performance or return-of-money bonds,
surety bonds or other obligations of a like nature and Incurred
in a manner consistent with industry practice, in each case
which are not Incurred in connection with the borrowing of
money, the obtaining of advances or credit or the payment of the
deferred purchase price of Property and which do not in the
aggregate impair in any material respect the use of Property in
the operation of the business of the Company and the Restricted
Subsidiaries taken as a whole; |
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(f) Liens on Property at the time the Company or any
Restricted Subsidiary acquired such Property, including any
acquisition by means of a merger or consolidation with or into
the Company or any Restricted Subsidiary; provided,
however, that any such Lien may not extend to any other
Property of the Company or any Restricted Subsidiary;
provided further, however, that such Liens shall not have
been Incurred in anticipation of or in connection with the
transaction or series of transactions pursuant to which such
Property was acquired by the Company or any Restricted
Subsidiary; |
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(g) Liens on the Property of a Person at the time such
Person becomes a Restricted Subsidiary; provided,
however, that any such Lien may not extend to any other
Property of the Company or any other Restricted Subsidiary that
is not a direct Subsidiary of such Person; provided further,
however, that any such Lien was not Incurred in anticipation
of or in connection with the transaction or series of
transactions pursuant to which such Person became a Restricted
Subsidiary; |
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(h) pledges or deposits by the Company or any Restricted
Subsidiary under workers compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in
connection with bids, tenders, contracts (other than for the
payment of Debt) or leases to which the Company or any
Restricted Subsidiary is party, or deposits to secure public or
statutory obligations of the Company, or deposits for the
payment of rent, in each case Incurred in the ordinary course of
business; |
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(i) utility easements, building restrictions and such other
encumbrances or charges against real Property as are of a nature
generally existing with respect to properties of a similar
character; |
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(j) Liens existing on the Issue Date not otherwise
described in clauses (a) through (i) above; |
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(k) Liens not otherwise described in clauses (a)
through (k) above on the Property of any Restricted
Subsidiary that is not a Subsidiary Guarantor to secure any Debt
permitted to be Incurred by such Restricted Subsidiary pursuant
to the covenant described under Certain
Covenants Limitation on Debt; |
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(l) Liens on the Property of the Company or any Restricted
Subsidiary to secure any Refinancing, in whole or in part, of
any Debt secured by Liens referred to in clause (b), (f),
(g), or (j) above; provided, however, that any such
Lien shall be limited to all or part of the same Property that
secured the original Lien (together with improvements and
accessions to such Property), and the aggregate principal amount
of Debt that is secured by such Lien shall not be increased to
an amount greater than the sum of: |
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(1) the outstanding principal amount, or, if greater, the
committed amount, of the Debt secured by Liens described under
clause (b), (f), (g) or (j) above, as the case
may be, at the time the original Lien became a Permitted Lien
under the Indenture, and |
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(2) an amount necessary to pay any fees and expenses,
including premiums and defeasance costs, incurred by the Company
or such Restricted Subsidiary in connection with such
Refinancing; and |
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(m) Liens on accounts receivable and related assets
(including contract rights) of the type specified in the
definition of Qualified Securitization Transaction
transferred to a Securitization Entity in a Qualified
Securitization Transaction; |
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(n) encumbrances arising by reason of zoning restrictions,
easements, licenses, reservations, covenants, rights-of-way,
utility easements, building restrictions and other similar
encumbrances on the use of real property not materially
detracting from the value of such real property or not
materially interfering with the ordinary conduct of the business
conducted and proposed to be conducted at such real property; |
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(o) encumbrances arising under leases or subleases of real
property that do not, in the aggregate, materially detract from
the value of such real property or interfere with the ordinary
conduct of the business conducted and proposed to be conducted
at such real property; |
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(p) financing statements with respect to a lessors
rights in and to personal property leased to such Person in the
ordinary course of such Persons business other than
through a Capital Lease; |
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(q) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties
in connection with the importation of goods in the ordinary
course of business; |
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(r) licenses of patents, trademarks and other intellectual
property rights granted in the ordinary course of business and
not interfering in any respect with the ordinary conduct of such
Persons business; |
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(s) Liens arising out of conditional sale, retention,
consignment or similar arrangement, incurred in the ordinary
course of business, for the sale of goods; and |
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(t) Liens not otherwise permitted by clauses (a)
through (s) above encumbering Property having an aggregate
Fair Market Value not in excess of 5% of Consolidated Net
Tangible Assets, as determined based on the consolidated balance
sheet of the Company as of the end of the most recent fiscal
quarter for which financial statements have been filed or
furnished. |
Permitted Refinancing Debt means any Debt
that Refinances any other Debt, including any successive
Refinancings, so long as:
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(a) such Debt is in an aggregate principal amount (or if
Incurred with original issue discount, an aggregate issue price)
not in excess of the sum of: |
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(1) the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then
outstanding of the Debt being Refinanced, and |
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(2) an amount necessary to pay any fees and expenses,
including premiums and defeasance costs, related to such
Refinancing, |
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(b) the Average Life of such Debt is equal to or greater
than the Average Life of the Debt being Refinanced, |
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(c) the Stated Maturity of such Debt is no earlier than the
Stated Maturity of the Debt being Refinanced, and |
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(d) the new Debt shall not be senior in right of payment to
the Debt that is being Refinanced; |
provided, however, that Permitted Refinancing Debt shall
not include:
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(x) Debt of a Subsidiary that is not a Subsidiary Guarantor
that Refinances Debt of the Company or a Subsidiary
Guarantor, or |
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(y) Debt of the Company or a Restricted Subsidiary that
Refinances Debt of an Unrestricted Subsidiary. |
Person means any individual, corporation,
company (including any limited liability company), association,
partnership, joint venture, trust, unincorporated organization,
government or any agency or political subdivision thereof or any
other entity.
Preferred Stock means any Capital Stock of a
Person, however designated, which entitles the holder thereof to
a preference with respect to the payment of dividends, or as to
the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of any
other class of Capital Stock issued by such Person.
Preferred Stock Dividends means all dividends
with respect to Preferred Stock of Restricted Subsidiaries held
by Persons other than the Company or a Wholly Owned Restricted
Subsidiary. The amount of any such dividend shall be equal to
the quotient of such dividend divided by the difference between
one and the maximum statutory federal income rate (expressed as
a decimal number between 1 and 0) then applicable to the
issuer of such Preferred Stock.
Principal Property means any manufacturing
plant or facility owned by the Company and/or one or more
Restricted Subsidiaries having a gross book value in excess of
1.5% of the Consolidated Net Tangible Assets of the Company and
its Restricted Subsidiaries.
pro forma means, with respect to any
calculation made or required to be made pursuant to the terms
hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under
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the Securities Act, as interpreted in good faith by the Board of
Directors after consultation with the independent certified
public accountants of the Company, or otherwise a calculation
made in good faith by the Board of Directors after consultation
with the independent certified public accountants of the
Company, as the case may be.
Property means, with respect to any Person,
any interest of such Person in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible,
including Capital Stock in, and other securities of, any other
Person. For purposes of any calculation required pursuant to the
Indenture, the value of any Property shall be its Fair Market
Value.
Public Equity Offering means an underwritten
public offering of common stock of the Company pursuant to an
effective registration statement under the Securities Act.
Purchase Money Debt means Debt:
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(a) consisting of the deferred purchase price of Property,
conditional sale obligations, obligations under any title
retention agreement, other purchase money obligations and
obligations in respect of industrial revenue bonds, in each case
where the maturity of such Debt does not exceed the anticipated
useful life of the Property being financed, and |
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(b) Incurred to finance the acquisition, construction or
lease by the Company or a Restricted Subsidiary of such
Property, including additions and improvements thereto; |
provided, however, that such Debt is Incurred within
180 days after the acquisition, construction or lease of
such Property by the Company or such Restricted Subsidiary.
Purchase Money Note means a promissory note
evidencing a line of credit, or evidencing other Debt owed to
the Company or any Restricted Subsidiary in connection with a
Qualified Securitization Transaction, which note shall be repaid
from cash available to the maker of such note, other than
amounts required to be established as reserves, amounts paid to
investors in respect of interest, principal and other amounts
owing to such investors and amounts paid in connection with the
purchase of newly generated accounts receivable.
Qualified Securitization Transaction means
any transaction or series of transactions that may be entered
into by the Company or any Restricted Subsidiary pursuant to
which the Company or any Restricted Subsidiary may sell, convey
or otherwise transfer pursuant to customary terms to (a) a
Securitization Entity (in the case of a transfer by the Company
or any Restricted Subsidiary) and (b) any other Person (in
the case of transfer by a Securitization Entity), or may grant a
security interest in any accounts receivable (whether now
existing or arising or acquired in the future) of the Company or
any Restricted Subsidiary, and any assets related thereto
including all collateral securing such accounts receivable, all
contracts and contract rights and all guarantees or other
obligations in respect of such accounts receivable, proceeds of
such accounts receivable and other assets (including contract
rights) which are customarily transferred or in respect of which
security interests are customarily granted in connection with
asset securitization transactions involving accounts receivable.
Rating Agencies means Moodys and
S&P.
Reference Treasury Dealer means Citigroup
Global Markets Inc. and its successors; provided, however, that
if the foregoing shall cease to be a primary
U.S. Government securities dealer in New York City (a
Primary Treasury Dealer), the Company shall
substitute therefor another Primary Treasury Dealer.
Reference Treasury Dealer Quotations means,
with respect to each Reference Treasury Dealer and any
redemption date, the average, as determined by the Trustee, of
the bid and ask prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount)
quoted in writing to the Trustee by such Reference Treasury
Dealer at 5:00 p.m. on the third business day preceding
such redemption date.
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Refinance means, in respect of any Debt, to
refinance, extend, renew, refund or Repay, or to issue other
Debt, in exchange or replacement for, such Debt.
Refinanced and Refinancing shall have
correlative meanings.
Related Business means any business that is
related, ancillary or complementary to the businesses of the
Company and the Restricted Subsidiaries on the Issue Date.
Reorganization Transactions means the
transactions pursuant to which the Company acquired the majority
of Alcans aluminum rolled products business prior to the
Issue Date, and the related financing transactions, each as
described in this prospectus.
Repay means, in respect of any Debt, to
repay, prepay, repurchase, redeem, legally defease or otherwise
retire such Debt. Repayment and Repaid
shall have correlative meanings. For purposes of the covenant
described under Certain Covenants
Limitation on Asset Sales and the definition of
Consolidated Interest Coverage Ratio, Debt shall be
considered to have been Repaid only to the extent the related
loan commitment, if any, shall have been permanently reduced in
connection therewith.
Restricted Payment means:
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(a) any dividend or distribution (whether made in cash,
securities or other Property) declared or paid on or with
respect to any shares of Capital Stock of the Company or any
Restricted Subsidiary (including any payment in connection with
any merger or consolidation with or into the Company or any
Restricted Subsidiary), except for (i) any dividend or
distribution that is made solely to the Company or a Restricted
Subsidiary (and, if such Restricted Subsidiary is not a Wholly
Owned Restricted Subsidiary, to the other shareholders of such
Restricted Subsidiary on a pro rata basis or on a basis
that results in the receipt by the Company or a Restricted
Subsidiary of dividends or distributions of greater value than
it would receive on a pro rata basis), (ii) any
dividend or distribution payable solely in shares of Capital
Stock (other than Disqualified Stock) of the Company or
(iii) payments of up to $13.0 million required to be
paid as a priority payment to Taihan Electric Wire Co., Ltd.
under the constituent documents of NKL; |
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(b) the purchase, repurchase, redemption, acquisition or
retirement for value of any Capital Stock of the Company or any
Restricted Subsidiary (other than from the Company or a
Restricted Subsidiary) or any securities exchangeable for or
convertible into any such Capital Stock, including the exercise
of any option to exchange any Capital Stock (other than for or
into Capital Stock of the Company that is not Disqualified
Stock); |
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(c) the purchase, repurchase, redemption, acquisition or
retirement for value, prior to the date for any scheduled
maturity, sinking fund or amortization or other installment
payment, of any Subordinated Obligation (other than the
purchase, repurchase or other acquisition of any Subordinated
Obligation purchased in anticipation of satisfying a scheduled
maturity, sinking fund or amortization or other installment
obligation, in each case due within one year of the date of
acquisition); or |
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(d) any Investment (other than Permitted Investments) in
any Person. |
Restricted Subsidiary means any Subsidiary of
the Company other than an Unrestricted Subsidiary.
S&P means Standard & Poors
Ratings Services, a division of the McGraw-Hill Companies, Inc.,
or any successor to the rating agency business thereof.
Sale and Leaseback Transaction means any
direct or indirect arrangement relating to Property now owned or
hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such Property to another Person and the
Company or a Restricted Subsidiary leases it from such Person.
SEC means the U.S. Securities and
Exchange Commission.
Securities Act means the Securities Act of
1933, as amended.
177
Securitization Entity means any wholly owned
Subsidiary of the Company or any Restricted Subsidiary (or
another Person in which the Company or any Restricted Subsidiary
make an Investment and to which the Company or any Restricted
Subsidiary transfers accounts receivable and related assets)
(a) which engages in no activities other than in connection
with the financing of accounts receivable or related assets,
(b) which is designated by the Board of Directors (as
provided below) as a Securitization Entity, (c) no portion
of the Debt or any other Obligations (contingent or otherwise)
of which (i) is guaranteed by the Company or any Restricted
Subsidiary (excluding guarantees of Obligations (other than the
principal of, and interest on, Debt) pursuant to Standard
Securitization Undertakings and guarantees by the Securitization
Entity, (ii) is recourse to or obligates the Company or any
Restricted Subsidiary (other than the Securitization Entity) in
any way other than pursuant to Standard Securitization
Undertakings or (iii) subjects any property or asset of the
Company or any Restricted Subsidiary (other than the
Securitization Entity), directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to
Standard Securitization Undertakings and other than any interest
in the accounts receivable and related assets being financed
(whether in the form of any equity interest in such assets or
subordinated indebtedness payable primarily from such financed
assets) retained or acquired by the Company or any Restricted
Subsidiary, (d) with which none of the Company nor any
Restricted Subsidiary has any material contract, agreement,
arrangement or understanding other than those customary for a
Qualified Securitization Transaction and, in any event, on terms
no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons that
are not Affiliates of the Company or such Restricted Subsidiary,
and (e) to which none of the Company nor any Restricted
Subsidiary has any obligation to maintain or preserve such
entitys financial condition or cause such entity to
achieve certain levels of operating results. Any such
designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the
resolution of the Board of Directors giving effect to such
designation and an Officers Certificate certifying that
such designation complied with the foregoing conditions.
Senior Credit Facility means the credit
agreement, dated as of January 7, 2005, by and among the
Company, Citicorp North America, Inc., as Administrative Agent,
and the several banks and other financial institutions or
entities from time to time parties thereto, including any notes,
collateral documents, letters of credit and documentation and
guarantees and any appendices, exhibits or schedules to any of
the preceding, as any or all such agreements may be in effect
from time to time, in each case, as any or all of such
agreements (or any other agreement that Refinances any or all of
such agreements) may be amended, restated, modified or
supplemented from time to time, or renewed, refunded,
refinanced, restructured, replaced, repaid or extended from time
to time, whether with the original agents and lenders or other
agents and lenders or otherwise, and whether provided under the
original credit agreement or one or more other credit
agreements, indentures or otherwise.
Senior Debt of the Company means:
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(a) all obligations consisting of the principal, premium,
if any, and accrued and unpaid interest (including interest
accruing on or after the filing of any petition in bankruptcy or
for reorganization relating to the Company to the extent
post-filing interest is allowed in such proceeding) in respect
of: |
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(1) Debt of the Company for borrowed money, and |
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(2) Debt of the Company evidenced by notes, debentures,
bonds or other similar instruments permitted under the Indenture
for the payment of which the Company is responsible or liable; |
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(b) all Capital Lease Obligations of the Company and all
Attributable Debt in respect of Sale and Leaseback Transactions
entered into by the Company; |
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(c) all obligations of the Company |
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(1) for the reimbursement of any obligor on any letter of
credit, bankers acceptance or similar credit transaction, |
178
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(2) under Hedging Obligations, or |
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(3) issued or assumed as the deferred purchase price of
Property and all conditional sale obligations of the Company and
all obligations under any title retention agreement permitted
under the Indenture; and |
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(d) all obligations of other Persons of the type referred
to in clauses (a), (b) and (c) for the payment of
which the Company is responsible or liable as Guarantor; |
provided, however, that Senior Debt shall not include:
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(A) Debt of the Company that is by its terms subordinate in
right of payment to the Notes, including any Subordinated Debt; |
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(B) any Debt Incurred in violation of the provisions of the
Indenture; |
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(C) accounts payable or any other obligations of the
Company to trade creditors created or assumed by the Company in
the ordinary course of business in connection with the obtaining
of materials or services (including Guarantees thereof or
instruments evidencing such liabilities); |
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(D) any liability for Federal, state, local or other taxes
owed or owing by the Company; |
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(E) any obligation of the Company to any Subsidiary; or |
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(F) any obligations with respect to any Capital Stock of
the Company. |
To the extent that any payment of Senior Debt (whether by or on
behalf of the Company as proceeds of security or enforcement or
any right of setoff or otherwise) is declared to be fraudulent
or preferential, set aside or required to be paid to a trustee,
receiver or other similar party under any bankruptcy,
insolvency, receivership or similar law, then if such payment is
recovered by, or paid over to, such trustee, receiver or other
similar party, the Senior Debt or part thereof originally
intended to be satisfied shall be deemed to be reinstated and
outstanding as if such payment had not occurred.
Senior Debt of any Subsidiary Guarantor has a
correlative meaning to Senior Debt of the Company.
Separation Agreement means the Separation
Agreement between the Company and Alcan, dated as of
December 31, 2004, as in effect on such date.
Significant Subsidiary means any Subsidiary
that would be a significant subsidiary of the
Company within the meaning of Rule 1-02 under
Regulation S-X promulgated pursuant to the
Exchange Act.
Special Interest means the additional
interest, if any, to be paid on the Notes as described under
Exchange Offer; Registration Rights.
Specified Post Closing Transactions means the
payment by the Company or any Restricted Subsidiary to
(i) Alcan of cash consideration for the transfer of certain
equity interests in Germany to the Company or a Subsidiary of
the Company; (ii) Alcan for reimbursement of the payment of
Canadian transfer taxes in connection with the transfer of
certain real property in Canada to the Company;
(iii) United Kingdom and Malaysian governmental authorities
for stamp duties payable in connection with the transfer of
certain equity interests and real property in the United Kingdom
and Malaysia to the Company or a Subsidiary of the Company;
(iv) South Korean governmental authorities for Taxes
payable in connection with the transfer of certain equity
interests in South Korea to the Company or a Subsidiary of the
Company; and (v) Alcan Holdings Switzerland AG of a cash
price adjustment relating to the sale of certain Swiss assets to
the Company or a Subsidiary of the Company.
Standard Securitization Undertakings means
representations, warranties, covenants and indemnities entered
into by the Company or any Restricted Subsidiary that are
reasonably customary in an accounts receivable securitization
transaction so long as none of the same constitute Debt, a
Guarantee or otherwise require the provision of credit support.
179
Stated Maturity means, with respect to any
security, the date specified in such security as the fixed date
on which the payment of principal of such security is due and
payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof
upon the happening of any contingency beyond the control of the
issuer unless such contingency has occurred).
Subordinated Debt means any Debt of the
Company or any Subsidiary Guarantor (whether outstanding on the
Issue Date or thereafter Incurred) that is subordinate or junior
in right of payment to the Notes or the applicable Subsidiary
Guaranty pursuant to a written agreement to that effect.
Subsidiary means, in respect of any Person,
any corporation, company (including any limited liability
company), association, partnership, joint venture or other
business entity of which an aggregate of 50% or more of the
total voting power of the Voting Stock is at the time owned or
controlled, directly or indirectly, by:
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(a) such Person, |
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(b) such Person and one or more Subsidiaries of such
Person, or |
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(c) one or more Subsidiaries of such Person. |
Subsidiary Guarantor means (a) each
Canadian Restricted Subsidiary and U.S. Restricted
Subsidiary; (b) Novelis do Brasil Ltda, Novelis UK Ltd.,
Novelis Europe Holdings Ltd., Novelis Aluminium Holding Company,
Novelis Deutschland GmbH, Novelis Switzerland S.A., Novelis
Technology AG and Novelis AG; and (c) any other Person that
becomes a Subsidiary Guarantor pursuant to the covenant
described under Certain Covenants
Future Subsidiary Guarantors or who otherwise executes and
delivers a supplemental indenture to the Trustee providing for a
Subsidiary Guaranty.
Subsidiary Guaranty means a Guarantee on the
terms set forth in the Indenture by a Subsidiary Guarantor of
the Companys obligations with respect to the Notes.
Surviving Person means the surviving Person
formed by a merger, consolidation or amalgamation and, for
purposes of the covenant described under
Merger, Consolidation and Sale of
Property, a Person to whom all or substantially all of the
Property of the Company or a Subsidiary Guarantor is sold,
transferred, assigned, leased, conveyed or otherwise disposed.
Taxing Jurisdiction means (i) with
respect to any payment made under the Notes, any jurisdiction
(or any political subdivision thereof or therein) in which the
Company, or any of its successors, are organized or resident for
tax purposes or conduct of business, or from or through which
payment is made and (ii) with respect to any payment made
by a Subsidiary Guarantor, any jurisdiction (or any political
subdivision thereof or therein) in which such Subsidiary
Guarantor is organized or resident for tax purposes or conduct
of business, or from or through which payment is made.
Taxes means any present or future tax, duty,
levy, interest, assessment or other governmental charge imposed
or levied by or on behalf of any government or any political
subdivision or territory or possession of any government or any
authority or agency therein or thereof having power to tax.
Treasury Rate means, with respect to any
redemption date, the rate per annum equal to the yield to
maturity of the Comparable Treasury Issue, compounded
semi-annually, assuming a price for such Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal
to the Comparable Treasury Price for such redemption date.
Unrestricted Subsidiary means:
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(a) any Subsidiary of the Company that is designated after
the Issue Date as an Unrestricted Subsidiary as permitted or
required pursuant to the covenant described under
Certain Covenants Designation of
Restricted and Unrestricted Subsidiaries and is not
thereafter redesignated as a Restricted Subsidiary as permitted
pursuant thereto; and |
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(b) any Subsidiary of an Unrestricted Subsidiary. |
180
U.S. Government Obligations means direct
obligations (or certificates representing an ownership interest
in such obligations) of the United States (including any agency
or instrumentality thereof) for the payment of which the full
faith and credit of the United States is pledged and which are
not callable or redeemable at the issuers option.
U.S. Restricted Subsidiary means any
Restricted Subsidiary that is organized under the laws of the
United States of America or any State thereof or the District of
Columbia.
Voting Stock of any Person means all classes
of Capital Stock or other interests (including partnership
interests) of such Person then outstanding and normally entitled
(without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof.
Wholly Owned Restricted Subsidiary means, at
any time, a Restricted Subsidiary all the Voting Stock of which
(other than directors qualifying shares) is at such time
owned, directly or indirectly, by the Company and its other
Wholly Owned Subsidiaries.
Book-Entry System
The Notes will be initially issued in the form of one or more
global securities registered in the name of The Depository Trust
Company (DTC) or its nominee.
Upon the issuance of a global security, DTC or its nominee will
credit the accounts of Persons holding through it with the
respective principal amounts of the Notes represented by such
global security for which old notes were exchanged by such
Persons in the exchange offer. Ownership of beneficial interests
in a global security will be limited to Persons that have
accounts with DTC (participants) or Persons that may
hold interests through participants, including through
Clearstream Banking, S.A. and Euroclear Bank S.A./ N.V., as
operator of the Euroclear System. Ownership of beneficial
interests in a global security will be shown on, and the
transfer of that ownership interest will be effected only
through, records maintained by DTC (with respect to
participants interests) and such participants (with
respect to the owners of beneficial interests in such global
security other than participants). The laws of some
jurisdictions require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer
beneficial interests in a global security.
Payment of principal of and interest on Notes represented by a
global security will be made in immediately available funds to
DTC or its nominee, as the case may be, as the sole registered
owner and the sole holder of the Notes represented thereby for
all purposes under the Indenture. The Company has been advised
by DTC that upon receipt of any payment of principal of or
interest on any global security, DTC will immediately credit, on
its book-entry registration and transfer system, the accounts of
participants with payments in amounts proportionate to their
respective beneficial interests in the principal or face amount
of such global security as shown on the records of DTC. Payments
by participants to owners of beneficial interests in a global
security held through such participants will be governed by
standing instructions and customary practices as is now the case
with securities held for customer accounts registered in
street name and will be the sole responsibility of
such participants.
A global security may not be transferred except as a whole by
DTC or a nominee of DTC to a nominee of DTC or to DTC. A global
security is exchangeable for certificated Notes only if:
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(a) DTC notifies the Company that it is unwilling or unable
to continue as a depositary for such global security or if at
any time DTC ceases to be a clearing agency registered under the
Exchange Act, |
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(b) the Company in its discretion at any time determines
not to have all the Notes represented by such global
security, or |
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(c) there shall have occurred and be continuing a Default
or an Event of Default with respect to the Notes represented by
such global security. |
181
Any global security that is exchangeable for certificated Notes
pursuant to the preceding sentence will be exchanged for
certificated Notes in authorized denominations and registered in
such names as DTC or any successor depositary holding such
global security may direct. Subject to the foregoing, a global
security is not exchangeable, except for a global security of
like denomination to be registered in the name of DTC or any
successor depositary or its nominee. In the event that a global
security becomes exchangeable for certificated Notes,
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(a) certificated Notes will be issued only in fully
registered form in denominations of $1,000 or integral multiples
thereof, |
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(b) payment of principal of, and premium, if any, and
interest on, the certificated Notes will be payable, and the
transfer of the certificated Notes will be registrable, at the
office or agency of the Company maintained for such
purposes, and |
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(c) no service charge will be made for any registration of
transfer or exchange of the certificated Notes, although the
Company may require payment of a sum sufficient to cover any tax
or governmental charge imposed in connection therewith. |
So long as DTC or any successor depositary for a global
security, or any nominee, is the registered owner of such global
security, DTC or such successor depositary or nominee, as the
case may be, will be considered the sole owner or holder of the
Notes represented by such global security for all purposes under
the Indenture and the Notes. Except as set forth above, owners
of beneficial interests in a global security will not be
entitled to have the Notes represented by such global security
registered in their names, will not receive or be entitled to
receive physical delivery of certificated Notes in definitive
form and will not be considered to be the owners or holders of
any Notes under such global security. Accordingly, each Person
owning a beneficial interest in a global security must rely on
the procedures of DTC or any successor depositary, and, if such
Person is not a participant, on the procedures of the
participant through which such Person owns its interest, to
exercise any rights of a holder under the Indenture. The Company
understands that under existing industry practices, in the event
that the Company requests any action of holders or that an owner
of a beneficial interest in a global security desires to give or
take any action which a holder is entitled to give or take under
the Indenture, DTC or any successor depositary would authorize
the participants holding the relevant beneficial interest to
give or take such action and such participants would authorize
beneficial owners owning through such participants to give or
take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
DTC has advised the Company that DTC is a limited-purpose trust
company organized under the Banking Law of the State of New
York, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform
Commercial Code and a clearing agency registered
under the Exchange Act. DTC was created to hold the securities
of its participants and to facilitate the clearance and
settlement of securities transactions among its participants in
such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. DTCs
participants include securities brokers and dealers (which may
include the initial purchasers), banks, trust companies,
clearing corporations and certain other organizations some of
whom (or their representatives) own DTC. Access to DTCs
book-entry system is also available to others, such as banks,
brokers, dealers and trust companies, that clear through or
maintain a custodial relationship with a participant, either
directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in global securities among
participants of DTC, it is under no obligation to perform or
continue to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Trustee, the
initial purchasers or the Exchange Agent will have any
responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the
rules and procedures governing their operations.
182
REGISTRATION RIGHTS
We are making the exchange offer to comply with our
obligations under the registration rights agreement to register
the exchange of the Notes for the old notes. In the registration
rights agreement, we also agreed under certain circumstances,
described below, to file a shelf registration statement to
register the resale of certain old notes and Notes. The
following summary of the registration rights that are provided
in the registration rights agreement and the Notes is not
complete. You should refer to the registration rights agreement
and the Notes for a full description of the registration rights
that apply to the Notes.
The Company, the Subsidiary Guarantors and the initial
purchasers entered into the registration rights agreement on
February 3, 2005 (the Registration Rights
Agreement). In the Registration Rights Agreement, the
Company and the Subsidiary Guarantors agreed to file the
exchange offer registration statement (the Exchange Offer
Registration Statement) relating to the old notes with the
SEC within 180 days after the date of original issuance of
the old notes, and use their respective reasonable best efforts
to cause the Exchange Offer Registration Statement to be
declared effective by the SEC not later than 270 days after
date of original issuance of the old notes. The Company and the
Subsidiary Guarantors also agreed to commence and complete the
exchange offer (the Registered Exchange Offer) as
promptly as practicable after the effectiveness of the Exchange
Offer Registration Statement and, in any event, to keep the
exchange offer open for a period not less than 30 days and
not more than 45 days after the date notice of the
Registered Exchange Offer is mailed to the holders of the old
notes (or in each case, longer if required by applicable law).
In addition, the Company is required to allow Participating
Broker-Dealers (as defined below) and other persons, if any,
with similar prospectus delivery requirements to use the
prospectus contained in the Exchange Offer Registration
Statement in connection with the resale of such Notes for
180 days following the effective date of the Exchange Offer
Registration Statement (or such shorter period during which
Participating Broker-Dealers are required by law to deliver such
prospectus).
In the event that (1) any change in law or applicable
interpretations of the staff of the SEC does not permit us to
effect the exchange offer, (2) for any other reason the
Exchange Offer Registration Statement is not declared effective
within 270 days after the date of the original issuance of
the old notes or the registered exchange offer is not
consummated within 45 days after the effectiveness of the
Exchange Offer Registration Statement, (3) any initial
purchaser so requests with respect to old notes not eligible to
be exchanged for Notes in the Registered Exchange Offer or
(4) any holder of old notes (other than an initial
purchaser) is not eligible to participate in the Registered
Exchange Offer or does not receive freely tradeable Notes in the
Registered Exchange Offer other than by reason of such holder
being an affiliate of the Company (it being understood that the
requirement that a broker-dealer (a Participating
Broker-Dealer) receiving Notes in the Registered Exchange
Offer deliver the prospectus contained in the Exchange Offer
Registration Statement in connection with sales of Notes shall
not result in such Notes being not freely
tradeable), the Company and the Subsidiary Guarantors will
prepare at their cost and,
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(a) as promptly as practicable (but in no event more than
180 days after so required or requested), file a
registration statement (the Shelf Registration
Statement) covering resales of the old notes or the Notes,
as the case may be, |
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(b) use their respective reasonable best efforts to cause
the Shelf Registration Statement to be declared effective under
the Securities Act within 270 days after so required or
requested, and |
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(c) use their respective reasonable best efforts to keep
the Shelf Registration Statement continuously effective (subject
to certain exceptions), supplemented and amended as required by
the Securities Act until (1) the second anniversary of its
effective date, or (2) the date upon which all the old
notes or the Notes, as applicable, covered by the Shelf
Registration Statement have been sold pursuant to the Shelf
Registration Statement, or (3) the date upon which the old
notes or the Notes, as applicable, covered by the Shelf
Registration Statement become eligible for resale, without
regard to volume, manner of sale or other restrictions contained
in Rule 144 under the Securities Act pursuant to
paragraph (k) thereof. |
183
We and the Subsidiary Guarantors will, in the event a Shelf
Registration Statement is filed, among other things, provide to
each holder for whom such Shelf Registration Statement was filed
copies of the prospectus which is a part of the Shelf
Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain
other actions as are required to permit unrestricted resales of
the old notes or the Notes, as the case may be. A holder selling
such old notes or Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the
civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions
of the Registration Rights Agreement which are applicable to
such holder (including certain indemnification obligations).
If:
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(a) on or prior to the 180th day following the date of
original issuance of the old notes, neither the Exchange Offer
Registration Statement nor the Shelf Registration Statement has
been filed with the SEC, |
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(b) on or prior to the 270th day following the date of
original issuance of the old notes, neither the Exchange Offer
Registration Statement nor the Shelf Registration Statement has
been declared effective, |
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(c) on or prior to the 45th day following the effectiveness
of the Exchange Offer Registration Statement, neither the
Registered Exchange Offer has been consummated nor the Shelf
Registration Statement has been declared effective, or |
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(d) after either the Exchange Offer Registration Statement
or the Shelf Registration Statement has been declared effective,
such Registration Statement thereafter ceases to be effective or
usable (subject to certain exceptions) in connection with
resales of old notes or Notes in accordance with and during the
periods specified in the Registration Rights Agreement (each
such event referred to in clauses (a) through (d), a
Registration Default), |
interest (Special Interest) will accrue on the
principal amount of the Transfer Restricted
Securities then outstanding (in addition to the stated
interest on the old notes and the Notes) from and including the
date on which any such Registration Default shall occur to but
excluding the date on which all Registration Defaults have been
cured. Transfer Restricted Securities means
(i) each old note until the date on which such old note has
been exchanged for a freely transferable Note in the exchange
offer, (ii) each old note until the date on which it has
been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement
or (iii) each old note until the date on which it is
distributed to the public pursuant to Rule 144 under the
Securities Act or is saleable pursuant to Rule 144(k) under
the Securities Act. We filed this registration statement
181 days after the issue date of the old notes.
Accordingly, special interest accrued for one day on the old
notes. All obligations regarding the payment of Special Interest
that are outstanding with respect to any old note at the time it
is exchanged survive until such time as all such obligations
with respect to such old note have been satisfied in full.
Special Interest will accrue at a rate of 0.25% per annum
during the 90-day period immediately following the occurrence of
such Registration Default and shall increase by 0.25% per
annum at the end of each subsequent 90-day period, but in no
event shall such rate exceed 1.00% per annum. Following
completion of this exchange offer and provided no broker-dealers
hold Notes for which a re-sale prospectus is required, the
Companys and the Subsidiary Guarantors obligations
under the Registration Rights Agreement will be extinguished.
Holders of old notes will be required to make certain
representations to us (as described elsewhere in this prospectus
and the accompanying letter of transmittal) in order to
participate in this exchange offer and Holders of old notes or
Notes, as the case may be, will be required to deliver certain
information to be used in connection with the Shelf Registration
Statement within the time periods set forth in the Registration
Rights Agreement in order to have their old notes or Notes
included in the Shelf Registration Statement and benefit from
the provisions regarding Special Interest set forth above. By
acquiring old
184
notes or Notes, as applicable, a Holder will be deemed to have
agreed to indemnify the Company and the Subsidiary Guarantors
against certain losses arising out of information furnished by
such holder in writing for inclusion in any Shelf Registration
Statement. Holders of old notes or Notes, as applicable, will
also be required to suspend their use of the prospectus included
in the Shelf Registration Statement under certain circumstances
upon receipt of written notice to that effect from the Company.
Pursuant to the terms of the Registration Rights Agreement, the
Company and the Subsidiary Guarantors are not required to make a
Registered Exchange Offer in any province or territory of Canada
or to accept old notes surrendered by residents of Canada in the
Registered Exchange Offer unless the distribution of Notes
pursuant to such offer can be effected pursuant to exemptions
from the registration and prospectus requirements of the
applicable securities laws of such province or territory and, as
a condition to the sale of the old notes pursuant to a
Registered Exchange Offer, such Holders of old notes in Canada
will be required to make certain representations to the Company,
including a representation that they are entitled under the
applicable securities laws of such province or territory to
acquire the Notes without the benefit of a prospectus qualified
under such securities laws.
185
IMPORTANT CANADIAN FEDERAL AND
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Canadian Taxation
The following summary describes certain Canadian federal income
tax consequences to a holder of the Notes who acquires Notes in
exchange for the old notes pursuant to this exchange offer and
who, at all relevant times, (i) is not and is not deemed to
be a resident of Canada for purposes of the Income Tax Act
Canada (the Tax Act) and any applicable income tax
convention, (ii) deals at arms length with us for
purposes of the Tax Act, (iii) does not use or hold and is
not deemed to use or hold the notes in the course of carrying on
business in Canada, and (iv) is not an insurer for purposes
of the Tax Act (a Non-Resident Holder). This summary
is based on the current provisions of the Tax Act and the
regulations thereunder, the current published administrative
practices and policies of the Canada Revenue Agency and all
specific proposals to amend the Tax Act and the regulations
announced by the Minister of Finance (Canada) prior to the date
hereof. This summary does not otherwise take into account or
anticipate changes in the law, whether by judicial, governmental
or legislative decision or action, nor does it take into account
tax legislation or considerations of any province or territory
of Canada or any jurisdiction other than Canada. This summary is
of a general nature only and is not intended to be, and should
not be interpreted as, legal or tax advice to any particular
holder of the notes. Prospective holders should consult their
own tax advisors with respect to the income tax considerations
applicable to them.
Amounts paid or credited, or deemed to be paid or credited, as,
on account or in lieu of payment of, or in satisfaction of the
principal of the notes or premium, discount or interest on the
Notes by us to a Non-Resident Holder, including in respect of a
required offer to purchase the Notes, will be exempt from
Canadian withholding tax.
No other taxes on income (including taxable capital gains) will
be payable under the Tax Act by Non-Resident Holders of the
Notes in respect of the acquisition, ownership or disposition of
the Notes.
The exchange of old notes for Notes pursuant to the exchange
offer will not constitute a disposition of the old notes for
Canadian federal income tax purposes. A Non-Resident Holder will
therefore not recognize a taxable capital gain for Canadian
federal income tax purposes, or otherwise be subject to Canadian
federal income tax, as a result of the exchange.
United States Taxation
This section describes the material United States federal income
tax consequences of acquiring, owning and disposing of the Notes
we are offering. It applies to you only if you hold your Notes
as capital assets for United States federal income tax purposes.
This section does not apply to you if you are a member of a
class of holders subject to special rules, such as:
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a dealer in securities or currencies, |
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a trader in securities that elects to use a mark-to-market
method of accounting for your securities holdings, |
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a bank, |
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a life insurance company, |
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a tax-exempt organization, |
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a person that owns Notes that are a hedge or that are hedged
against interest rate risks, |
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a person that owns Notes as part of a straddle or conversion
transaction for tax purposes, |
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a United States holder (as defined below) or a person related to
a United States holder, that actually or constructively owns 10%
or more of our voting stock, or |
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a United States holder whose functional currency for tax
purposes is not the U.S. dollar. |
186
This section is based on the Internal Revenue Code of 1986, as
amended, its legislative history, existing and proposed
regulations under the Code, published rulings and court
decisions, all as currently in effect. These laws are subject to
change, possibly on a retroactive basis.
Please consult your own tax advisor concerning the
consequences of owning these Notes in your particular
circumstances under the Internal Revenue Code and the laws of
any other taxing jurisdiction.
If a partnership or other pass-through entity holds Notes, the
tax treatment of a partner or owner in the partnership or
pass-through entity will generally depend upon the status of the
partner and the activities of the partnership or pass-through
entity. If you are a partner or owner in a partnership or other
pass-through entity that is considering holding Notes, you
should consult your tax advisor.
Tax Consequences of the Exchange
The exchange of old notes for Notes should not be treated as a
taxable event for United States federal income tax purposes. For
United States federal income tax purposes, a holder of old notes
should therefore not recognize any gain or loss as a result of
the exchange and should have a tax basis in its Notes equal to
the holders tax basis in the old notes exchanged. The
United States federal income tax consequences of holding Notes
to a holder that acquires Notes in exchange for old notes should
be the same as the United States federal income tax consequences
of holding old notes to the holder.
Tax Consequences of Acquiring Notes (Other Than in the
Exchange)
This subsection describes the tax consequences to a United
States holder. You are a United States holder if you are a
beneficial owner of a note and you are for United States federal
income tax purposes:
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a citizen or resident of the United States, |
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a domestic corporation, |
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an estate whose income is subject to United States federal
income tax regardless of its source, or |
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a trust if a United States court can exercise primary
supervision over the trusts administration and one or more
United States persons are authorized to control all substantial
decisions of the trust. |
If you are not a United States holder, this subsection does not
apply to you and you should refer to United States Alien
Holders below.
Payments of Interest. You will be taxed on interest on
your Note as ordinary income at the time you receive the
interest or when it accrues, depending on your method of
accounting for tax purposes.
Interest paid by us on the Notes is income from sources outside
the United States subject to the rules regarding the foreign tax
credit allowable to a United States holder. Under the foreign
tax credit rules, interest paid in taxable years beginning
before January 1, 2007 generally will be passive
income or financial services income, and
interest paid in taxable years beginning after December 31,
2006 will be, depending on your circumstances,
passive or general income which, in
either case, is treated separately from other types of income
for purposes of computing the foreign tax credit allowable to
you.
Optional Redemption and Change of Control. We intend to
take the position that the likelihood of an optional redemption,
as described under Description of the Notes
Optional Redemption, a Change of Control Offer, as
described under Description of the Notes
Change of Control Offer, is remote within the meaning of
the applicable United States Treasury regulations. We do not
intend to treat those possibilities as affecting the yield to
maturity of the Notes for purposes of the original issue
discount provisions of the Internal Revenue Code.
Market Discount on the Notes. If you are a United States
holder and you purchase a Note for an amount that is less than
its principal amount, you will be treated as having purchased
the Note at a market discount if the excess of the Notes
principal amount over your tax basis immediately after the
187
acquisition of the Note is equal to or greater than
1/4
of 1 percent of the Notes principal amount multiplied
by the number of complete years to the Notes maturity.
In that case, you must treat any gain recognized on the maturity
or disposition of your market discount Note as ordinary income
to the extent of the accrued market discount on your Note.
Alternatively, you may elect to include market discount in
income currently over the life of the market discount Note. If
you make this election, it will apply to all debt instruments
with market discount that you acquire on or after the first day
of the first taxable year to which the election applies. You may
not revoke this election without the consent of the Internal
Revenue Service. If you own a market discount Note and do not
make this election, you generally will be required to defer
deductions for interest on borrowings allocable to your Note in
an amount not exceeding the accrued market discount on your Note
until the maturity or disposition of the Note. You will accrue
market discount on your market discount Note on a straight-line
basis unless you elect to accrue market discount using a
constant-yield method. The election, if made, will apply only to
the Note with respect to which it is made, and you may not
revoke it.
If your Notes stated redemption price at maturity exceeds
the price that you paid for the Note by less than
1/4
of 1 percent multiplied by the number of complete years to
the Notes maturity, the excess constitutes de minimis
market discount, and the rules discussed above do not apply.
Notes Purchased at a Premium. If you are a United
States holder and you purchase a Note for an amount in excess of
its principal amount, you may elect to treat the excess as
amortizable bond premium. If you make this election, you will
reduce the amount required to be included in your income each
year with respect to interest on the Note by the amount of
amortizable bond premium allocable to that year, based on the
Notes yield to maturity. This election will apply to all
debt instruments, other than debt instruments the interest on
which is excludible from gross income, that you hold at the
beginning of the first taxable year to which the election
applies or that you thereafter acquire. You may not revoke the
election without the consent of the Internal Revenue Service.
Purchase, Sale and Retirement of the Notes. You will
generally recognize capital gain or loss on the sale or
retirement of your Note equal to the difference between the
amount you realize on the sale or retirement, and your tax basis
in your Note. Any amounts of gain attributable to accrued
interest or market discount, however, will be taxed as ordinary
income (as discussed above under Payments of
Interest and Market Discount on the Notes) to
the extent you have not previously included such amounts in
taxable income. Your adjusted tax basis in your Note generally
will equal your cost in acquiring the Note, plus any amount of
accrued but unpaid interest and market discount that you
previously included in taxable income. Capital gain of a
noncorporate United States holder that is recognized before
January 1, 2009 is generally taxed at a maximum rate of 15%
where the holder has a holding period greater than one year. The
deductibility of capital losses is subject to limitations.
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United States Alien Holders
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This subsection describes the tax consequences to a United
States alien holder. If you are a United States holder,
this subsection does not apply to you. You are a United States
alien holder if you are a beneficial owner of a Note and you
are, for United States federal income tax purposes:
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a nonresident alien individual, |
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a foreign corporation, or |
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an estate or trust that in either case is not subject to United
States federal income tax on a net income basis on income or
gain from a note. |
Under United States federal income tax law, and subject to the
discussion of backup withholding below, if you are a United
States alien holder, interest on a Note paid to you is exempt
from
188
United States federal income tax, including withholding
tax, whether or not you are engaged in a trade or business in
the United States, unless:
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you are an insurance company carrying on a United States
insurance business to which the interest is attributable, within
the meaning of the Internal Revenue Code, or |
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you both |
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have an office or other fixed place of business in the United
States to which the interest is attributable and |
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derive the interest in the active conduct of a banking,
financing or similar business within the United States. |
Purchase, Sale, Retirement and Other Disposition of the
Notes. If you are a United States alien holder, you
generally will not be subject to United States federal income
tax on gain realized on the sale, exchange or retirement of a
Note unless:
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the gain is effectively connected with your conduct of a trade
or business in the United States or |
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you are an individual, you are present in the United States for
183 or more days during the taxable year in which the gain is
realized, and certain other conditions exist. |
For purposes of the United States federal estate tax, the Notes
will be treated as situated outside the United States and will
not be includible in the gross estate of a holder who is neither
a citizen nor a resident of the United States at the time of
death.
Backup Withholding and Information Reporting
If you are a noncorporate United States holder, information
reporting requirements, on Internal Revenue Service
Form 1099, generally will apply to:
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payments of principal and interest on a Note within the United
States, including payments made by wire transfer from outside
the United States to an account you maintain in the United
States, and |
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the payment of the proceeds from the sale of a Note effected at
a United States office of a broker. |
Additionally, backup withholding will apply to such payments if
you are a noncorporate United States holder that:
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fails to provide an accurate taxpayer identification number, |
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is notified by the Internal Revenue Service that you have failed
to report all interest and dividends required to be shown on
your federal income tax returns, or |
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in certain circumstances, fails to comply with applicable
certification requirements. |
If you are a United States alien holder, you are generally
exempt from backup withholding and information reporting
requirements with respect to:
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payments of principal and interest made to you outside the
United States by us or another non-United States payor and |
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other payments of principal and interest and the payment of the
proceeds from the sale of a Note effected at a United States
office of a broker, as long as the income associated with such
payments is otherwise exempt from United States federal income
tax, and: |
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the payor or broker does not have actual knowledge or reason to
know that you are a United States person and you have furnished
to the payor or broker: |
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an Internal Revenue Service Form W-8BEN or an acceptable
substitute form upon which you certify, under penalties of
perjury, that you are a non-United States person, or |
189
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other documentation upon which it may rely to treat the payments
as made to a non-United States person in accordance with
U.S. Treasury regulations, or |
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you otherwise establish an exemption. |
Payment of the proceeds from the sale of a Note effected at a
foreign office of a broker generally will not be subject to
information reporting or backup withholding. However, a sale of
a Note that is effected at a foreign office of a broker will be
subject to information reporting and backup withholding if:
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the proceeds are transferred to an account maintained by you in
the United States, |
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the payment of proceeds or the confirmation of the sale is
mailed to you at a United States address, or |
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the sale has some other specified connection with the United
States as provided in U.S. Treasury regulations, |
unless the broker does not have actual knowledge or reason to
know that you are a United States person and the documentation
requirements described above are met or you otherwise establish
an exemption.
In addition, a sale of a Note effected at a foreign office of a
broker will be subject to information reporting if the broker is:
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a United States person, |
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a controlled foreign corporation for United States tax purposes, |
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a foreign person 50% or more of whose gross income is
effectively connected with the conduct of a United States trade
or business for a specified three-year period, or |
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a foreign partnership, if at any time during its tax year: |
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one or more of its partners are U.S. persons,
as defined in U.S. Treasury regulations, who in the
aggregate hold more than 50% of the income or capital interest
in the partnership, or |
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such foreign partnership is engaged in the conduct of a United
States trade or business, |
unless the broker does not have actual knowledge or reason to
know that you are a United States person and the documentation
requirements described above are met or you otherwise establish
an exemption. Backup withholding will apply if the sale is
subject to information reporting and the broker has actual
knowledge that you are a United States person.
190
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action
letters issued to third parties, including Exxon Capital
Holdings Corporation, available May 13, 1988,
Morgan Stanley & Co. Incorporated,
available June 5, 1991, Mary Kay Cosmetics,
Inc., available June 5, 1991, and Warnaco,
Inc., available October 11, 1991, we believe that
Notes issued in exchange for the old notes may be offered for
resale, resold and otherwise transferred by holders so long as
such holder is not (i) our affiliate, (ii) a
broker-dealer who acquired old notes directly from us or our
affiliate or (iii) a broker-dealer who acquired old notes
as a result of market-making or other trading activities.
Offers, sales and transfers may be made without compliance with
the registration and prospectus delivery provisions of the
Securities Act, provided that such Notes are acquired in the
ordinary course of such holders business, and such holders
are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in,
a distribution of such Notes and that participating
broker-dealers receiving Notes in the exchange offer will be
subject to a prospectus delivery requirement with respect to
resales of such Notes. To date, the staff of the SEC has taken
the position that participating broker-dealers may fulfill their
prospectus delivery requirements with respect to transactions
involving an exchange of securities such as the exchange
pursuant to the exchange offer (other than a resale of an unsold
allotment from the sale of the old notes to the initial
purchasers) with the prospectus contained in the registration
statement relating to the exchange offer. Each holder of the old
notes who wishes to exchange its old notes for Notes in the
exchange offer will be required to make certain representations
to us as set forth in The Exchange Offer.
In addition, each broker-dealer that receives Notes for its own
account pursuant to the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
Notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection
with resales of Notes received in exchange for securities where
such securities were acquired as a result of market-making
activities or other trading activities. We have agreed that,
starting on the expiration date of the exchange offer and ending
on the close of business one year after the expiration date, or
such shorter period as will terminate when (i) all of the
Notes covered by this exchange offer registration statement have
been distributed pursuant thereto and (ii) an exchanging
dealer (meaning any holder of old notes (which may include the
initial purchasers) that is a broker-dealer and elects to
exchange for Notes any old notes that it acquired for its own
account as a result of market-making or other trading activities
(but not directly from us or any of our affiliates)) is no
longer required to deliver a prospectus in connection with sales
of the Notes, it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in
connection with any such resale. In addition,
until , ,
all dealers effecting transactions in the Notes may be required
to deliver a prospectus.
We will not receive any proceeds from any sale of Notes by
brokers-dealers. Notes received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to
time in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on
the Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or
the purchasers of any such new securities. Any broker-dealer
that resells Notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such new securities may be
deemed to be an underwriter within the meaning of
the Securities Act and any profit of any such resale of new
securities and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under
the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the
Securities Act.
For a period of one year after the expiration date, or such
shorter period as will terminate when (i) all of the Notes
covered by the exchange offer registration statement have been
distributed pursuant
191
thereto and (ii) an exchanging dealer is no longer required
to deliver a prospectus in connection with sales of the Notes,
we will promptly send additional copies of this prospectus and
any amendment or supplement to this prospectus to any
broker-dealer that requests such documents in the letter of
transmittal.
Following consummation of the exchange offer, we may, in our
sole discretion, commence one or more additional exchange offers
to holders of old notes who did not exchange their old notes for
Notes in the exchange offer, on terms that may differ from those
contained in the registration statement. This prospectus, as it
may be amended or supplemented from time to time, may be used by
us in connection with any such additional exchange offers. Such
additional exchange offers will take place from time to time
until all outstanding old notes have been exchanged for Notes
pursuant to the terms and conditions herein.
VALIDITY OF THE SECURITIES
The validity of the Notes offered hereby will be passed upon by
Sullivan & Cromwell LLP. Certain legal matters in
connection with the exchange offer will also be passed upon for
us by Ogilvy Renault LLP, Montréal, Canada, with respect to
matters of Canadian law, by Jones Day, with respect to matters
of Texas law, by MacFarlanes, with respect to matters of U.K.
law, by A&L Goodbody, with respect to matters of Irish law,
by Levy & Salomão Advogados, with respect to
matters of Brazilian law and by internal counsel of Novelis Inc.
with respect to matters of Swiss and German law.
EXPERTS
The combined financial statements as at December 31, 2004
and December 31, 2003, and for each of the years in the
three-year period ended December 31, 2004 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP (Montréal, Canada), independent
registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
192
THE NOVELIS GROUP
INDEX TO AUDITED COMBINED FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors of Novelis Inc.:
In our opinion, the accompanying combined balance sheets and
related combined statements of income, invested equity and cash
flows present fairly, in all material respects, the financial
position of the Novelis Group as described in Note 1, at
December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Novelis Groups management. Our responsibility is to
express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
Montreal, Quebec, Canada
March 24, 2005, except as to Note 26 and Note 28,
which are as of August 3, 2005
F-2
The Novelis Group
COMBINED STATEMENT OF INCOME
Year ended December 31
(In millions of US$, except per share amounts)
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2004 |
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2003 |
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2002 |
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Sales and operating revenues
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third parties
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7,305 |
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5,749 |
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5,456 |
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related parties (NOTE 11)
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450 |
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472 |
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437 |
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7,755 |
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6,221 |
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5,893 |
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Costs and expenses
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Cost of sales and operating expenses, excluding depreciation and
amortization noted below
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third parties
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6,453 |
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5,046 |
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4,797 |
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related parties (NOTE 11)
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403 |
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436 |
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411 |
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Depreciation and amortization (NOTE 7)
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246 |
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222 |
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211 |
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Selling, general and administrative expenses
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268 |
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211 |
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183 |
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Research and development expenses
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third parties
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20 |
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18 |
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18 |
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related parties (NOTE 11)
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38 |
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44 |
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49 |
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Interest
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third parties
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41 |
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21 |
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20 |
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related parties (NOTE 11)
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33 |
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19 |
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22 |
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Other expenses (income) net (NOTE 14)
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third parties
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84 |
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84 |
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24 |
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related parties (NOTE 11)
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(56 |
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(84 |
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22 |
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7,530 |
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6,017 |
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5,757 |
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|
Income before income taxes and other items
|
|
|
225 |
|
|
|
204 |
|
|
|
136 |
|
Income taxes (NOTE 9)
|
|
|
166 |
|
|
|
50 |
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
Income before other items
|
|
|
59 |
|
|
|
154 |
|
|
|
59 |
|
Equity income (NOTE 10)
|
|
|
6 |
|
|
|
6 |
|
|
|
8 |
|
Minority interests
|
|
|
(10 |
) |
|
|
(3 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of accounting change
|
|
|
55 |
|
|
|
157 |
|
|
|
75 |
|
Cumulative effect of accounting change, net of income taxes of
nil (NOTES 4 AND
7)
|
|
|
|
|
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (Loss)
|
|
|
55 |
|
|
|
157 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per share (NOTE 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of accounting change
|
|
|
0.74 |
|
|
|
2.12 |
|
|
|
1.01 |
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
(1.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income (Loss) per share basic
|
|
|
0.74 |
|
|
|
2.12 |
|
|
|
(0.12 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of accounting change
|
|
|
0.74 |
|
|
|
2.11 |
|
|
|
1.00 |
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
(1.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income (Loss) per share diluted
|
|
|
0.74 |
|
|
|
2.11 |
|
|
|
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-3
The Novelis Group
COMBINED BALANCE SHEET
As at December 31
(In millions of US$)
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and time deposits
|
|
|
31 |
|
|
|
27 |
|
Trade receivables (net of allowances of $33 in 2004 and $30 in
2003)
|
|
|
|
|
|
|
|
|
|
third parties (NOTE 12)
|
|
|
710 |
|
|
|
558 |
|
|
related parties (NOTE 11)
|
|
|
87 |
|
|
|
163 |
|
Other receivables
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
118 |
|
|
|
97 |
|
|
related parties (NOTES 11 AND 13)
|
|
|
846 |
|
|
|
1,167 |
|
Inventories
|
|
|
|
|
|
|
|
|
|
Aluminum
|
|
|
1,081 |
|
|
|
867 |
|
|
Raw materials
|
|
|
20 |
|
|
|
14 |
|
|
Other supplies
|
|
|
125 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
1,226 |
|
|
|
980 |
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,018 |
|
|
|
2,992 |
|
|
|
|
|
|
|
|
Deferred charges and other assets (NOTE 15)
|
|
|
193 |
|
|
|
196 |
|
Long-term receivables from related parties (NOTE 11)
|
|
|
104 |
|
|
|
614 |
|
Property, plant and equipment (NOTE 16)
|
|
|
|
|
|
|
|
|
|
Cost (excluding construction work in progress)
|
|
|
5,506 |
|
|
|
5,218 |
|
|
Construction work in progress
|
|
|
112 |
|
|
|
129 |
|
|
Accumulated depreciation
|
|
|
(3,270 |
) |
|
|
(2,928 |
) |
|
|
|
|
|
|
|
|
|
|
2,348 |
|
|
|
2,419 |
|
|
|
|
|
|
|
|
Intangible assets (net of accumulated amortization of $9 in 2004
and $6 in 2003) (NOTE 7)
|
|
|
35 |
|
|
|
26 |
|
Goodwill (NOTE 7)
|
|
|
256 |
|
|
|
69 |
|
|
|
|
|
|
|
|
Total assets
|
|
|
5,954 |
|
|
|
6,316 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND INVESTED EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Payables and accrued liabilities
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
859 |
|
|
|
802 |
|
|
related parties (NOTE 11)
|
|
|
401 |
|
|
|
286 |
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
229 |
|
|
|
900 |
|
|
related parties (NOTE 11)
|
|
|
312 |
|
|
|
64 |
|
Debt maturing within one year (NOTE 18)
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1 |
|
|
|
132 |
|
|
related parties (NOTE 11)
|
|
|
290 |
|
|
|
10 |
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,092 |
|
|
|
2,194 |
|
|
|
|
|
|
|
|
Debt not maturing within one year (NOTES 18 AND 22)
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
139 |
|
|
|
506 |
|
|
related parties (NOTE 11)
|
|
|
2,307 |
|
|
|
1,011 |
|
Deferred credits and other liabilities (NOTE 17)
|
|
|
472 |
|
|
|
362 |
|
Deferred income taxes (NOTE 9)
|
|
|
249 |
|
|
|
152 |
|
Minority interests
|
|
|
140 |
|
|
|
117 |
|
Invested equity
|
|
|
|
|
|
|
|
|
Owners net investment
|
|
|
467 |
|
|
|
1,890 |
|
Accumulated other comprehensive income
|
|
|
88 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
555 |
|
|
|
1,974 |
|
|
|
|
|
|
|
|
Commitments and contingencies (NOTE 20)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and invested equity
|
|
|
5,954 |
|
|
|
6,316 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-4
The Novelis Group
COMBINED STATEMENT OF CASH FLOWS
Year ended December 31
(In millions of US$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (Loss)
|
|
|
55 |
|
|
|
157 |
|
|
|
(9 |
) |
Adjustments to determine cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
84 |
|
|
Depreciation and amortization
|
|
|
246 |
|
|
|
222 |
|
|
|
211 |
|
|
Deferred income taxes
|
|
|
97 |
|
|
|
(20 |
) |
|
|
(1 |
) |
|
Equity income
|
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(8 |
) |
|
Asset impairment provisions
|
|
|
75 |
|
|
|
4 |
|
|
|
19 |
|
|
Stock option compensation
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
Loss (Gain) on sales of businesses and investment net
|
|
|
|
|
|
|
(25 |
) |
|
|
4 |
|
|
Change in operating working capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(112 |
) |
|
|
6 |
|
|
|
40 |
|
|
|
|
related parties
|
|
|
28 |
|
|
|
101 |
|
|
|
(11 |
) |
|
|
Change in inventories
|
|
|
(145 |
) |
|
|
(18 |
) |
|
|
63 |
|
|
|
Change in payables and accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(42 |
) |
|
|
18 |
|
|
|
142 |
|
|
|
|
related parties
|
|
|
64 |
|
|
|
(24 |
) |
|
|
(92 |
) |
|
Change in deferred charges and other assets
|
|
|
(9 |
) |
|
|
(28 |
) |
|
|
(59 |
) |
|
Change in deferred credits and other liabilities
|
|
|
(14 |
) |
|
|
48 |
|
|
|
37 |
|
|
Other net
|
|
|
(15 |
) |
|
|
7 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
Cash from operating activities
|
|
|
224 |
|
|
|
444 |
|
|
|
410 |
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of new debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
575 |
|
|
|
500 |
|
|
|
105 |
|
|
related parties
|
|
|
1,561 |
|
|
|
471 |
|
|
|
|
|
Debt repayments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(993 |
) |
|
|
|
|
|
|
|
|
|
related parties
|
|
|
(5 |
) |
|
|
|
|
|
|
(50 |
) |
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(774 |
) |
|
|
577 |
|
|
|
(75 |
) |
|
related parties
|
|
|
221 |
|
|
|
(29 |
) |
|
|
(66 |
) |
Dividends minority interest
|
|
|
(4 |
) |
|
|
|
|
|
|
(2 |
) |
Net payments to Alcan
|
|
|
(1,512 |
) |
|
|
(592 |
) |
|
|
(153 |
) |
|
|
|
|
|
|
|
|
|
|
Cash from (used for) financing activities
|
|
|
(931 |
) |
|
|
927 |
|
|
|
(241 |
) |
|
|
|
|
|
|
|
|
|
|
INVESTMENT ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(165 |
) |
|
|
(189 |
) |
|
|
(179 |
) |
Business acquisitions, net of cash and time deposits acquired
|
|
|
|
|
|
|
(11 |
) |
|
|
|
|
Proceeds from disposal of businesses, investments and other
assets, net of cash
|
|
|
1 |
|
|
|
33 |
|
|
|
24 |
|
Change in loans receivable related parties
|
|
|
874 |
|
|
|
(1,210 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
Cash from (used for) investment activities
|
|
|
710 |
|
|
|
(1,377 |
) |
|
|
(157 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and time deposits
|
|
|
1 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in cash and time deposits
|
|
|
4 |
|
|
|
(4 |
) |
|
|
14 |
|
Cash and time deposits beginning of year
|
|
|
27 |
|
|
|
31 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
Cash and time deposits end of year
|
|
|
31 |
|
|
|
27 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-5
The Novelis Group
COMBINED STATEMENT OF INVESTED EQUITY
Year ended December 31
(In millions of US$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
Owners |
|
|
Other |
|
|
Total |
|
|
|
Comprehensive |
|
|
Net |
|
|
Comprehensive |
|
|
Invested |
|
|
|
Income (Loss) |
|
|
Investment |
|
|
Income (Loss) |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of 2001
|
|
|
|
|
|
|
2,376 |
|
|
|
(142 |
) |
|
|
2,234 |
|
Net Loss 2002
|
|
|
(9 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
(9 |
) |
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in deferred translation adjustments
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in minimum pension liability net of taxes
of $4
|
|
|
(6 |
) |
|
|
|
|
|
|
123 |
|
|
|
123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers (to)/from Alcan net*
|
|
|
|
|
|
|
(167 |
) |
|
|
|
|
|
|
(167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of 2002
|
|
|
|
|
|
|
2,200 |
|
|
|
(19 |
) a |
|
|
2,181 |
|
Net income 2003
|
|
|
157 |
|
|
|
157 |
|
|
|
|
|
|
|
157 |
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in deferred translation adjustments
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in minimum pension liability net of taxes
of ($3)
|
|
|
1 |
|
|
|
|
|
|
|
103 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers (to)/from Alcan net*
|
|
|
|
|
|
|
(467 |
) |
|
|
|
|
|
|
(467 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of 2003
|
|
|
|
|
|
|
1,890 |
|
|
|
84 b |
|
|
|
1,974 |
|
Net income 2004
|
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
|
55 |
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in deferred translation adjustments
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in minimum pension liability net of taxes
of $15
|
|
|
(26 |
) |
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers (to)/from Alcan net*
|
|
|
|
|
|
|
(1,478 |
) |
|
|
|
|
|
|
(1,478 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of 2004
|
|
|
|
|
|
|
467 |
|
|
|
88 c |
|
|
|
555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Refer to note 2 Basis of
Presentation Cash Management for discussion of these
amounts.
|
|
|
a. |
Comprised of deferred translation adjustments of ($12) and
minimum pension liability of ($7). |
|
b. |
Comprised of deferred translation adjustments of $90 and minimum
pension liability of ($6). |
|
c. |
Comprised of deferred translation adjustments of $120 and
minimum pension liability of ($32). |
The accompanying notes are an integral part of the financial
statements.
F-6
The Novelis Group
NOTES TO COMBINED FINANCIAL STATEMENTS
(In millions of US$, except where indicated)
On May 18, 2004, Alcan Inc. (Alcan) announced its intention
to separate its rolled products business into a separate company
and to pursue a spin-off of that business to its shareholders.
The rolled products businesses were managed under two separate
operating segments within Alcan, Rolled Products Americas and
Asia and Rolled Products Europe. Alcan and its subsidiaries
contributed and on January 6, 2005, transferred to a new
public company, Novelis Inc. (the Company or Novelis),
substantially all of the aluminum rolled products businesses
operated by Alcan prior to its 2003 acquisition of Pechiney,
together with some of Alcans alumina and primary
metal-related businesses in Brazil, which are fully integrated
with the rolled products operations there, as well as four
former Pechiney rolling facilities in Europe, as their end-use
markets and customers are more similar to those of Novelis.
Included within the Group are the assets, liabilities and
operations relating to the portions of the Sierre and Neuhausen
facilities transferred to the Group, and comprising certain
assets and liabilities of the automotive and other aluminum
rolled products businesses relating to the sales and marketing
output of the Sierre North Building as well as various
laboratory and testing equipment used in the aluminum rolling
sheet business in Neuhausen. These businesses formed the Novelis
Group (the Group) prior to the spin-off on January 6, 2005.
Novelis, which was formed on September 21, 2004, acquired
the Novelis Group businesses on January 6, 2005, through
the reorganization transactions described above.
On January 6, 2005, the spin-off occurred following the
approval by Alcans Board of Directors and shareholders,
and the receipt of other required legal and regulatory
approvals. Alcan shareholders received one Novelis common share
for every five Alcan common shares held. Common shares of
Novelis began trading on a when issued basis on the
Toronto (TSX) and New York (NYSE) stock exchanges on
January 6, 2005, with a distribution record date of
January 11, 2005. Regular Way trading began on
the TSX on January 7, 2005, and on the NYSE on
January 19, 2005.
The Novelis Group excludes the aluminum rolled products
businesses that were retained by Alcan that consist primarily
of: (1) facilities in Singen, Germany and a portion of the
plant located in Sierre, Switzerland discussed below;
(2) the Neuf-Brisach and Ravenswood facilities acquired in
connection with the Pechiney acquisition; and
(3) facilities acquired in connection with the Pechiney
acquisition that produce plate and aerospace products and which
have been attributed to Alcans Engineered Products
operating segments. The Singen plant in Germany supplies three
operating segments within Alcan, Rolled Products Europe,
Engineered Products and Packaging. The products sold by the
Singen rolled products operations are used primarily as raw
materials for the Engineered Products and Packaging segments and
therefore, the entire facility remains with Alcan. Also, the
Sierre plant in Switzerland forms part of two operating
segments, Engineered Products in addition to Rolled Products
Europe. A portion of the Sierre plant that manufactures plate
products remains with Alcan as Novelis has entered into a
non-competition agreement with Alcan with respect to these
products. The Neuf-Brisach rolling facility in France remained
with Alcan in order to meet the European regulatory requirement
for the separation of Neuf-Brisach and the AluNorf/
Göttingen/ Nachterstedt rolling facilities in Germany,
which were transferred to the Company. Alcan also retained the
Ravenswood, West Virginia, rolling mill, consistent with the
requirements of the U.S. Department of Justices
(DOJ) divestiture order relating to an overlap in a
non-aerospace related product line with the Oswego, New York,
rolling mill, which was transferred to the Company.
The Group produces aluminum sheet and light gauge products where
the end-use destination of the products includes the
construction and industrial, beverage and food cans, foil
products and transportation markets. The Group operates in four
continents, North America, South America, Asia and Europe
through 37 operating plants and three research facilities in 12
countries. In addition to aluminum rolled
F-7
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
products plants, the Groups South American businesses
include bauxite mining, aluminum refining and smelting
facilities that are integrated with the rolling plants in Brazil.
Agreements between Novelis
and Alcan
Novelis has entered into various agreements with Alcan for the
use of transitional and technical services, the supply of
Alcans metal and alumina, the licensing of certain of
Alcans patents, trademarks and other intellectual property
rights, and the use of certain buildings, machinery and
equipment, technology and employees at certain facilities
retained by Alcan, but required in Novelis business.
The combined financial statements are presented using accounting
principles generally accepted in the United States of America
(U.S. GAAP) and have been derived from the accounting
records of Alcan using the historical results of operations and
historical basis of assets and liabilities of the businesses
comprising the Group. The Group has elected to use the
U.S. dollar as its reporting currency. Management believes
the assumptions underlying the combined financial statements,
including the allocations described below, are reasonable.
However, the combined financial statements included herein may
not necessarily reflect the Groups results of operations,
financial position and cash flows in the future or what its
results of operations, financial position and cash flows would
have been had the Group been a stand-alone company during the
periods presented. As these financial statements represent a
portion of the businesses of Alcan which do not constitute a
separate legal entity, the net assets of the Group have been
presented as Owners net investment in the Group.
Alcans investment in the Group includes the accumulated
earnings of the Group as well as cash transfers related to cash
management functions performed by Alcan.
The combined financial statements include allocations of certain
Alcan expenses, assets and liabilities, including the items
described below.
General Corporate
Expenses
Alcan has allocated general corporate expenses to the Group
based on average head count and capital employed. Capital
employed represents total assets less Payables and accrued
liabilities and Deferred credits and other liabilities. These
allocations are reflected in Selling, general and administrative
expenses in the combined statement of income. The general
corporate expenses allocations are primarily for human
resources, legal, treasury, insurance, finance, internal audit,
strategy and public affairs and amounted to $34, $24 and $28 for
the years ended December 31, 2004, 2003 and 2002,
respectively. Total head office costs, including the amounts
allocated, amounted to $49, $36 and $31 for the years ended
December 31, 2004, 2003 and 2002, respectively. The costs
allocated are not necessarily indicative of the costs that would
have been incurred if the Group had performed these functions as
a stand-alone company, nor are they indicative of costs that
will be charged or incurred in the future. Subsequent to the
completion of the spin-off, the Group will perform these
functions using its own resources or purchased services;
however, for an interim period, these services will continue to
be provided by Alcan, as described in note 1
Nature of Operations Agreements Between Novelis and
Alcan. It is not practicable to estimate the amount of expenses
the Group would have incurred for the years ended
December 31, 2004, 2003 and 2002 had it been an
unaffiliated entity of Alcan in each of those periods.
Pensions and Post-Retirement
Benefits
Certain businesses included in the Group have pension
obligations mostly comprised of defined benefit plans in the
U.S. and the U.K., unfunded pension benefits in Germany and lump
sum indemnities payable upon retirement to employees of
businesses in France, Korea and Malaysia. These pension benefits
F-8
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
are managed separately and the related assets, liabilities and
costs are included in the combined financial statements.
Alcan manages defined benefit plans in Canada, the U.S., the
U.K. and Switzerland that include some of the entities of the
Group. The Groups share of these plans assets and
liabilities is not included in the combined balance sheet. The
combined statement of income, however, includes an allocation of
the costs of the plans that varies depending on whether the
entity is a subsidiary or a division of Alcan. Pension costs of
divisions of Alcan included in the Group are allocated based on
the following methods: service costs were allocated based on a
percentage of payroll costs; interest costs, the expected return
on assets, and amortization of actuarial gains and losses were
allocated based on a percentage of the projected benefit
obligation (PBO); and prior service costs were allocated based
on headcount. The total allocation of such pension costs
amounted to $13, $15 and $14 for the years ended
December 31, 2004, 2003 and 2002, respectively. Pension
costs of subsidiaries of Alcan included in the Group are
accounted for on the same basis as a multi-employer pension plan
whereby the subsidiaries contributions for the period are
recognized as net periodic pension cost. The total contributions
of the subsidiaries amounted to $1, $3 and $2 for the years
ended December 31, 2004, 2003 and 2002, respectively.
Alcan provides post-retirement benefits in the form of unfunded
healthcare and life insurance benefits to retired employees in
Canada and United States that include retired employees of some
of the Groups businesses. The Groups share of these
plans liabilities is included in the combined balance
sheets and the Groups share of these plans costs is
included in the combined statement of income.
Income Taxes
Income taxes are calculated as if all of the Groups
operations had been separate tax paying legal entities, each
filing a separate tax return in its local tax jurisdiction. For
jurisdictions where there is no tax sharing agreement, amounts
currently payable have been included in the Owners net
investment.
Cash Management
Cash and cash equivalents in the combined balance sheets are
comprised of the cash and cash equivalents of the Groups
businesses, primarily in South America, Asia and parts of
Europe, that perform their own cash management functions.
Historically, Alcan has performed cash management functions on
behalf of certain of the Groups businesses primarily in
North America, the United Kingdom, and parts of Europe. Cash
deposits from these businesses are transferred to Alcan on a
regular basis. As a result, none of Alcans cash and cash
equivalents has been allocated to the Group in the combined
financial statements. Transfers to and from Alcan are netted
against the Owners net investment. Subsequent to the
spin-off, the Group has become responsible for its own cash
management functions.
Interest Expense
The Group obtains short and long-term financing from third
parties as well as related parties. Interest is charged on all
short and long-term debt and is included in Interest in the
combined statement of income.
Historically, Alcan provided certain financing to the Group and
incurred third party debt at the parent level. This financing is
reflected in the combined balance sheet within the amounts due
to Alcan and is interest bearing as described in
note 11 Related Party Transactions. As a result
of this arrangement, the combined financial statements do not
include an allocation of additional interest expense. The
Groups interest expense as a stand-alone company may be
higher than reflected in the combined statement of income.
F-9
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Derivatives
The Group primarily enters into derivative contracts with Alcan
to manage its foreign currency and commodity price risk. These
contracts are reported at their fair value on the combined
balance sheets. Changes in the fair value of these contracts are
recorded in the combined statement of income.
Stock Options
Stock-options expense and other stock-based compensation expense
in the combined statement of income include the Alcan expenses
related to the fair value of awards held by certain employees of
Alcans Rolled Products businesses during the periods
presented as well as an allocation, calculated based on the
average of headcount and capital employed, for Alcans
corporate office employees. These expenses are not necessarily
indicative of what the expenses would have been had the Group
been a separate stand-alone company during the periods presented.
Earnings Per Share
Prior to the spin-off, the Group was not a separate legal entity
with common shares outstanding. Therefore, historical earnings
per share have not been presented in the combined financial
statements. Earnings per share have been presented using the
Novelis common shares outstanding immediately after completion
of the spin-off on January 6, 2005.
|
|
3. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Use of Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make certain estimates and
assumptions. These may affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements. They may
also affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Business Combinations
All business combinations are accounted for under the purchase
method. Under the purchase method, assets and liabilities of the
acquired entity are recorded at fair value. The excess of the
purchase price over the fair value of the assets and liabilities
acquired is recorded as goodwill.
Principles of
Combination
The combined financial statements include the assets and
liabilities of the Group as well as a variable interest entity,
in which the Group is the primary beneficiary. Investments in
entities over which the Group has significant influence are
accounted for using the equity method. Under the equity method,
the Groups investment is increased or decreased by the
Groups share of the undistributed net income or loss and
deferred translation adjustments since acquisition. Investments
in joint ventures are accounted for using the equity method.
Other investments are accounted for using the cost method. Under
the cost method, dividends received are recorded as income.
All inter-group balances and transactions, including profits in
inventories, between and among the Groups businesses have
been eliminated.
F-10
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Foreign Currency
The assets and liabilities of foreign operations, whose
functional currency is other than the U.S. dollar (located
principally in Europe and Asia), are translated into
U.S. dollars at the year-end exchange rates. Revenues and
expenses are translated at average exchange rates for the year.
Differences arising from exchange rate changes are included in
the Deferred translation adjustments (DTA) component of
Accumulated other comprehensive income. If there is a reduction
in the Groups ownership in a foreign operation, the
relevant portion of DTA is recognized in Other expenses
(income) net. All other operations, including most
of those in Canada and Brazil, have the U.S. dollar as the
functional currency. For these operations, monetary items
denominated in currencies other than the U.S. dollar are
translated at year-end exchange rates and translation gains and
losses are included in income. Non-monetary items are translated
at historical rates.
The Group has entered into foreign currency contracts to hedge
certain future, identifiable foreign currency revenue and
operating cost exposures. All such contracts are reported at
fair value on the combined balance sheet. For contracts
qualifying as cash flow hedges, the effective portion of the
changes in fair value is recorded in Other comprehensive income
and reclassified to Sales and operating revenues, Cost of sales
and operating expenses, or Depreciation and amortization, as
applicable, concurrently with the recognition of the underlying
item being hedged. The portion of the change in the
contracts fair value that is not effective at offsetting
the hedged exposure is recorded in Other expenses
(income) net. For contracts qualifying as fair value
hedges, changes in fair value are recorded in the statement of
income together with the changes in the fair value of the hedged
item. For contracts not qualifying as hedges, changes in fair
value are recorded in Other expenses (income) net.
Revenue Recognition
Revenue from product sales, net of trade discounts and
allowances, is recognized once delivery has occurred provided
that persuasive evidence of an arrangement exists, the price is
fixed or determinable, and collectibility is reasonably assured.
Delivery is considered to have occurred when title and risk of
loss have transferred to the customer. Revenue from services is
recognized as services are rendered and accepted by the customer.
Shipping and Handling
Costs
Amounts charged to customers related to shipping and handling
are included in Sales and operating revenues, and related
shipping and handling costs are recorded in Cost of sales and
operating expenses.
Commodity Contracts
Generally, all of the forward metal contracts serve to hedge
certain future identifiable aluminum price exposures. For these
contracts, the fair values of the derivatives are recorded on
the combined balance sheet. For contracts qualifying as cash
flow hedges, the effective portions of the changes in fair value
are recorded in Other comprehensive income and are reclassified,
together with related hedging costs, to Sales and operating
revenues or Cost of sales and operating expenses, concurrently
with the recognition of the item being hedged or in the period
that the derivatives no longer qualify as cash flow hedges. For
contracts not qualifying as hedges, changes in their fair value
are recorded in Other expenses (income) net.
All natural gas and electricity futures contracts, swaps and
options are recorded at fair value on the balance sheet. For
contracts qualifying as cash flow hedges, the effective portions
of the changes in the fair value are recorded in Other
comprehensive income and are reclassified to the statement of
income concurrently with the recognition of the underlying item
being hedged or in the period that the derivatives
F-11
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
no longer qualify as cash flow hedges. For contracts not
qualifying for hedge accounting, changes in fair value are
recorded in Other expenses (income) net.
Physical metal purchase and sales contracts are generally not
recorded at fair value because either they are not derivative
instruments or they are normal purchases or normal
sales, as they involve quantities that are expected to be
used or sold in the normal course of business over a reasonable
period of time.
Interest Rate Swaps
The Group enters into interest rate swap agreements to manage
its exposure to fluctuations in interest rates on certain
long-term debt. These swaps are marked-to-market in the
financial statements and all changes in fair value are recorded
in Other expenses (income) net.
Inventories
Aluminum, raw materials and other supplies inventories are
stated at cost (determined for the most part on the monthly
average cost method) or net realizable value, whichever is
lower. Cost includes material, labour and manufacturing overhead
costs.
Capitalization of Interest
Costs
The Group capitalizes interest costs associated with the
financing of major capital expenditures up to the time the asset
is ready for its intended use.
Sale of Receivables
When the Group sells certain receivables, it retains servicing
rights, which constitute retained interests in the sold
receivables. No servicing asset or liability is recognized in
the financial statements as the fees received by the Group
reflect the fair value of the cost of servicing these
receivables. The related purchase discount is included in Other
expenses (income) net.
Property, Plant and
Equipment
Property, plant and equipment is recorded at cost. Additions,
improvements and major renewals are capitalized; normal
maintenance and repair costs are expensed. Depreciation is
calculated on the straight-line method using rates based on the
estimated useful lives of the respective assets. The principal
rates range from 2% to 10% for buildings and structures, 1% to
4% for power assets and 3% to 20% for chemical, smelter and
fabricating assets. Gains or losses from the sale of assets are
included in Other expenses (income) net.
Impairment or Disposal of
Long-Lived Assets
The Group reviews its long-lived assets including amortizable
intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of a long-lived
asset may not be recoverable. An impairment loss is recognized
when the carrying amount of the assets exceeds the future
undiscounted cash flows expected from the asset. Any impairment
loss is measured as the amount by which the carrying amount
exceeds the fair value. Such evaluations for impairment are
significantly impacted by estimates of future prices for the
Groups product, capital needs, economic trends in the
market and other factors. Quoted market values are used whenever
available to estimate fair value. When quoted market values are
unavailable, the fair value of the long-lived asset is generally
based on estimates of discounted expected net cash flows. Assets
to be disposed of by sale are reflected at the lower of their
carrying amount or fair value less cost to sell and are not
depreciated while classified as held for sale.
F-12
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Goodwill
Goodwill is tested for impairment on an annual basis at the
reporting unit level and is also tested for impairment when
events occur or circumstances change that would more likely than
not reduce the fair value of a reporting unit below the carrying
value. Fair value is determined using discounted cash flows.
Intangible Assets
Intangible assets are primarily trademarks and patented and
non-patented technology, all of which have finite lives.
Intangible assets are recorded at cost less accumulated
amortization and are amortized over their useful life, which is
generally 15 years, using the straight-line method of
amortization.
Legal Claims
Accruals for legal claims are made when it is probable that
liabilities will be incurred and where such liabilities can be
reasonably estimated.
Environmental Costs and
Liabilities
Environmental costs that are not legal asset retirement
obligations are expensed or capitalized, as appropriate.
Environmental expenditures of a capital nature that extend the
life, increase the capacity or improve the safety of an asset or
that mitigate or prevent environmental contamination that has
yet to occur are included in Property, plant and equipment and
are depreciated generally over the remaining useful life of the
underlying asset. Expenditures relating to existing conditions
caused by past operations, and which do not contribute to future
revenues, are expensed when probable and estimable and are
normally included in Cost of sales and operating expenses except
for large, unusual amounts, which are included in Other expenses
(income) net. Recoveries relating to environmental
liabilities are recorded when received.
Pensions and Post-Retirement
Benefits
As described in note 2 Basis of Presentation,
certain entities within the Group manage their defined benefit
pension plans separately from those of Alcan. Using appropriate
actuarial methods and assumptions, these defined benefit pension
plans are accounted for in accordance with the Financial
Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 87, Employers
Accounting for Pensions. Pension and post-retirement benefit
obligations for these plans are actuarially calculated using
managements best estimates and based on expected service
period, salary increases and retirement ages of employees.
Pension and post-retirement benefit expense includes the
actuarially computed cost of benefits earned during the current
service period, the interest cost on accrued obligations, the
expected return on plan assets based on fair market value and
the straight-line amortization of net actuarial gains and losses
and adjustments due to plan amendments. Pension expense also
includes the contributions of subsidiaries and the pension
expense allocation of divisions that participate in Alcan plans,
as described in note 2 Basis of Presentation.
All net actuarial gains and losses are amortized over the
expected average remaining service life of the employees.
Stock Options and Other
Stock-Based Compensation
The Group accounts for stock options granted to certain
employees of Alcans Rolled Products businesses under
Alcans share option plan using the fair value provisions
of SFAS No. 123, Accounting for Stock-Based
Compensation. Under the fair value method, stock-based
compensation expense is recognized in the statement of income
over the applicable vesting period. Other stock-based
compensation arrangements granted to certain employees of
Alcans Rolled Products businesses, that can be settled in
F-13
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
cash and are based on the change in the Alcan common share price
during the period, are recognized in income over the vesting
period of awards. Stock-based compensation expense is recorded
in Selling, general and administrative expenses in the statement
of income.
Income Taxes
Income taxes are accounted for under the liability method (also
refer to note 2 Basis of Presentation). Under
the liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences
attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases.
This method also requires the recognition of future tax benefits
such as net operating loss carryforwards, to the extent that
realization of such benefits is more likely than not. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.
Cash and Time
Deposits
All time deposits have original maturities of 90 days or
less and qualify as cash equivalents.
Allowance For Doubtful
Accounts
The allowance for doubtful accounts reflects managements
best estimate of probable losses inherent in the trade
receivables balance. Management determines the allowance based
on known doubtful accounts, historical experience, and other
currently available evidence.
Recently Issued Accounting
Standards
Share-Based
Payment
In December 2004, the FASB issued SFAS No. 123
(Revised 2004), Share-Based Payment,
(SFAS No. 123(R)), which is a revision to
SFAS 123, Accounting for Stock-Based Compensation.
SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair
values. SFAS No. 123(R) is effective July 1,
2005. Alcan adopted the fair-value based method of accounting
for share-based payments effective January 1, 2004 using
the retroactive restatement method described in
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure (see
note 4 Accounting Changes Stock
Options and Other Stock-Based Compensation). Currently, Alcan
uses the Black-Scholes formula to estimate the value of stock
options granted to employees. The Group does not anticipate that
the adoption of SFAS No. 123(R) will have a material
impact on its results of operations or its financial position.
Inventory
Costs
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs an amendment to ARB 43,
Chapter 4. This statement amends the guidance in Accounting
Research Bulletin (ARB) No. 43, Chapter 4,
Inventory Pricing, to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). ARB 43 previously
stated that these expenses may be so abnormal as to require
treatment as current period charges. SFAS No. 151
requires that those items be recognized as current-period
charges regardless of whether they meet the criterion of
so abnormal. In addition, SFAS No. 151
requires that allocation of fixed production overheads to the
costs of conversion
F-14
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
be based on the normal capacity of the production facilities.
Prospective application of this statement is required beginning
January 1, 2006. The Group does not expect its financial
statements to be significantly impacted by this statement.
Exchanges of
Nonmonetary Assets
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets an amendment of APB
Opinion No. 29. This statement amends Opinion 29 to
eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if
the future cash flows of the entity are expected to change
significantly as a result of the exchange. Prospective
application of this statement is required beginning
January 1, 2006. The Group does not expect its financial
statements to be significantly impacted by this statement.
Stock Options and Other
Stock-Based Compensation
Effective January 1, 2004, Alcan retroactively adopted the
fair value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation for stock options
granted to employees. These combined financial statements
include the compensation cost for options granted to certain
employees of the Group. Beginning January 1, 1999, all
periods have been restated to reflect compensation cost as if
the fair value method had been applied for awards issued to
these employees after January 1, 1995.
Consolidation of Variable
Interest Entities
Effective January 1, 2004, the Group adopted FASB
Interpretation No. 46 (revised December 2003)
(FIN 46(R)), Consolidation of Variable Interest Entities.
In 2004, the Group became the primary beneficiary of Logan
Aluminum Inc. (Logan), a variable interest entity. As a result,
the combined balance sheet includes the assets and liabilities
of Logan. Logan is a joint venture that manages a tolling
arrangement for the Group and an unrelated party.
At the date of adoption of FIN 46(R), assets of $38 and
liabilities of $38 related to Logan that were previously not
recorded on the combined balance sheet were recorded by the
Group. Prior periods were not restated. The Groups
investment, plus any unfunded pension liability related to Logan
totalled approximately $37 and represented the Groups
maximum exposure to loss. Creditors of Logan do not have
recourse to the general credit of the Group as a result of
including it in the Groups financial statements.
Goodwill and Other
Intangible Assets
On January 1, 2002, the Group adopted
SFAS No. 142, Goodwill and Other Intangible Assets.
Under this standard, goodwill and other intangible assets with
an indefinite life are no longer amortized but are carried at
the lower of carrying value and fair value. Goodwill and other
intangible assets with an indefinite life are tested for
impairment on an annual basis.
Goodwill is tested for impairment using a two-step test. Under
the first step, the fair value of a reporting unit, based upon
discounted cash flows, is compared to its net carrying amount.
If the fair value is greater than the carrying amount, no
impairment is deemed to exist. However, if the fair value is
less than the carrying amount, a second test must be performed
whereby the fair value of the reporting units goodwill
must be estimated to determine if it is less than its carrying
amount. Fair value of goodwill is estimated in the same way as
goodwill is determined at the date of acquisition in a business
combination,
F-15
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
that is, the excess of the fair value of the reporting unit over
the fair value of the identifiable net assets of the reporting
unit.
An impairment of $84 was identified in the goodwill balance as
at January 1, 2002, and was charged to income as a
cumulative effect of accounting change in 2002 upon adoption of
the new accounting standard. Any further impairment arising
subsequent to January 1, 2002, is taken as a charge against
income. As a result of the new standard, the Group no longer
amortizes goodwill.
Impairment or Disposal of
Long-Lived Assets
In 2002, the Group adopted SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. Under this
standard, an impairment loss is recognized when the carrying
amount of a long-lived asset held for use is not recoverable and
exceeds its fair value. No impairment charges were recorded upon
adoption of this new standard. Impairment charges recorded are
described in note 8 Restructuring Programs and
note 14 Other Expenses (Income) Net.
Under this standard, a long-lived asset to be disposed of by
sale is measured at the lower of its carrying amount or fair
value less cost to sell, and is not depreciated while classified
as held for sale. Assets and liabilities classified as held for
sale are reported as assets held for sale and liabilities of
operations held for sale on the balance sheet. A long-lived
asset to be disposed of other than by sale, such as by
abandonment, before the end of its previously estimated useful
life, is classified as held for use until it is disposed of and
depreciation estimates revised to reflect the use of the asset
over its shortened useful life. Also, the standard requires that
the results of operations of a component of an enterprise, that
has been disposed of either by sale or abandonment or is
classified as held for sale, be reported as discontinued
operations if the operations and cash flows of the component
have been, or will be, eliminated from the ongoing operations as
a result of the disposal transaction and the Group will not have
any significant continuing involvement in the operations of the
component after the disposal transaction. A component of an
enterprise comprises operations and cash flows that can be
clearly distinguished, operationally and for financial reporting
purposes, from the rest of the enterprise.
Derivatives
On July 1, 2003, the Group adopted SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. This standard amends and clarifies financial
accounting and reporting for derivatives and for hedging
activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This standard has
no impact on the Groups financial statements.
Costs Associated with Exit
or Disposal Activities
On January 1, 2003, the Group prospectively adopted
SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This standard requires that a
liability associated with an exit or disposal activity be
recognized when the liability is incurred rather than at the
date of the Groups commitment to an exit plan.
Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities
and Equity
On July 1, 2003, the Group adopted SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. This standard
requires that certain financial instruments embodying an
obligation to transfer assets or to issue equity securities be
classified as liabilities. This standard has no impact on the
Groups financial statements.
F-16
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The number of Novelis shares used to compute basic and diluted
earnings per share was based on the number of Novelis common
shares outstanding on January 6, 2005, which was
73,988,932, as required by Article 11 of
Regulation S-X, Pro Forma Financial Information. The
treasury stock method for calculating the dilutive impact of
stock options is used. The following table outlines the
calculation of basic and diluted earnings per share on income
before cumulative effect of accounting change.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of accounting change
|
|
|
55 |
|
|
|
157 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
Denominator (number of common shares in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares on January 6, 2005
|
|
|
73.99 |
|
|
|
73.99 |
|
|
|
73.99 |
|
|
Effect of dilutive stock options
|
|
|
0.44 |
|
|
|
0.44 |
|
|
|
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted number of outstanding shares
|
|
|
74.43 |
|
|
|
74.43 |
|
|
|
74.43 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic (in US$)
|
|
|
0.74 |
|
|
|
2.12 |
|
|
|
1.01 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted (in US$)
|
|
|
0.74 |
|
|
|
2.11 |
|
|
|
1.00 |
|
|
|
|
|
|
|
|
|
|
|
Options to purchase an aggregate of 1,356,735 Alcan common
shares were held by the Groups employees as at
December 31, 2004. Of these, 685,285 options to purchase
Alcan common shares at an average exercise price of CAN$38.86
($29.96) per share are dilutive for the periods presented. These
dilutive stock options are equivalent to 443,351 Novelis common
shares. The number of antidilutive Alcan options held by the
Groups employees as at December 31, 2004 is 671,450.
|
|
6. |
SALES, ACQUISITIONS AND TRANSFER OF BUSINESSES
|
|
|
|
Canada, United States, and Other Europe
|
In December 2003, Alcan completed the acquisition of Pechiney in
a public offer for a cost of $5,458, net of cash and time
deposits acquired. A portion of the acquisition cost, relating
to four Pechiney plants in three countries that are included in
the Group, was allocated to the Group and accounted for as
additional invested equity. As this transaction represented a
transfer of these plants to the Group rather than an acquisition
by the Group, there were no cash outflows incurred by the Group.
The four plants comprise rolled products operations in foil,
painted sheet and circles. The business combination was
accounted for using the purchase method. The net assets of the
Pechiney plants are included in the combined financial
statements commencing on December 31, 2003 and the results
of operations and cash flows have been included in the combined
financial statements beginning January 1, 2004.
Allocation of the purchase price involves estimates and
information gathering during months following the date of the
combination. Given the magnitude of the acquisition of Pechiney
and due to the fact that the transaction was completed at the
end of 2003, a tentative purchase price allocation was performed
at December 31, 2003 and the final valuation was completed
in 2004. The revisions resulted in an increase in goodwill of
$183 as indicated below.
F-17
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
Fair value of net assets acquired at date of
acquisition
|
|
|
|
|
|
|
|
|
|
|
|
Final |
|
|
Tentative |
|
|
|
Purchase Price |
|
|
Purchase Price |
|
|
|
Allocation |
|
|
Allocation |
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
82 |
|
|
|
82 |
|
Inventories
|
|
|
101 |
|
|
|
101 |
|
Property, plant and equipment(2)
|
|
|
84 |
|
|
|
70 |
|
Goodwill(1)
|
|
|
228 |
|
|
|
45 |
|
|
|
|
|
|
|
|
Total assets
|
|
|
495 |
|
|
|
298 |
|
Payables and accrued liabilities(2)
|
|
|
158 |
|
|
|
139 |
|
Debt not maturing within one year
|
|
|
4 |
|
|
|
4 |
|
Deferred credits and other liabilities
|
|
|
18 |
|
|
|
14 |
|
Deferred income taxes non-current
|
|
|
18 |
|
|
|
13 |
|
|
|
|
|
|
|
|
Fair value of net assets acquired at date of acquisition (net
of cash and time deposits acquired of $5)
|
|
|
297 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
(1) |
See note 7 Goodwill and Intangible Assets. |
|
(2) |
Include $19 of asset impairment charges and $19 of restructuring
costs as described in note 8 Restructuring
Programs. |
The goodwill is generally not deductible for tax purposes.
The differences between the tentative and final purchase price
allocations are principally due to the completion of the final
valuation of property, plant and equipment; the recording of
liabilities for costs to exit certain operations of Pechiney;
and the finalization of the goodwill to the reporting units.
In the first quarter of 2003, the Group increased its ownership
in Alcan Taihan Aluminium Limited by 6.81% at a cost of $5.
In the third quarter of 2003, the Group increased its ownership
position in Aluminium Company of Malaysia, a manufacturer of
light gauge aluminum products, from 36% to 59% by acquiring
additional shares, with a value of $30, from Nippon Light Metal
Company, Ltd (NLM) in exchange for its ownership in Alcan Nikkei
Siam Limited in Rangsit, Thailand, with a value of $24, and a
cash payment of $6.
In December 2003, the Group sold the extrusions operations of
Aluminium Company of Malaysia, for net proceeds of $2. A pre-tax
amount of $6, which is included in Other expenses
(income) net, consists of a favourable adjustment to
a previously recorded impairment provision.
In 2003, the Group sold its Borgofranco power facilities in
Italy (Novelis Europe) and recorded a gain of $19 in Other
expenses (income) net.
F-18
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
7. |
GOODWILL AND INTANGIBLE ASSETS
|
The changes in the carrying amount of goodwill for the year
ended December 31, 2004, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at |
|
|
|
|
Deferred |
|
|
|
|
|
|
Balance as at |
|
|
|
January 1, |
|
|
|
|
Translation |
|
|
|
|
Impairment |
|
|
December 31, |
|
|
|
2004 |
|
|
Additions |
|
|
Adjustments |
|
|
Adjustments* |
|
|
Losses |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Novelis Europe
|
|
|
69 |
|
|
|
|
|
|
|
4 |
|
|
|
183 |
|
|
|
|
|
|
|
256 |
|
|
|
* |
In 2004, adjustments are due to changes to the tentative
purchase price allocation related to the Pechiney acquisition.
See note 6 Sales, Acquisitions and Transfer of
Businesses. |
The changes in the carrying amount of goodwill for the year
ended December 31, 2003, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
as at |
|
|
|
|
Deferred |
|
|
|
|
|
|
Balance as at |
|
|
|
January 1, |
|
|
|
|
Translation |
|
|
|
|
Impairment |
|
|
December 31, |
|
|
|
2003 |
|
|
Additions |
|
|
Adjustments |
|
|
Adjustments |
|
|
Losses |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Novelis Europe
|
|
|
21 |
|
|
|
45 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
69 |
|
The changes in the carrying amount of goodwill for the year
ended December 31, 2002, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
as at |
|
|
|
|
Deferred |
|
|
|
|
|
|
Balance as at |
|
|
|
January 1, |
|
|
|
|
Translation |
|
|
|
|
Impairment |
|
|
December 31, |
|
|
|
2002 |
|
|
Additions |
|
|
Adjustments |
|
|
Adjustments |
|
|
Losses |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Novelis Europe
|
|
|
98 |
|
|
|
|
|
|
|
2 |
|
|
|
5 |
|
|
|
(84 |
) |
|
|
21 |
|
In accordance with SFAS No. 142, the Group completed
an initial review to determine whether, at January 1, 2002,
there was an impairment in the goodwill balance. As a result of
this review, an impairment loss of $84 was recognized in income
in 2002 as a cumulative effect of accounting change. The
impairment reflected the decline in end-market conditions in the
period from the algroup merger in October 2000 to
January 1, 2002. The fair value of all reporting units was
determined using discounted future cash flows. Annual tests were
also completed in 2002, 2003 and 2004 and no further impairment
was identified.
F-19
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
Intangible Assets with Finite Lives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net Book Value |
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
14 |
|
|
|
4 |
|
|
|
10 |
|
Patented and non-patented technology
|
|
|
21 |
|
|
|
5 |
|
|
|
16 |
|
Prior pension service costs (NOTE 24)
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
9 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
11 |
|
|
|
2 |
|
|
|
9 |
|
Patented and non-patented technology
|
|
|
17 |
|
|
|
4 |
|
|
|
13 |
|
Prior pension service costs (NOTE 24)
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
6 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
10 |
|
|
|
2 |
|
|
|
8 |
|
Patented and non-patented technology
|
|
|
16 |
|
|
|
2 |
|
|
|
14 |
|
Prior pension service costs (NOTE 24)
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
4 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
The aggregate amortization expense for the year ended
December 31, 2004 was $2 (2003: $2; 2002: $2).
The estimated amortization expense for the five succeeding
fiscal years is approximately $2 per year.
|
|
8. |
RESTRUCTURING PROGRAMS
|
|
|
|
2004 Restructuring Activities
|
In line with its objective of value maximization, the Group
undertook various restructuring initiatives in 2004.
In 2004, the Group recorded liabilities of $19 for restructuring
costs in connection with the exit of certain operations of
Pechiney and these costs were recorded in the allocation of the
purchase price. See note 6 Sales, Acquisitions
and Transfer of Businesses. These costs relate to a plant
closure in Flemalle, Belgium (Novelis Europe) and comprise $17
of severance costs and $2 of other charges. No further charges
are expected to be incurred in relation to this plant closure.
|
|
|
Other 2004 Restructuring Activities
|
The Group incurred restructuring charges of $19 in 2004 relating
to the consolidation of its U.K. aluminum sheet rolling
activities in Rogerstone, Wales (Novelis Europe) in order to
improve competitiveness through better capacity utilization and
economies of scale. Production ceased at the rolling mill in
Falkirk, Scotland (Novelis Europe) in December 2004 and the
facility is expected to close during the first quarter of 2005.
The charges include $6 of severance costs, $8 of asset
impairment charges, $2 of pension costs, $2 of decommissioning
and environmental costs and $1 of other charges, which were
recorded in Other expenses (income) net in the
statement of income.
F-20
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The Group incurred restructuring charges of $3 in 2004, relating
to the closure of a corporate office in Germany (Other),
comprised of $2 for severance costs and $1 related to costs to
consolidate facilities, which were recorded in Other expenses
(income) net in the statement of income. No further
charges are expected to be incurred in relation to this
restructuring activity.
|
|
|
2001 Restructuring Program
|
In 2001, Alcan implemented a restructuring program, resulting in
a series of plant sales, closures and divestments throughout the
organization. A detailed business portfolio review was
undertaken in 2001 to identify high cost operations, excess
capacity and non-core products. Impairment charges arose as a
result of negative projected cash flows and recurring losses.
These charges related principally to buildings, machinery and
equipment. This program was essentially completed in 2003.
In 2004, the Group recorded recoveries related to the 2001
restructuring program comprised of $7 gain on the sale of assets
related to the closure of facilities in Glasgow, U.K. (Novelis
Europe) and a write-back of $1 relating to a provision in the
U.S. (Novelis North America).
In 2003, the Group recorded restructuring recoveries of $24 in
Other expenses (income) net. The $24 recovery
consists of $3 for the reversal of an excess redundancy
provision in the U.K. (Novelis Europe), a gain of $19
principally for the sale of the Borgofranco power facilities in
Italy (Novelis Europe), income of $6 on the sale of extrusions
operations in Malaysia (Novelis Asia), a gain of $4 on the sale
of assets in the U.K., and partially offset by other costs of $8
mainly in the U.K. In 2003, the Group completed the closure of
facilities at Glasgow, U.K., sold its extrusions operations in
Malaysia for net proceeds of $2 and decided to retain the
recycling operations at the Borgofranco plant in Italy and both
cold mills at the light gauge operations in Fairmont, West
Virginia (Novelis North America).
In 2002, the Group recorded restructuring costs of $25 in Other
expenses (income) net. The $25 charge consisted of
severance costs of $9 related to workforce reductions of
approximately 250 employees, impairment of long-lived assets of
$13 and other costs of $3. Severance charges of $9 related
primarily to the extrusions operations in Malaysia (Novelis
Asia) and light gauge operations in Fairmont, West Virginia
(Novelis North America). Asset impairment charges of $13 related
primarily to the Borgofranco plant in Italy (Novelis Europe) and
the operations in Korea (Novelis Asia). Other exit costs
consisted principally of a loss of $4 on the sale of the rolled
products circles production unit at Pieve, Italy (Novelis
Europe), for which the Group received proceeds of $14.
The remaining provision balance of $43 as at December 31,
2004, related principally to employee severance and
environmental remediation costs for which payments will be made
over an extended period. The environmental remediation costs of
$9 included in the provision balance, which are payable within
one year, are not included in the estimated environmental
clean-up costs discussed in note 20 Commitments
and Contingencies. The majority of the environmental remediation
costs relate to a facility in Borgofranco, Italy. Management has
calculated the provision based on current third-party costs for
similar remediation activities. Management does not believe that
the amount will vary materially from what is recorded as a
liability.
F-21
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The schedule provided below shows details of the provision
balances and related cash payments for the significant
restructuring activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset |
|
|
|
|
|
|
|
Severance |
|
|
Impairment |
|
|
|
|
|
|
|
Costs |
|
|
Provisions |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision balance as at December 31, 2003
|
|
|
19 |
|
|
|
|
|
|
|
12 |
|
|
|
31 |
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges recorded in the statement of income
|
|
|
7 |
|
|
|
8 |
|
|
|
(1 |
) |
|
|
14 |
|
Liabilities recorded in the allocation of the Pechiney
purchase price
|
|
|
17 |
|
|
|
|
|
|
|
2 |
|
|
|
19 |
|
Cash payments net
|
|
|
(14 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
(19 |
) |
Non-cash charges (recoveries)
|
|
|
|
|
|
|
(8 |
) |
|
|
6 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision balance as at December 31, 2004
|
|
|
29 |
|
|
|
|
|
|
|
14 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before income taxes and other items
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
(25 |
) |
|
|
(24 |
) |
|
|
(22 |
) |
Other countries
|
|
|
250 |
|
|
|
228 |
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225 |
|
|
|
204 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
Current income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
(11 |
) |
|
|
(11 |
) |
|
|
(10 |
) |
Other countries
|
|
|
80 |
|
|
|
81 |
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69 |
|
|
|
70 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
2 |
|
|
|
4 |
|
|
|
2 |
|
Other countries
|
|
|
95 |
|
|
|
(24 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
97 |
|
|
|
(20 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
166 |
|
|
|
50 |
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
The composite of the applicable statutory corporate income tax
rates in Canada in 2004 is 33% (2003: 32%; 2002: 32%).
F-22
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The following is a reconciliation of income taxes calculated at
the above composite statutory rates with the income tax
provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes at the composite statutory rate
|
|
|
74 |
|
|
|
66 |
|
|
|
44 |
|
Differences attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Withholding tax in connection with the spin-off transaction
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
Exchange translation items
|
|
|
13 |
|
|
|
1 |
|
|
|
(18 |
) |
|
Exchange revaluation of deferred income taxes
|
|
|
2 |
|
|
|
4 |
|
|
|
|
|
|
Unrecorded tax benefits net
|
|
|
42 |
|
|
|
(14 |
) |
|
|
24 |
|
|
Investment and other allowances
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
Reduced rate or tax exempt items
|
|
|
(2 |
) |
|
|
(4 |
) |
|
|
5 |
|
|
Foreign tax rate differences
|
|
|
10 |
|
|
|
9 |
|
|
|
18 |
|
|
Prior years tax adjustments
|
|
|
5 |
|
|
|
(13 |
) |
|
|
5 |
|
|
Other net
|
|
|
4 |
|
|
|
4 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
166 |
|
|
|
50 |
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, the principal items included in Deferred
income taxes are:
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Property, plant, equipment and intangibles
|
|
|
255 |
|
|
|
259 |
|
Inventory valuation
|
|
|
42 |
|
|
|
11 |
|
Other net
|
|
|
51 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
348 |
|
|
|
308 |
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Tax benefit carryovers
|
|
|
174 |
|
|
|
123 |
|
Accounting provisions not currently deductible for tax
|
|
|
100 |
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
274 |
|
|
|
245 |
|
Valuation allowance (amounts not likely to be recovered)
|
|
|
163 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
111 |
|
|
|
156 |
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
|
237 |
|
|
|
152 |
|
|
|
|
|
|
|
|
Amounts recognized in the combined balance sheet consist
of:
|
|
|
|
|
|
|
|
|
Deferred charges and other assets
|
|
|
(12 |
) |
|
|
|
|
Deferred income tax liability
|
|
|
249 |
|
|
|
152 |
|
|
|
|
|
|
|
|
|
|
|
237 |
|
|
|
152 |
|
|
|
|
|
|
|
|
The valuation allowance relates principally to loss carryforward
benefits and tax credits where realization is not likely. The
majority of the allowance relates to loss carryforwards of
companies in Korea, the U.K., Italy and Luxembourg. The increase
in the valuation allowance is primarily due to tax benefits on
current year losses and accounting provisions for which
realization is not likely and fluctuations in exchange rates.
F-23
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Based on rates of exchange at December 31, 2004, tax
benefits of approximately $127 relating to prior and current
years operating losses and $11 of benefits related to tax
credits carried forward will be recognized when it is more
likely than not that such benefits will be realized. These
amounts are included in the valuation allowance above.
Approximately $8 of these potential tax benefits expire in 2005.
The determination of the unrecorded deferred income tax
liability for temporary differences related to investments in
foreign subsidiaries and foreign corporate joint ventures that
are considered to be permanently reinvested is not considered
practicable.
|
|
10. |
INVESTMENT IN NON-CONTROLLED AFFILIATES
|
At December 31, 2004, investments accounted for using the
equity method and the ownership held by the Group include
principally: Aluminium Norf GmbH (50%) and Petrocoque
S.A. Indústria E Comércio (25%). The
activities of the Groups major equity-accounted
investments include the aluminum rolling operations in Germany.
As described in note 4 Accounting
Changes Consolidation of Variable Interest Entities,
beginning in 2004, the Group consolidated, under the provisions
of FIN 46(R), the financial statements of Logan, in which
it holds a 40% interest. Prior to 2004, the Groups
investment in Logan was accounted for using the equity method
and the results of Logans operations for the years ended
December 31, 2003 and 2002 have been included in the
combined financial information below.
A summary of the combined financial information for these
equity-accounted companies is set forth below.
|
|
|
Summary of Combined Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
Current assets
|
|
|
253 |
|
|
|
216 |
|
Non-current assets
|
|
|
609 |
|
|
|
662 |
|
|
|
|
|
|
|
|
Total assets
|
|
|
862 |
|
|
|
878 |
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
457 |
|
|
|
492 |
|
Non-current liabilities
|
|
|
153 |
|
|
|
160 |
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
610 |
|
|
|
652 |
|
|
|
|
|
|
|
|
Net assets
|
|
|
252 |
|
|
|
226 |
|
|
|
|
|
|
|
|
The Groups equity in net assets
|
|
|
122 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
Summary of Combined Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
451 |
|
|
|
411 |
|
|
|
359 |
|
Costs and expenses
|
|
|
423 |
|
|
|
385 |
|
|
|
332 |
|
Income taxes
|
|
|
11 |
|
|
|
11 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
17 |
|
|
|
15 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
The Groups share of net income as reported in equity
income
|
|
|
6 |
|
|
|
6 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
F-24
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
11. |
RELATED PARTY TRANSACTIONS
|
The table below describes the nature and amount of transactions
the Group has with related parties. All of the transactions are
part of the ordinary course of business and were agreed to by
the Group and the related parties. Alcan refers to Alcan Inc.
and its subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
450 |
|
|
|
472 |
|
|
|
437 |
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and operating expenses(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
403 |
|
|
|
436 |
|
|
|
411 |
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
38 |
|
|
|
44 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
Interest expense(C)
|
|
|
|
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
33 |
|
|
|
19 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
Other expense (income) net
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fee income(D)
|
|
|
(42 |
) |
|
|
(39 |
) |
|
|
(37 |
) |
Service fee expense(E)
|
|
|
25 |
|
|
|
26 |
|
|
|
28 |
|
Interest income
|
|
|
(22 |
) |
|
|
(4 |
) |
|
|
(1 |
) |
Derivatives(F)
|
|
|
(23 |
) |
|
|
(68 |
) |
|
|
(9 |
) |
Transfer pricing adjustment
|
|
|
|
|
|
|
|
|
|
|
44 |
|
Other
|
|
|
8 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Total transactions with Alcan
|
|
|
(54 |
) |
|
|
(83 |
) |
|
|
27 |
|
Interest income from Aluminium Norf GmbH
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(56 |
) |
|
|
(84 |
) |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
Purchase of inventory/tolling services
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminium Norf GmbH
|
|
|
203 |
|
|
|
187 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
Alcan(G)
|
|
|
1,739 |
|
|
|
1,732 |
|
|
|
1,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The Group sells inventory to Alcan and certain investees
accounted for under the equity method in the ordinary course of
business. |
|
(B) |
|
These expenses are comprised of an allocation of research and
development expenses incurred by Alcan on behalf of the Group. |
|
(C) |
|
As discussed further below as well as in
note 18 Debt Not Maturing Within One Year, the
Group has various short-term and long-term debt payable to Alcan
where interest is charged on both a fixed and a floating rate
basis. |
|
(D) |
|
Service fee income relates to revenues generated through sales
of research and development and other corporate services to
Alcan. |
|
(E) |
|
Service fee expense relates to the purchase of corporate
services from Alcan. |
|
(F) |
|
Alcan is the counterparty to all of the Groups metal
derivatives and most of the currency derivatives. Refer to
note 22 Financial Instruments and Commodity
Contracts. |
|
(G) |
|
Alcan is the primary supplier of prime and sheet ingot to the
Group. |
F-25
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The table below describes the nature and amount of balances the
Group has with related parties.
|
|
|
|
|
|
|
|
|
As at December 31 |
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
Trade receivables(A)
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
87 |
|
|
|
163 |
|
|
|
|
|
|
|
|
Other receivables
|
|
|
|
|
|
|
|
|
Alcan(B)(C)(E)
|
|
|
801 |
|
|
|
1,154 |
|
Aluminium Norf GmbH
|
|
|
45 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
846 |
|
|
|
1,167 |
|
|
|
|
|
|
|
|
Long-term receivables
|
|
|
|
|
|
|
|
|
Alcan(C)
|
|
|
2 |
|
|
|
500 |
|
Aluminium Norf GmbH(D)
|
|
|
102 |
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
104 |
|
|
|
614 |
|
|
|
|
|
|
|
|
Payables and accrued liabilities(A)
|
|
|
|
|
|
|
|
|
Aluminium Norf GmbH
|
|
|
45 |
|
|
|
4 |
|
Alcan
|
|
|
356 |
|
|
|
282 |
|
|
|
|
|
|
|
|
|
|
|
401 |
|
|
|
286 |
|
|
|
|
|
|
|
|
Short-term borrowings(F)
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
312 |
|
|
|
64 |
|
|
|
|
|
|
|
|
Debt maturing within one year(G)
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
290 |
|
|
|
10 |
|
|
|
|
|
|
|
|
Debt not maturing within one year(G)
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
2,307 |
|
|
|
1,011 |
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The Group purchases from and sells inventory to Alcan and
purchases services from an investee accounted for under the
equity method, in the ordinary course of business. |
|
(B) |
|
Includes Trade receivables sold to Alcan in the amount of $242
(2003: $218) as described in note 13 Sales and
Forfaiting of Receivables. |
|
(C) |
|
Alcan Aluminum Corporation Inc. (AAC), which is part of the
Group, issued two $500 Floating Rate Notes (FRNs) on
December 8, 2003, maturing in December 2004 and 2005,
respectively, and advanced the funds including an additional
$125 to Alcan as part of Alcans financing of its
acquisition of Pechiney. As at December 31, 2003, the
amounts due from Alcan to AAC are included in Other receivables,
for the $500 FRN due in 2004 and the $125 loan (recorded by the
Group in Short-term borrowings), and in Long-term receivables
for the $500 FRN due in 2005. The $125 loan, the $500 FRN due in
2005, and the $500 FRN due in 2004 were repaid to AAC in March,
August and December 2004, respectively, and AAC applied the
funds to repay the corresponding third-party debt. |
|
(D) |
|
Loan to an investee accounted for under the equity method. |
|
(E) |
|
Includes various floating rate notes totalling
266 million
(2003:
159 million)
and $55 (2003: nil) maturing within one year. |
|
(F) |
|
Loans due to Alcan in various currencies including
193 million
(2003: nil) and GBP20 million (2003: GBP36 million). |
F-26
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
(G) |
|
The Group has various loans payable to Alcan as described in
note 18 Debt Not Maturing Within One Year. |
|
|
12. |
ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
The allowance for doubtful accounts reflects managements
best estimate of probable losses inherent in the trade
receivables balance. Management determines the allowance based
on known uncollectable accounts, historical experience, and
other currently available evidence. Activity in the allowance
for doubtful accounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged to |
|
|
|
|
|
|
|
|
|
Beginning |
|
|
Costs & |
|
|
|
|
|
|
Balance at |
|
Description |
|
of Year |
|
|
Expenses |
|
|
Acquisitions |
|
|
Write-Offs |
|
|
End of Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
30 |
|
|
|
6 |
|
|
|
|
|
|
|
(3 |
) |
|
|
33 |
|
2003
|
|
|
25 |
|
|
|
5 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
30 |
|
2002
|
|
|
23 |
|
|
|
8 |
|
|
|
|
|
|
|
(6 |
) |
|
|
25 |
|
|
|
13. |
SALES AND FORFAITING OF RECEIVABLES
|
Alcan performs cash management functions on behalf of certain of
the Groups businesses primarily in North America, the
United Kingdom, and parts of Europe. On an ongoing basis, the
Groups businesses in North America sell to Alcan an
undivided interest in certain third party trade receivables,
with no recourse. The third party receivables are exchanged for
receivables from Alcan, which are included in Other
receivables related parties (refer to
note 11 Related Party Transactions). The
consideration received by the Group for the receivables reflects
the good faith determination of the Group and Alcan of the fair
market value of the receivables and is equal to the
consideration that the parties believe would be received in
sales of the receivables between non-affiliated entities. Alcan
charges the Group a servicing fee on a monthly basis which the
Group charges back to Alcan as it manages the receivables. The
Group acts as a service agent and administers the collection of
the receivables sold. No servicing asset or liability is
recognized by the Group as the fees received reflect the fair
value of the cost of servicing the receivables.
An undivided interest in the trade receivables sold by the Group
to Alcan is sold to a third party bank, with limited recourse,
on an ongoing basis under the terms of an agreement effective
December 18, 2001. The assets are isolated from Alcan and
the Group and are put presumptively beyond the reach of Alcan,
the Group and their respective creditors. The bank, as
transferee, has the right to pledge or exchange the assets it
has received, and no condition both constrains such transferee
from taking advantage of its right to pledge or exchange and
provides more than a trivial benefit to Alcan or the Group.
Alcan does not maintain effective control over the receivables
so transferred through either (a) an agreement that both
entitles and obligates Alcan to repurchase the receivables
before their maturity or (b) the ability to unilaterally
cause the bank to return specific assets. Accordingly, the
transfer of receivables by the Group to Alcan, and by Alcan to
the transferee bank, have been recognized as sales pursuant to
SFAS No. 140, Accounting for Transfers and Servicing
of Financial Assets & Extinguishments of Liabilities.
As at December 31, 2004, the Group sold third party trade
receivables of $242 (2003: $218). In January 2005, as a result
of the spin-off, this program was discontinued.
In 2004, Alcan Taihan Aluminum Limited forfaited third party
receivables of $50 (2003: $34) to a financial institution.
Forfaiting is a customary, ordinary-course cash management
practice in the Korean marketplace where receivables typically
run 60, 90, 120 days or longer.
F-27
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
14. |
OTHER EXPENSES (INCOME) NET
|
Other expenses (income) net comprise the following
elements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
20 |
|
|
|
8 |
|
|
|
6 |
|
Asset impairment provisions
|
|
|
75 |
|
|
|
4 |
|
|
|
19 |
|
Loss (Gain) on disposal of fixed assets
|
|
|
(5 |
) |
|
|
(28 |
) |
|
|
1 |
|
Environmental provisions
|
|
|
6 |
|
|
|
25 |
|
|
|
|
|
Interest revenue
|
|
|
(26 |
) |
|
|
(7 |
) |
|
|
(16 |
) |
Exchange (gains) losses
|
|
|
2 |
|
|
|
17 |
|
|
|
3 |
|
Derivatives (gains) losses
|
|
|
(69 |
) |
|
|
(20 |
) |
|
|
(9 |
) |
Service fee expense (income) net
|
|
|
(17 |
) |
|
|
(13 |
) |
|
|
(9 |
) |
Transfer pricing adjustment
|
|
|
|
|
|
|
|
|
|
|
44 |
|
Other
|
|
|
42 |
|
|
|
14 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
The 2004 restructuring costs of $20 consist principally of $14
of charges included in note 8 Restructuring
Programs. The balance relates principally to severance costs.
The 2004 asset impairment provisions consist principally of $8
of charges included in note 8 Restructuring
Programs and $65 related to the impairment of certain rolling
assets in Italy (Novelis Europe) and arose as a result of
negative projected cash flows. Fair values were determined based
on either discounted cash flows or selling price.
The 2003 restructuring costs of $8 consist principally of $5
related to the 2001 restructuring program. These charges relate
to the U.K. (Novelis Europe) and comprise $8 of employee
severance and other exit costs partially offset by $3 for the
reversal of an excess redundancy provision.
The 2002 restructuring costs of $6 consist principally of $9 of
severance costs in Malaysia (Novelis Asia) related to the 2001
restructuring program included in note 8
Restructuring Programs.
|
|
15. |
DEFERRED CHARGES AND OTHER ASSETS
|
Deferred charges and other assets comprise the following
elements:
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
Prepaid pension costs (NOTE 24)
|
|
|
8 |
|
|
|
2 |
|
Deferred income taxes (NOTE 9)
|
|
|
12 |
|
|
|
|
|
Investments accounted for under the equity method (NOTE 10)
|
|
|
122 |
|
|
|
110 |
|
Long-term notes and other receivables
|
|
|
43 |
|
|
|
74 |
|
Other
|
|
|
8 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
193 |
|
|
|
196 |
|
|
|
|
|
|
|
|
F-28
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
16. |
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
Cost (excluding Construction work in progress)
|
|
|
|
|
|
|
|
|
|
Land and property rights
|
|
|
93 |
|
|
|
93 |
|
|
Buildings
|
|
|
935 |
|
|
|
848 |
|
|
Machinery and equipment
|
|
|
4,478 |
|
|
|
4,277 |
|
|
|
|
|
|
|
|
|
|
|
5,506 |
|
|
|
5,218 |
|
|
|
|
|
|
|
|
Accumulated depreciation relates primarily to Buildings and
Machinery and equipment.
|
|
17. |
DEFERRED CREDITS AND OTHER LIABILITIES
|
Deferred credits and other liabilities comprise the following
elements:
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
Post-retirement and post-employment benefits (NOTE 24)
|
|
|
284 |
|
|
|
211 |
|
Environmental liabilities (NOTE 20)
|
|
|
39 |
|
|
|
52 |
|
Restructuring liabilities
|
|
|
1 |
|
|
|
2 |
|
Claims
|
|
|
83 |
|
|
|
40 |
|
Other
|
|
|
65 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
472 |
|
|
|
362 |
|
|
|
|
|
|
|
|
F-29
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
18. |
DEBT NOT MATURING WITHIN ONE YEAR
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
DUE TO RELATED PARTIES
|
|
|
|
|
|
|
|
|
Alcan Deutschland Holdings GmbH & Co. KG
|
|
|
|
|
|
|
|
|
3.62%, loan, due 2008
(375 million)
|
|
|
508 |
|
|
|
472 |
|
Floating rate loan, due 2006
(51 million)(A)
|
|
|
69 |
|
|
|
64 |
|
Alcan Deutschland GmbH
|
|
|
|
|
|
|
|
|
Floating rate loans, due 2005
(214 million)(A)
|
|
|
290 |
|
|
|
268 |
|
Alcan Aluminio do Brasil Ltda
|
|
|
|
|
|
|
|
|
Floating rate notes, due 2006/2007(A)
|
|
|
125 |
|
|
|
195 |
|
Alcan Aluminio S.p.A.
|
|
|
|
|
|
|
|
|
Floating rate loan(A)
|
|
|
|
|
|
|
22 |
|
Alcan Aluminum Corporation
|
|
|
|
|
|
|
|
|
5.05% Promissory Note, due 2009
|
|
|
400 |
|
|
|
|
|
Alcan Packaging Bridgnorth Ltd
|
|
|
|
|
|
|
|
|
7.8% Promissory Note, due 2014 (£61 million)(B)
|
|
|
117 |
|
|
|
|
|
7.8% Promissory Note, due 2014 (£775,000)(B)
|
|
|
1 |
|
|
|
|
|
ARCUSTARGET INC.
|
|
|
|
|
|
|
|
|
6.45% Promissory Note, due 2014
(10 million)(B)
|
|
|
14 |
|
|
|
|
|
5.15% Promissory Note, due 2014 (CHF245 million)(B)
|
|
|
215 |
|
|
|
|
|
6.45% Promissory Note, due 2014
(7 million)(B)
|
|
|
9 |
|
|
|
|
|
7.80% Promissory Note, due 2014 (£23 million)(B)
|
|
|
45 |
|
|
|
|
|
7.50% Promissory Note, due 2014(B)
|
|
|
33 |
|
|
|
|
|
6.45% Promissory Note, due 2014
(15 million)(B)
|
|
|
20 |
|
|
|
|
|
6.45% Promissory Note, due 2014
(83 million)(B)
|
|
|
112 |
|
|
|
|
|
7.50% Promissory Note, due 2014(B)
|
|
|
287 |
|
|
|
|
|
7.50% Promissory Note, due 2014(B)
|
|
|
200 |
|
|
|
|
|
6.45% Promissory Note, due 2014
(77 million)(B)
|
|
|
105 |
|
|
|
|
|
Novelis Valais SA
|
|
|
|
|
|
|
|
|
5.15% Promissory Note, due 2014 (CHF35 million)(B)
|
|
|
31 |
|
|
|
|
|
Novelis Specialités France
|
|
|
|
|
|
|
|
|
6.45% Promissory Note, due 2014
(6 million)(B)
|
|
|
8 |
|
|
|
|
|
Novelis PAE
|
|
|
|
|
|
|
|
|
6.45% Promissory Note, due 2014
(6 million)(B)
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,597 |
|
|
|
1,021 |
|
Debt maturing within one year included in current liabilities
|
|
|
(290 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
Debt not maturing within one year due to related parties
|
|
|
2,307 |
|
|
|
1,011 |
|
|
|
|
|
|
|
|
DUE TO THIRD PARTIES
|
|
|
|
|
|
|
|
|
Alcan Aluminum Corporation
|
|
|
|
|
|
|
|
|
Floating Rate Notes, due 2005(A)(C)
|
|
|
|
|
|
|
500 |
|
Alcan Taihan Aluminium Limited (D)
|
|
|
|
|
|
|
|
|
4.55% Bank loan, due 2007
|
|
|
70 |
|
|
|
|
|
4.80% Bank loan, due 2007 (KRW40 billion)
|
|
|
39 |
|
|
|
30 |
|
4.45% Bank loan, due 2007 (KRW25 billion)
|
|
|
24 |
|
|
|
20 |
|
Bank loans, due 2005/2011 (KRW2 billion)
|
|
|
2 |
|
|
|
2 |
|
Other
|
|
|
|
|
|
|
|
|
Bank loans, due 2005/2009
|
|
|
3 |
|
|
|
85 |
|
Other debt, due 2005/2010
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
638 |
|
Debt maturing within one year included in current liabilities
|
|
|
(1 |
) |
|
|
(132 |
) |
|
|
|
|
|
|
|
Debt not maturing within one year due to third parties
|
|
|
139 |
|
|
|
506 |
|
|
|
|
|
|
|
|
F-30
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
(A) |
|
Interest rates fluctuate principally with the lenders
prime commercial rate, the commercial bank bill rate, or are
tied to LIBOR/ EURIBOR rates. |
|
(B) |
|
These promissory notes totalling $1,205 comprise a major portion
of the $1,375 bridge financing (Alcan Notes) provided by Alcan
to the Group as a result of the reorganization transactions
described in note 1 Nature of Operations. The
remaining balance of the Alcan Notes of $170 was obtained in
January 2005. The equivalent USD interest rate of the Alcan
Notes is fixed at 7.50%, subject to quarterly increases of
0.50%, not to exceed 11.50%. The Group obtained the Alcan Notes
with the intention of refinancing them with third party
long-term debt. The Notes were duly refinanced with the proceeds
of the $1,400 10-year Senior Notes issued in February 2005
(refer to note 27 Subsequent Events
Financing). Accordingly, the Alcan Notes have been classified as
Debt not maturing within one year as at December 31, 2004. |
|
(C) |
|
Alcan Aluminum Corporation (AAC) had the right to redeem
the FRNs due December 8, 2005, at any time on or after
June 8, 2004. It opted to repay the FRNs on August 6,
2004 (refer to note 11 Related Party
Transactions). The FRNs ranked equally with AACs senior
unsecured debt and were guaranteed by Alcan. |
|
(D) |
|
In December 2004, Alcan Taihan Aluminium Limited
(ATA) entered into a $70 floating rate long-term loan which
was subsequently swapped for a 4.55% fixed rate
KRW73 billion loan. In 2004, ATA also entered into two new
long-term floating rate loans of KRW40 billion and
KRW25 billion that were swapped for fixed rates of 4.80%
and 4.45%, respectively. These loans replace the
KRW30 billion and KRW20 billion floating rate loans,
that were outstanding in 2003 and that matured in 2004, of which
$25 was swapped to fixed interest rates. Refer to
note 22 Financial Instruments and Commodity
Contracts. In 2004, interest on the KRW2 billion loans
ranges from 3.00% to 5.50% (2003: 2.75% to 5.83%). |
Based on rates of exchange at year-end, third party debt
repayment requirements over the next five years amount to $1 in
2005, $1 in 2006, $134 in 2007, nil in 2008 and $2 in 2009.
Related party debt repayments over the next five years amount to
$290 in 2005, $174 in 2006, $20 in 2007, $508 in 2008 and $400
in 2009. The third party and related party debt repayments are
based on the Groups debt as at December 31, 2004 and
do not reflect the refinancing and/or reorganization
transactions, as described in Note 27
Subsequent Events Financing. In 2005, all related
party debt with Alcan and its subsidiaries was refinanced with
third party debt.
|
|
19. |
STOCK OPTIONS AND OTHER STOCK-BASED COMPENSATION
|
|
|
|
Alcan Executive Share Option Plan
|
Under the executive share option plan, certain key employees may
purchase common shares at an exercise price that is based on the
market value of the shares on the date of the grant of each
option. The vesting period for options granted beginning in 1998
is linked to Alcans share price performance, but does not
exceed nine years. Options granted before 1998 vest generally
over a fixed period of four years from the grant date and expire
at various dates during the next ten years.
The number of options granted to certain employees of
Alcans Rolled Products businesses is 604,650 in 2004
(2003: 300,000; 2002: 387,900). The option activity is not
necessarily indicative of what the activity would have been had
the Group been a separate stand-alone company during the periods
presented or what the activity may be in the future.
To compute compensation expense under SFAS No. 123,
Accounting for Stock Compensation, the Black-Scholes valuation
model was used to determine the fair value of the Alcan options
granted that are held by the Groups employees.
F-31
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The weighted average fair value of stock options granted to
certain employees of Alcans Rolled Products businesses in
2004 is $12.87 (2003: $9.95; 2002: $7.72).
Stock-based compensation expense for stock options granted to
certain employees of Alcans Rolled Products businesses was
$2 in 2004 (2003: $2; 2002: $2).
The fair value of each option grant is estimated on the date of
grant with the following weighted average assumptions used for
the option grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Dividend yield (%)
|
|
|
1.85 |
|
|
|
1.88 |
|
|
|
1.65 |
|
Expected volatility (%)
|
|
|
27.87 |
|
|
|
29.16 |
|
|
|
35.73 |
|
Risk-free interest rate (%)
|
|
|
4.56 |
|
|
|
3.39 |
|
|
|
3.50 |
|
Expected life (years)
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
Refer to note 27 Subsequent Events
Stock Option Plans for revisions to the existing stock option
plans upon the Groups separation from Alcan.
|
|
|
Compensation To Be Settled in Cash
|
Presented below is a summary of Alcans other stock-based
compensation plans to be settled in cash that are held by
certain employees of Alcans Rolled Products businesses.
|
|
|
Stock Price Appreciation Unit Plan
|
A small number of employees of Alcans Rolled Products
businesses are entitled to receive Stock Price Appreciation
Units (SPAU) whereby they are entitled to receive cash in
an amount equal to the excess of the market value of an Alcan
common share on the date of exercise of a SPAU over the market
value of an Alcan common share as of the date of grant of such
SPAUs. The vesting period is linked to Alcans share price
performance, but does not exceed nine years.
|
|
|
Total Shareholder Return Performance Plan
|
Certain employees of Alcans Rolled Products businesses are
entitled to receive cash awards under the Total Shareholder
Return Performance Plan, a cash incentive plan which provides
performance awards to eligible employees based on the relative
performance of Alcans common share price and cumulative
dividend yield performance compared to other corporations
included in the Standard & Poors Industrials
Index measured over three-year periods commencing on
October 1, 2003 and 2002. If the performance results for
Alcans common shares is below the 30th percentile compared
to all companies in the Standard & Poors
Industrials Index, the employee will not receive an award. At
the 50th percentile rank, the employee will earn an award equal
to 100% of the target set for the period. At or above the 75th
percentile rank, the employee will earn the maximum award, which
is equal to 300% of the target set for the period. The actual
amount of the award (if any) will be prorated between the
percentile rankings.
Stock based compensation expense for Alcans employee
compensation awards held by certain employees of Alcans
Rolled Products businesses that are to be settled in cash was $4
in 2004 (2003: $3; 2002: nil).
F-32
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
20. |
COMMITMENTS AND CONTINGENCIES
|
Commitments with third parties for supplies of goods and
services are estimated at $41 in 2005, $16 in 2006, $15 in 2007,
$11 in 2008 and $11 in 2009 and $11 thereafter. Total payments
to these entities were $13 in 2004, $3 in 2003 and $5 in 2002,
excluding capital expenditures.
Minimum rental obligations are estimated at $10 in 2005, $7 in
2006, $4 in 2007, $3 in 2008, $2 in 2009 and $1 thereafter.
Total rental expenses amounted to $17 in 2004, $15 in 2003 and
$15 in 2002.
The Group, in the course of its operations, is subject to
environmental and other claims, lawsuits and contingencies. The
Group is named as a defendant in relation to environmental
contingencies at approximately 12 existing and former Group
sites and third-party sites. Accruals have been made in specific
instances where it is probable that liabilities will be incurred
and where such liabilities can be reasonably estimated.
The Group is subject to various laws relating to the protection
of the environment. The Group has established procedures for the
ongoing evaluation of its operations, to identify potential
environmental exposures and to comply with regulatory policies
and procedures.
The Group is involved in proceedings, as described below, under
the U.S. Superfund or analogous state provisions regarding
the usage, storage, treatment or disposal of hazardous
substances 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 it has operations, including Brazil and
certain countries in the European Union.
PAS Site. Alcan Aluminum Corporation (AAC) (renamed
Novelis Corporation after the spin-off from Alcan) and third
parties were defendants in a lawsuit instituted in July 1987 by
the U.S. Environmental Protection Agency, or EPA, relating
to the Pollution Abatement Services, or PAS, site, a third-party
disposal site, in Oswego, New York. In January 1991, the
U.S. District Court for the Northern District of New York
found AAC liable for a share of the clean-up costs for the site,
and in December 1991 determined the amount of such share to be
$3.2 plus interest and costs. AAC appealed this decision to the
United States Court of Appeals, Second Circuit. In April 1993,
the Second Circuit reversed the District Court and remanded the
case for a hearing on what liability, if any, might be assigned
to AAC depending on whether AAC could prove that its waste did
not contribute to the costs of remediation at the site. This
matter was consolidated with another case, instituted in October
1991 by the EPA against AAC in the U.S. District Court for
the Northern District of New York seeking clean-up costs in
regard to the Fulton Terminals Superfund site in Oswego County,
New York, which was also owned by PAS. The remand hearing was
held in October of 1999. The trial court re-instituted its
judgment holding AAC liable. The amount of the judgment plus
interest was $13.5 as at December 2000. The case was appealed.
In the first quarter 2003, the Second Circuit affirmed the
decision of the trial court. In 2004, AAC paid $13.9 in respect
of the EPA claim, representing the full amount of the judgment
plus interest, and $1.6 to the State of New York, and is
currently responsible for future oversight costs, which are
currently estimated at approximately $0.6.
PAS Oswego Site Performing Group. AAC has also been sued
by ten other potentially responsible parties, or PRPs, at the
PAS site seeking contribution from AAC for costs they
collectively incurred in cleaning up the PAS site from 1990 to
the present. The costs incurred by the PRPs to date total
approximately $6.4 plus accrued interest. Based upon currently
available record evidence, AAC is contesting responsibility for
costs incurred by the PRPs.
Oswego North Ponds. In the late 1960s and early 1970s,
AAC in Oswego used an oil containing polychlorinated biphenyls,
or PCBs, in its re-melt operations. At the time, AAC utilized a
once-through cooling water system that discharged through a
series of constructed ponds and wetlands, collectively referred
to as the North Ponds. In the early 1980s, low levels of PCBs
were detected in the cooling water
F-33
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
system discharge and AAC performed several subsequent
investigations. The PCB-containing hydraulic oil, Pydraul, which
was eliminated from use by AAC in the early 1970s, was
identified as the source of contamination. In the mid-1980s, the
Oswego North Ponds site was classified as an inactive
hazardous waste disposal site and added to the New York
State Registry. AAC ceased discharge through the North Ponds in
mid-2002.
In cooperation with the New York State Department of
Environmental Conservation, or NYSDEC, and the New York State
Department of Health, AAC entered into a consent decree in
August 2000 to develop and implement a remedial program to
address the PCB contamination at the Oswego North Ponds site. A
remedial investigation report was submitted in January 2004 and
we anticipate that the NYSDEC will issue a proposed remedial
action plan and record of decision during the second half of
2005. The Group expects that the remedial plan will be
implemented in 2006. The estimated cost associated with this
remediation is approximately $25.
Butler Tunnel Site. AAC was a party in a 1989 EPA lawsuit
before the U.S. District Court for the Middle District of
Pennsylvania involving the Butler Tunnel Superfund site, a
third-party disposal site. In May 1991, the Court granted
summary judgment against AAC for alleged disposal of hazardous
waste. After unsuccessful appeals, AAC paid the entire judgment
plus interest.
The United States government filed a second cost recovery action
against Alcan seeking recovery of expenses associated with the
installation of an early warning system for potential future
releases from the Butler site. The complaint does not disclose
the amount of costs sought by the government. The case has been
held in abeyance since shortly after it was filed and therefore
there has been no opportunity for discovery to fully determine
the type of remedial action sought, the total cost, the
existence of other settlements or the existence of other
non-settling PRPs that may exist for potential contribution. In
December 2004, a motion for partial summary judgment was heard
and is under advisement.
Tri-Cities Site. In 1994, AAC and other companies
responded to an EPA inquiry concerning the shipment of old drums
to Tri-Cities Inc., a third party barrel reprocessing facility
in upstate New York. In 1996 the EPA issued an administrative
order directing the defendants to clean up the site. AAC refused
to participate, claiming that the drums sent to Tri-Cities were
empty at the time of delivery. In September 2002, AAC received
notice from the EPA contending that AAC was responsible for past
and future response costs with accrued interest as well as
penalties for its violation of the administrative order. AAC
responded by outlining its objections to the EPAs
determination. The EPA subsequently referred the matter to the
Department of Justice, or DOJ, for enforcement. In December
2004, a consent decree was negotiated with the DOJ and EPA.
Under this consent agreement, AAC will pay $0.4 as a civil
penalty as well as $0.6 in past costs. Future costs have been
capped at a maximum payment of $0.8 payable over an extended
period of time.
Quanta Resources Site. In June 2003, the DOJ filed a
Superfund costs recovery action in the U.S. District Court
for the Northern District of New York against AAC and Russell
Mahler, the site owner, seeking unreimbursed response costs
stemming from the disposal of rolling oil emulsion at the Quanta
Resources facility in Syracuse, New York. The parties are in the
process of discovery. In 2003, AAC met with the DOJ and the EPA
who quantified potential liability for unreimbursed costs and
penalties in the amount of $1.4.
Sealand Site. New York State and EPA claim that
AACs waste that was sent to the Sealand, New York
Restoration site is a hazardous substance that contributed to
the occurrence of response costs. There are several PRPs at this
site. In 1993, AAC declined a request to participate in a
program to provide drinking water to area residents, contending
that AACs waste did not cause or contribute to the harm at
the site. In 2003, Alcan met with the DOJ and the EPA who
quantified potential liability for unreimbursed costs at $2.6.
F-34
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Toyo Coal Tar Remediation. Prior property owners
contaminated the soil at the Joliet, Illinois facility with coal
tar. Following litigation, AAC received a 90% cost allocation
from two defendants. In 1998, a remediation plan was developed
to clean-up soils and groundwater. The remedial program was
implemented in 1999. AAC continues to monitor the remediation.
AACs estimated costs are approximately $0.3.
Diamond Alkali Superfund Site-Lower Passaic River
Initiative. In 2003, AAC received a letter from the EPA
regarding an investigation being launched into possible
contamination of the Lower Passaic River in 1965. AAC has been
identified as a PRP arising from one of its former plants in
Newark, New Jersey that may have generated hazardous waste. A
remedial investigation feasibility study is scheduled to be
carried out over several years. AAC has entered into a consent
decree with other PRPs and will participate in a remedial
feasibility study. AACs estimated environmental costs have
been set at approximately $0.2.
Jarl Extrusions (Rochester, NY). The affected property in
Rochester, New York was acquired in 1988. Operations at the
property were subsequently discontinued and the property was
sold in December 1996. AAC retained liability under the terms of
sale. AAC entered into a consent decree with NYSDEC under which
evaluation of the site was performed in 1990 and 1991. Most of
the contamination was determined to have come from an adjoining
site. In its response to AACs investigation report, the
NYSDEC asked AAC to admit to liability for off-site pollution (a
Superfund site is located next door) and that hazardous sludge
was dumped in the ponds behind the building. AAC denied these
allegations. In light of the States failure to cooperate
with AAC in the remediation of this site under the consent
decree, AAC filed a notice of protest with the State. AACs
appeal was denied, but the State later approved a new remedial
investigation report negotiated between NYSDEC and AAC. A
feasibility study for site remediation was then approved by
NYSDEC. Negotiations on a consent order for remedial design
construction were completed and the restrictive deed covenants
have been filed for the property. The clean-up has been
completed and NYSDEC approved a long-term operation and
monitoring plan (O&M). AAC continues to conduct
O&M and has sought permission to decommission two monitoring
wells. Estimated costs associated with this matter are
approximately $0.2.
Terre Haute TCE Issue. Trichloroethylene (TCE) soil
and groundwater contamination was discovered on the Terre Haute
site in 1990. A site investigation was performed in between 1991
and 1994 whereby the extent of TCE groundwater and soil
contamination was delineated. The subsurface contamination was
located on site with groundwater plume migrating off site, with
impacts to private homeowner drinking water wells. Terre Haute
entered into the Indiana Voluntary Remediation Program in 1995.
A remediation plan was developed which consisted of Soil
Venting/ Air Sparging for subsurface soil remediation. The point
source carbon treatment systems were installed on impacted
homeowners wells. The active subsurface soil remediation was
completed in 2003. Now that the remediation phase has been
completed, AAC is required to support a post remedial
groundwater and drinking water well monitoring program. Periodic
monitoring will be required until groundwater clean up goals are
met. Based on historical trends in TCE contamination, it is
anticipated that clean up objectives will be met within
10 years. Once the clean up objectives are met, the project
will be considered closed. Estimated costs associated with
funding the required monitoring program for a period of
10 years is approximately $0.6.
It is the Groups policy to accrue estimated environmental
clean-up costs (investigation and remediation) when such amounts
can reasonably be estimated and it is probable that the Group
will be required to incur such costs. The Group has estimated
its undiscounted remaining clean-up costs related to 12 sites
will be in the range of $36 to $40. An estimated liability of
$39 has been recorded on the combined balance sheet at
December 31, 2004 in Deferred credits and other
liabilities. Other than these 12 sites, the Group is currently
not aware of any material exposure to environmental liabilities.
However, adverse changes in environmental regulations, new
information or other factors could impact the Group.
F-35
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The Group has agreed to indemnify Alcan and its subsidiaries and
each of their respective directors, officers and employees,
against liabilities relating to, among other things (see
reference to agreements between Novelis and Alcan in
note 1):
|
|
|
|
|
the contributed businesses, liabilities or contracts; |
|
|
|
liabilities or obligations associated with the contributed
businesses, as defined in the separation agreement between
Novelis and Alcan, or otherwise assumed by the Group pursuant to
the separation agreement; and |
|
|
|
any breach by the Group of the separation agreement or any of
the ancillary agreements entered into with Alcan in connection
with the separation. |
Although there is a possibility that liabilities may arise in
other instances for which no accruals have been made, the Group
does not believe that it is reasonably possible that any losses
in excess of accrued amounts would be sufficient to
significantly impair its operations, have a material adverse
effect on its financial position or liquidity, or materially and
adversely affect its results of operations for any particular
reporting period, absent unusual circumstances.
In addition, see reference to income taxes in note 9, debt
repayments in note 18 and financial instruments and
commodity contracts in note 22.
|
|
21. |
CURRENCY GAINS AND LOSSES
|
The following are the amounts recognized in the financial
statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Currency gains (losses) recorded in income
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses realized and unrealized on currency derivatives
|
|
|
(23 |
) |
|
|
(37 |
) |
|
|
(21 |
) |
Realized deferred translation adjustments
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Gains (Losses) on translation of monetary assets and liabilities
|
|
|
(4 |
) |
|
|
(7 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27 |
) |
|
|
(43 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred translation adjustments* beginning of
year
|
|
|
90 |
|
|
|
(12 |
) |
|
|
(141 |
) |
Effect of exchange rate changes
|
|
|
30 |
|
|
|
103 |
|
|
|
129 |
|
Gains realized
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred translation adjustments end of year
|
|
|
120 |
|
|
|
90 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
* |
Deferred translation adjustments are included in Accumulated
other comprehensive income (loss). |
|
|
22. |
FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS
|
In conducting its business, the Group uses various derivative
and non-derivative instruments, including forward contracts to
manage the risks arising from fluctuations in exchange rates,
interest rates, aluminum prices and other commodity prices.
Generally, such instruments are used for risk management
purposes only. The principal counterparty to these contracts is
Alcan.
F-36
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The Group enters into forward currency contracts that are
designated as hedges of certain identifiable foreign currency
revenue and operating cost exposures. Foreign currency forward
contracts are also used to hedge certain foreign currency
denominated debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at |
|
|
|
|
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
Fair |
|
|
|
|
|
Value |
|
|
Value |
|
Financial Instrument |
|
Hedge |
|
|
|
|
|
|
Forward exchange contracts
|
|
Future firm net operating cash flows
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
(1 |
) |
|
|
(4 |
) |
|
related parties
|
|
|
|
|
(52 |
) |
|
|
(26 |
) |
Cross currency interest swap (third parties)
|
|
To swap floating rate US$ third party borrowings to fixed rate
KRW
|
|
|
(8 |
) |
|
|
2 |
|
|
|
|
Derivatives Interest Rate
|
The Group sometimes enters into interest rate swaps to manage
funding costs as well as the volatility of interest rates.
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at |
|
|
|
December 31 |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
Fair |
|
|
|
Value |
|
|
Value |
|
|
|
|
|
|
|
|
Financial Instrument
|
|
|
|
|
|
|
|
|
Rate swap floating to fixed (third parties)
|
|
|
|
|
|
|
|
|
|
KRW floating to KRW fixed
|
|
|
(1 |
) |
|
|
|
|
Depending on supply and market conditions, as well as for
logistical reasons, the Group may purchase primary and secondary
aluminum on the open market to meet its fabricated products
requirements. In addition, the Group may hedge certain
commitments arising from pricing arrangements with some of its
customers and the effects of price fluctuations on inventories.
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31 |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
Financial Instrument
|
|
|
|
|
|
|
|
|
Forward contracts (related parties)
|
|
|
|
|
|
|
|
|
|
Maturing principally in years
|
|
|
2005 to 2006 |
|
|
|
2004 to 2005 |
|
|
Fair Value
|
|
|
97 |
|
|
|
86 |
|
Call options purchased (related parties)
|
|
|
|
|
|
|
|
|
|
Maturing principally in years
|
|
|
2005 |
|
|
|
|
|
|
Fair value
|
|
|
26 |
|
|
|
|
|
Embedded derivatives
|
|
|
|
|
|
|
|
|
|
Maturing principally in years
|
|
|
2005 |
|
|
|
2005 |
|
|
Fair value
|
|
|
(10 |
) |
|
|
(49 |
) |
F-37
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
Derivatives Natural Gas
|
As a hedge of future natural gas purchases, the Group has
outstanding as at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
Financial Instrument
|
|
|
|
|
|
|
|
|
Swaps and options (third parties)
|
|
|
|
|
|
|
|
|
|
Maturing at various times through
|
|
|
2005 |
|
|
|
2004 |
|
|
Fair value
|
|
|
(1 |
) |
|
|
1 |
|
|
|
|
Derivatives Electricity
|
As a hedge of future electricity purchases, the Group has
outstanding as at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
Financial Instrument
|
|
|
|
|
|
|
|
|
Fixed price contracts
|
|
|
|
|
|
|
|
|
|
Maturing at various times in years
|
|
|
2016 |
|
|
|
2016 |
|
|
Fair value
|
|
|
18 |
|
|
|
1 |
|
The Group may be exposed to losses in the future if the
counterparties to the above contracts fail to perform. The
principal counterparty is Alcan (refer to
note 11 Related Party Transactions). The Group
is satisfied that the risk of such non-performance is remote,
due to its monitoring of credit exposures.
|
|
|
Financial Instruments Fair Value
|
On December 31, 2004, the fair value of the Groups
long-term debt due to related parties and third parties totaling
$2,737 (2003: $1,659) approximates its book value.
The fair values of all other financial assets and liabilities
are approximately equal to their carrying values.
|
|
23. |
SUPPLEMENTARY INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Statement of income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
|
45 |
|
|
|
27 |
|
|
|
26 |
|
Capitalized interest
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
Statement of cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
76 |
|
|
|
41 |
|
|
|
42 |
|
Income taxes paid
|
|
|
70 |
|
|
|
19 |
|
|
|
34 |
|
F-38
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
Balance sheet
|
|
|
|
|
|
|
|
|
Payables and accrued liabilities include the following:
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
|
899 |
|
|
|
708 |
|
|
Other accrued liabilities
|
|
|
279 |
|
|
|
286 |
|
|
Income and other taxes
|
|
|
8 |
|
|
|
28 |
|
|
Accrued employment costs
|
|
|
74 |
|
|
|
66 |
|
At December 31, 2004, the weighted average interest rate on
short-term borrowings was 2.5% (2003: 1.8%; 2002: 3.3%)
|
|
24. |
POST-RETIREMENT BENEFITS
|
Most of the Groups pension obligation relates to funded
defined benefit pension plans it has established in the United
States and the United Kingdom, unfunded pension benefits in
Germany, and lump sum indemnities payable upon retirement to
employees of businesses in France, Korea and Malaysia. Pension
benefits are generally based on the employees service and
either on a flat dollar rate or on the highest average eligible
compensation before retirement. In addition, some of the
entities of the Group participate in defined benefit plans
managed by Alcan in Canada, the U.S., the U.K. and Switzerland.
The Groups share of these plans assets and
liabilities is not included in the combined balance sheets, as
discussed in note 2 Basis of Presentation.
Investments are generally limited to publicly traded stocks and
high-rated debt securities, and include only small amounts in
other categories. Target allocation for 2004 is as indicated
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation in |
|
|
|
Target |
|
|
Aggregate at |
|
Category of Asset |
|
Allocation |
|
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
40% to 65% |
|
|
|
55 |
% |
|
|
46 |
% |
Debt securities
|
|
|
30% to 55% |
|
|
|
39 |
% |
|
|
51 |
% |
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
6 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
Other Benefits |
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1
|
|
|
256 |
|
|
|
115 |
|
|
|
|
79 |
|
|
|
69 |
|
Service cost
|
|
|
15 |
|
|
|
6 |
|
|
|
|
4 |
|
|
|
2 |
|
Interest cost
|
|
|
29 |
|
|
|
12 |
|
|
|
|
6 |
|
|
|
4 |
|
Members contributions
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(23 |
) |
|
|
(11 |
) |
|
|
|
(8 |
) |
|
|
(6 |
) |
Amendments
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Acquisitions/reorganization
|
|
|
251 |
|
|
|
88 |
|
|
|
|
22 |
|
|
|
|
|
Curtailments/divestitures
|
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gains) losses
|
|
|
32 |
|
|
|
28 |
|
|
|
|
12 |
|
|
|
10 |
|
Currency losses
|
|
|
32 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation measured at December 31
|
|
|
550 |
|
|
|
256 |
|
|
|
|
115 |
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
Other Benefits |
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation of funded pension plans
|
|
|
398 |
|
|
|
124 |
|
|
|
|
N/A |
|
|
|
N/A |
|
Benefit obligation of unfunded pension plans
|
|
|
152 |
|
|
|
132 |
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation measured at December 31
|
|
|
550 |
|
|
|
256 |
|
|
|
|
115 |
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in market value of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at January 1
|
|
|
114 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
Actual return on assets
|
|
|
17 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
Members contributions
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid from funded plans
|
|
|
(14 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
Company contributions
|
|
|
23 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
Acquisitions/reorganization
|
|
|
177 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
Curtailments/divestitures
|
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency gains
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at December 31
|
|
|
290 |
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets less than benefit obligation of funded pension plans
|
|
|
(108 |
) |
|
|
(10 |
) |
|
|
|
N/A |
|
|
|
N/A |
|
Benefit obligation of unfunded pension plans
|
|
|
(152 |
) |
|
|
(132 |
) |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets less than benefit obligation
|
|
|
(260 |
) |
|
|
(142 |
) |
|
|
|
(115 |
) |
|
|
(79 |
) |
Unamortized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
actuarial (gains)/losses
|
|
|
84 |
|
|
|
(8 |
) |
|
|
|
26 |
|
|
|
10 |
|
prior service cost
|
|
|
15 |
|
|
|
16 |
|
|
|
|
(1 |
) |
|
|
(1 |
) |
Minimum pension liability
|
|
|
(54 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
9 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability in balance sheet
|
|
|
(206 |
) |
|
|
(142 |
) |
|
|
|
(90 |
) |
|
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability in balance sheet for funded pension plans
|
|
|
(89 |
) |
|
|
(26 |
) |
|
|
|
N/A |
|
|
|
N/A |
|
Net liability in balance sheet for unfunded pension plans
|
|
|
(117 |
) |
|
|
(116 |
) |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability in balance sheet
|
|
|
(206 |
) |
|
|
(142 |
) |
|
|
|
(90 |
) |
|
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges and other assets
|
|
|
8 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
9 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
Payables and accrued liabilities
|
|
|
(29 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
Deferred credits and other liabilities
|
|
|
(194 |
) |
|
|
(141 |
) |
|
|
|
(90 |
) |
|
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability in balance sheet
|
|
|
(206 |
) |
|
|
(142 |
) |
|
|
|
(90 |
) |
|
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the first time in 2004, in accordance with the provisions of
FIN 46(R), the net liability in the balance sheet includes
100% of the pension and post-retirement benefits of Logan (as
discussed in note 4 Accounting Changes).
Consequently, a benefit obligation of $88 and market value of
plan assets of $50 for pension benefits and a benefit obligation
of $22 for other post-retirement benefits are included in the
acquisitions/reorganization lines above. The net
liability in the balance sheet for Logan is $31 for pension
benefits and $21 for other post-retirement benefits as at
December 31, 2004.
F-40
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
A benefit obligation of $181 and market value of plan assets of
$126 for Bridgnorth (U.K.) are included in the
acquisitions/reorganization lines in pension
benefits above. The net liability in the balance sheet for
Bridgnorth is $54 for pension benefits as at December 31,
2004.
For certain plans, the projected benefit obligation
(PBO) exceeds the market value of the assets. For these
plans, including unfunded pensions and lump sum indemnities, the
PBO is $523 (2003: $222), the accumulated benefit obligation
(ABO) is $461 (2003: $203), while the market value of the
assets is $260 (2003: $77).
The total ABO is $488 (2003: $237). For certain plans, the ABO
exceeds the market value of the assets. For these plans,
including unfunded pensions and lump sum indemnities, the PBO is
$515 (2003: $222), the ABO is $453 (2003: $203), while the
market value of the assets is $252 (2003: $77).
The Groups pension funding policy is to contribute the
amount required to provide for contractual benefits attributed
to service to date, and to amortize unfunded actuarial
liabilities for the most part over periods of 15 years or
less. The Group expects to contribute $10 in aggregate to its
funded pension plans in 2005, and to pay $7 of unfunded pension
benefits and lump sum indemnities from operating cash flows.
Alcan provides unfunded health care and life insurance benefits
to retired employees in Canada and the United States, which
include retired employees of some of the Groups
businesses. The Groups share of these plans
liabilities and costs are included in the combined financial
statements. The Group expects to pay benefits of $8 in 2005 from
operating cash flows.
Expected benefit payments for the next 10 years are $21 in
2005, $22 in 2006, $23 in 2007, $24 in 2008, $26 in 2009 and
$148 from 2010 to 2014 for pensions, and $8 in 2005, $9 in 2006,
$9 in 2007, $9 in 2008, $10 in 2009 and $58 from 2010 to 2014
for other benefits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
Other Benefits |
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
27 |
|
|
|
21 |
|
|
|
25 |
|
|
|
|
4 |
|
|
|
2 |
|
|
|
2 |
|
Interest cost
|
|
|
37 |
|
|
|
33 |
|
|
|
37 |
|
|
|
|
6 |
|
|
|
5 |
|
|
|
4 |
|
Expected return on assets
|
|
|
(28 |
) |
|
|
(28 |
) |
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
actuarial (gains) losses
|
|
|
4 |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
prior service cost
|
|
|
4 |
|
|
|
5 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment/settlement losses
|
|
|
(19 |
) |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
25 |
|
|
|
41 |
|
|
|
25 |
|
|
|
|
11 |
|
|
|
7 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to determine benefit
obligations at December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.4 |
% |
|
|
5.8 |
% |
|
|
5.6 |
% |
|
|
|
5.8 |
% |
|
|
6.2 |
% |
|
|
6.5 |
% |
Average compensation growth
|
|
|
3.6 |
% |
|
|
3.3 |
% |
|
|
3.0 |
% |
|
|
|
4.0 |
% |
|
|
3.7 |
% |
|
|
3.9 |
% |
Weighted average assumptions used to determine net periodic
benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.8 |
% |
|
|
6.2 |
% |
|
|
5.6 |
% |
|
|
|
6.2 |
% |
|
|
6.5 |
% |
|
|
7.0 |
% |
Average compensation growth
|
|
|
3.3 |
% |
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
|
3.7 |
% |
|
|
3.9 |
% |
|
|
5.0 |
% |
Expected return on plan assets
|
|
|
8.3 |
% |
|
|
8.0 |
% |
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in net periodic benefit cost are contributions of
subsidiaries and cost allocations of divisions that participate
in Alcan plans, as described in note 2 Basis of
Presentation.
F-41
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
In estimating the expected return on assets of a pension plan,
consideration is given primarily to its target allocation, the
current yield on long-term bonds in the country where the plan
is established, and the historical risk premium in each relevant
country of equity or real estate over long-term bond yields. The
approach is consistent with the principle that assets with
higher risk provide a greater return over the long term.
The assumed health care cost trend used for measurement purposes
is 10.0% for 2005, decreasing gradually to 4.5% in 2011 and
remaining at that level thereafter. A one percentage point
change in assumed health care cost trend rates would have the
following effects:
|
|
|
|
|
|
|
|
|
|
|
Other Benefits |
|
|
|
|
|
|
|
1% Increase |
|
|
1% Decrease |
|
|
|
|
|
|
|
|
Sensitivity Analysis
|
|
|
|
|
|
|
|
|
Effect on service and interest costs
|
|
|
1 |
|
|
|
(1 |
) |
Effect on benefit obligation
|
|
|
11 |
|
|
|
(10 |
) |
The Group participates in savings plans in Canada and the U.S.
as well as defined contribution pension plans in certain
countries. The cost of the Groups contributions was $8 in
2004 (2003: $7; 2002: $6).
|
|
25. |
INFORMATION BY GEOGRAPHIC AREAS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues third
|
|
Canada |
|
|
|
|
182 |
|
|
|
212 |
|
|
|
145 |
|
and related parties (by origin)
|
|
United States |
|
|
2,795 |
|
|
|
2,174 |
|
|
|
2,373 |
|
|
|
Brazil |
|
|
|
|
515 |
|
|
|
408 |
|
|
|
373 |
|
|
|
United Kingdom |
|
|
382 |
|
|
|
302 |
|
|
|
357 |
|
|
|
Germany |
|
|
|
|
1,865 |
|
|
|
1,705 |
|
|
|
1,409 |
|
|
|
Other Europe |
|
|
822 |
|
|
|
503 |
|
|
|
451 |
|
|
|
Asia and Other Pacific |
|
|
1,194 |
|
|
|
917 |
|
|
|
785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
7,755 |
|
|
|
6,221 |
|
|
|
5,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location |
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment,
|
|
Canada |
|
|
|
|
|
|
|
|
112 |
|
|
|
116 |
|
Intangible assets and Goodwill at
|
|
United States |
|
|
|
|
|
|
438 |
|
|
|
454 |
|
December 31(*)
|
|
Brazil |
|
|
|
|
|
|
|
|
544 |
|
|
|
568 |
|
|
|
United Kingdom |
|
|
|
|
|
|
167 |
|
|
|
162 |
|
|
|
Germany |
|
|
|
|
|
|
|
|
275 |
|
|
|
267 |
|
|
|
Other Europe |
|
|
|
|
|
|
481 |
|
|
|
317 |
|
|
|
Asia and Other Pacific |
|
|
|
|
|
|
622 |
|
|
|
630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
2,639 |
|
|
|
2,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
The allocation of the purchase price for Pechiney by geographic
area was completed in 2004. |
|
|
26. |
INFORMATION BY OPERATING SEGMENTS
|
The following presents selected information by operating
segment, viewed on a stand-alone basis. The operating management
structure is comprised of four operating segments. The four
operating segments are Novelis North America, Novelis Europe,
Novelis Asia and Novelis South America. Subsequent to its
separation from Alcan in 2005, the Group, as a stand-alone
entity, measures the profitability of its
F-42
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
operating segments based on Regional Income (RI). Current and
prior periods presented have been recast. RI comprises earnings
before interest, income taxes, minority interests, depreciation
and amortization and excludes certain items, such as corporate
costs, restructuring costs, impairment and other rationalization
charges. These items are managed by the Groups corporate
head office, which focuses on strategy development and oversees
corporate governance, policy, legal compliance, human resource
matters and finance matters. The change in fair market value of
derivatives is removed from individual RI and is shown on a
separate line. The Group believes that this presentation
provides a more accurate portrayal of underlying business group
results and is in line with the Companys portfolio
approach to risk management.
Prior to the separation, profitability of the operating segments
was measured based on business group profit (BGP). BGP was
similar to RI, except for the following:
|
|
|
a) BGP excluded restructuring costs related only to major
corporate-wide acquisitions or initiatives whereas RI excludes
all restructuring costs; |
|
|
b) BGP included pension costs based on the normal current
service cost with all actuarial gains, losses and other
adjustments being included in Intersegment and other. RI
includes all these pension costs in the applicable operating
segment; and |
|
|
c) BGP excluded certain corporate non-operating costs
incurred by an operating segment and included such costs in
Intersegment and other. Under the current management structure,
these costs remain in the operating segment. |
Transactions between operating segments are conducted on an
arms-length basis and reflect market prices.
The accounting principles used to prepare the information by
operating segment are the same as those used to prepare the
consolidated and combined financial statements of the Group,
except the operating segments include the Groups
proportionate share of joint ventures (including joint ventures
accounted for using the equity method) as they are managed
within each operating segment, with the adjustments for
equity-accounted joint ventures shown on a separate line in the
reconciliation to Income before taxes and other items.
The operating segments are described below.
Headquartered in Cleveland, Ohio, U.S.A., this group encompasses
aluminum sheet and light gauge products and operates 12 plants,
including two recycling facilities, in two countries.
Headquartered in Zurich, Switzerland, this group comprises
aluminum sheet, including automotive, can and lithographic sheet
as well as foil stock and operates 17 plants in seven countries
including two recycling facilities. The group ceased operations
in Falkirk, Scotland, in December 2004.
Headquartered in Seoul, South Korea, this group encompasses
aluminum sheet and light gauge products and operates three
plants in two countries.
F-43
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Headquartered in Sao Paulo, Brazil, this group comprises bauxite
mining, alumina refining, smelting operations, power generation,
carbon products, aluminum sheet and light gauge products and
operates five plants in Brazil. The Brazilian bauxite, alumina
and smelting assets are included in the group because they are
integrated with the Brazilian rolling operations.
This classification includes all costs incurred by the
Companys corporate offices in Atlanta, Georgia, U.S.A.,
and Toronto, Ontario, Canada. Under Alcans management
structure, this classification was referred to as Intersegment
and other and it included the deferral or realization of profits
on intersegment sales of aluminum and alumina, corporate office
costs as well as other non-operating items.
Risk Concentration
All four operating segments traded with Rexam Plc (Rexam) during
2004 and 2003 and all except for Novelis Asia traded with Rexam
in 2002. Revenues from Rexam of $861 amounted to approximately
11% of total revenues for the year ended December 31, 2004
(2003: $628 and 10%; 2002: $666 and 11%).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment |
|
|
Third and Related Parties |
|
|
|
|
|
|
|
|
Sales and Operating Revenues |
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Novelis North America
|
|
|
8 |
|
|
|
40 |
|
|
|
9 |
|
|
|
2,964 |
|
|
|
2,385 |
|
|
|
2,517 |
|
Novelis Europe
|
|
|
30 |
|
|
|
23 |
|
|
|
40 |
|
|
|
3,081 |
|
|
|
2,510 |
|
|
|
2,218 |
|
Novelis Asia
|
|
|
9 |
|
|
|
13 |
|
|
|
11 |
|
|
|
1,194 |
|
|
|
918 |
|
|
|
785 |
|
Novelis South America
|
|
|
57 |
|
|
|
23 |
|
|
|
13 |
|
|
|
525 |
|
|
|
414 |
|
|
|
379 |
|
Adjustments for equity-accounted joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
(7 |
) |
|
|
(7 |
) |
Other
|
|
|
(104 |
) |
|
|
(99 |
) |
|
|
(73 |
) |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,755 |
|
|
|
6,221 |
|
|
|
5,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional Income |
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Novelis North America
|
|
|
240 |
|
|
|
176 |
|
|
|
218 |
|
Novelis Europe
|
|
|
200 |
|
|
|
175 |
|
|
|
127 |
|
Novelis Asia
|
|
|
80 |
|
|
|
69 |
|
|
|
41 |
|
Novelis South America
|
|
|
134 |
|
|
|
88 |
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
Total Regional Income
|
|
|
654 |
|
|
|
508 |
|
|
|
472 |
|
Corporate office costs
|
|
|
(49 |
) |
|
|
(36 |
) |
|
|
(31 |
) |
Adjustments for equity-accounted joint ventures
|
|
|
(48 |
) |
|
|
(42 |
) |
|
|
(36 |
) |
Adjustments for mark-to-market of derivatives
|
|
|
77 |
|
|
|
20 |
|
|
|
9 |
|
Restructuring, rationalization and impairment costs
|
|
|
(89 |
) |
|
|
16 |
|
|
|
(25 |
) |
Depreciation and amortization
|
|
|
(246 |
) |
|
|
(222 |
) |
|
|
(211 |
) |
Interest
|
|
|
(74 |
) |
|
|
(40 |
) |
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes and other items
|
|
|
225 |
|
|
|
204 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
F-44
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
Total Assets At December 31, |
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
Novelis North America
|
|
|
1,406 |
|
|
|
2,392 |
|
Novelis Europe
|
|
|
2,885 |
|
|
|
2,364 |
|
Novelis Asia
|
|
|
954 |
|
|
|
904 |
|
Novelis South America
|
|
|
779 |
|
|
|
808 |
|
Adjustments for equity-accounted joint ventures
|
|
|
(60 |
) |
|
|
(135 |
) |
Other
|
|
|
(10 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
5,954 |
|
|
|
6,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid for Capital |
|
|
|
Depreciation and |
|
|
|
Expenditures and |
|
|
|
Amortization |
|
|
|
Business Acquisitions |
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Novelis North America
|
|
|
69 |
|
|
|
68 |
|
|
|
67 |
|
|
|
|
41 |
|
|
|
38 |
|
|
|
32 |
|
Novelis Europe
|
|
|
115 |
|
|
|
87 |
|
|
|
75 |
|
|
|
|
84 |
|
|
|
97 |
|
|
|
81 |
|
Novelis Asia
|
|
|
46 |
|
|
|
45 |
|
|
|
42 |
|
|
|
|
31 |
|
|
|
36 |
* |
|
|
32 |
|
Novelis South America
|
|
|
47 |
|
|
|
49 |
|
|
|
49 |
|
|
|
|
23 |
|
|
|
41 |
|
|
|
46 |
|
Adjustments for equity-accounted joint ventures
|
|
|
(37 |
) |
|
|
(32 |
) |
|
|
(26 |
) |
|
|
|
(16 |
) |
|
|
(14 |
) |
|
|
(14 |
) |
Other
|
|
|
6 |
|
|
|
5 |
|
|
|
4 |
|
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
246 |
|
|
|
222 |
|
|
|
211 |
|
|
|
|
165 |
|
|
|
200 |
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Includes $11 of cash paid for business acquisitions. |
In connection with the reorganization transactions described in
note 1 Nature of Operations, the Group entered
into senior secured credit facilities providing for aggregate
borrowings of up to $1.8 billion. These facilities consist
of a $1.3 billion seven-year senior secured Term
Loan B facility, bearing interest at LIBOR plus 1.75%, all
of which was borrowed on January 10, 2005, and a $500
five-year multi-currency revolving credit facility. The Term
Loan B facility consists of an $825 Term Loan B in the
U.S. and a $475 Term Loan B in Canada. The proceeds of the
Term Loan B facility were used in connection with the
reorganization transactions, the Groups separation from
Alcan and to pay related fees and expenses.
On January 31, 2005, Novelis announced that it had agreed
to sell $1.4 billion aggregate principal amount of senior
unsecured debt securities (Senior Notes). The Senior Notes,
which were priced at par, bear interest at 7.25% and will mature
on February 15, 2015. The net proceeds of the placement,
received on February 3, 2005, were used to repay the Alcan
Notes (refer to note 18 Debt Not Maturing
within One Year).
|
|
|
Executive Share Option Plan
|
On January 6, 2005, all of the options granted under the
Alcan Executive Share Option Plan held by the Groups
employees who were Alcan employees immediately prior to the
spin-off were replaced with options to purchase Novelis
common shares. The new Novelis options cover 2,701,028 common
shares at a weighted average exercise price per share of $21.60.
All converted options that were vested on the
F-45
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
separation date continued to be vested. Any that were unvested
will vest in four equal installments on the anniversary of the
separation date on each of the next four years.
|
|
|
Stock Price Appreciation Units
|
On January 6, 2005, all of the Alcan stock price
appreciation units (SPAUs) held by the Groups employees
who were Alcan employees immediately prior to the spin-off were
replaced with Novelis SPAUs, consisting of 418,777 SPAUs
at a weighted average exercise price per SPAU of $22.04.
|
|
|
Total Shareholder Return Performance Plan
|
As at January 6, 2005, the Groups employees who were
Alcan employees immediately prior to the spin-off and who were
eligible to participate in the Alcan Total Shareholder Return
Performance Plan (TSR Plan) ceased to actively participate in,
and accrue benefits under, the TSR Plan. The current three-year
performance periods, namely 2002 to 2005 and 2003 to 2006, were
truncated as of the date of the separation. The accrued award
amounts for each participant in the TSR Plan were converted into
restricted share units in Novelis, which will vest at the end of
each performance period, 2005 or 2006, as applicable. At the end
of each performance period, each holder of restricted share
units will receive the net proceeds based on Novelis
common share price at that time, including declared dividends.
The Groups initial board of directors approved in 2004 a
plan whereby each of Novelis common shares carries one
right to purchase additional common shares. The rights expire in
2014, subject to re-confirmation at the annual meetings of
shareholders in 2008 and 2011. The rights under the plan are not
currently exercisable. The rights may become exercisable upon
the acquisition by a person or group of affiliated or associated
persons (Acquiring Person) of beneficial ownership of 20% or
more of Novelis outstanding voting shares or upon the
commencement of a takeover bid. Holders of rights, with the
exception of an Acquiring Person or bidding party, in such
circumstances will be entitled to purchase from Novelis, upon
payment of the exercise price (currently $200.00), such number
of common shares as can be purchased for twice the exercise
price, based on the market value of Novelis common shares
at the time the rights become exercisable.
The plan has a permitted bid feature which allows a takeover bid
to proceed without the rights becoming exercisable, provided
that the bid meets specified minimum standards of fairness and
disclosure, even if the Groups board of directors does not
support the bid. The rights may be redeemed by the Groups
board of directors prior to the expiration or re-authorization
of the rights agreement, with the prior consent of the holders
of rights or common shares, for $0.01 per right. In
addition, under specified conditions, the Groups board of
directors may waive the application of the rights.
In 2005, the following transactions transpired related to
existing Alcan pension plans covering Novelis employees:
|
|
|
a) In the U.S., for Novelis employees previously
participating in the Alcancorp Pension Plan and the Alcan
Supplemental Executive Retirement Plan, Alcan agreed to
recognize up to one year of additional service in its plan as
long as such employee worked for Novelis and Novelis paid to
Alcan the normal cost (in the case of the Alcancorp Pension
Plan) and the current service cost (in the case of the Alcan
Supplemental Executive Retirement Plan). |
|
|
b) In the U.K., the sponsorship of the Alusuisse Holdings
U.K. Ltd Pension Plan was transferred from Alcan to Novelis. No
new plan was established. |
F-46
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The following plans were newly established in 2005 to replace
the Alcan pension plans that previously covered Novelis
employees (other Alcan pension plans covering Novelis employees
were assumed by Novelis):
Canada Pension Plan The Canada Plan provides
for pensions calculated on service (no cap) and eligible
earnings which consist of the average annual salary and the
short term incentive award up to its target during the
36 consecutive months when they were the greatest. The
normal form of payment of pensions is a lifetime annuity with
either a guaranteed minimum of 60 monthly payments or a 50%
lifetime pension to the surviving spouse.
Pension Plan for Officers The Pension Plan
for Officers (PPO) provides for pensions calculated on
service up to 20 years as an officer of Novelis or of
Alcan, and eligible earnings which consist of the excess of the
average annual salary and target short term incentive award
during the 60 consecutive months when they were the
greatest over eligible earnings in the U.S. Plan or the
U.K. Plan, as applicable. The normal form of payment of
pensions is a lifetime annuity. Pensions will not be subject to
any deduction for social security or other offset amounts.
|
|
28. |
SUPPLEMENTAL GUARANTOR INFORMATION
|
In connection with the issuance of the Companys senior
unsecured debt securities on February 3, 2005 (Senior
Notes), certain wholly-owned subsidiaries of the Company
provided guarantees of the Senior Notes. These guarantees are
full and unconditional as well as joint and several. The
guarantor subsidiaries (the Guarantors) comprise the majority of
the Companys businesses in Canada, the United States, the
United Kingdom, Brazil and Switzerland, as well as certain
Novelis businesses in Germany. Certain Guarantors may be subject
to certain 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 sets forth the condensed consolidating
statements of income and cash flows for the years ended
December 31, 2004, 2003 and 2002 and condensed
consolidating balance sheets of the Company as of
December 31, 2004 and December 31, 2003 of the Parent,
the Guarantors, and the Non-Guarantors on a combined basis.
Investments include investments in subsidiaries as well as
investments in net assets of divisions included in the Parent.
Investments in subsidiaries and divisional net assets have been
presented using the equity method of accounting. General
corporate expenses and stock option and other stock-based
compensation expenses allocated by Alcan Inc. to the Company
have also been included in the Parents information.
F-47
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
THE NOVELIS GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
Sales and operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
182 |
|
|
|
5,137 |
|
|
|
1,986 |
|
|
|
|
|
|
|
7,305 |
|
|
related parties
|
|
|
970 |
|
|
|
1,291 |
|
|
|
115 |
|
|
|
(1,926 |
) |
|
|
450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,152 |
|
|
|
6,428 |
|
|
|
2,101 |
|
|
|
(1,926 |
) |
|
|
7,755 |
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and operating expense, excluding depreciation and
amortization noted below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
135 |
|
|
|
4,471 |
|
|
|
1,847 |
|
|
|
|
|
|
|
6,453 |
|
|
related parties
|
|
|
971 |
|
|
|
1,250 |
|
|
|
108 |
|
|
|
(1,926 |
) |
|
|
403 |
|
Depreciation and amortization
|
|
|
10 |
|
|
|
165 |
|
|
|
71 |
|
|
|
|
|
|
|
246 |
|
Selling, general and administrative expenses
|
|
|
44 |
|
|
|
167 |
|
|
|
57 |
|
|
|
|
|
|
|
268 |
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
related parties
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
38 |
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
21 |
|
|
|
20 |
|
|
|
|
|
|
|
41 |
|
|
related parties
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
33 |
|
Other expense (income) net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
5 |
|
|
|
6 |
|
|
|
73 |
|
|
|
|
|
|
|
84 |
|
|
related parties
|
|
|
3 |
|
|
|
(54 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,168 |
|
|
|
6,117 |
|
|
|
2,171 |
|
|
|
(1,926 |
) |
|
|
7,530 |
|
Income (loss) before income taxes and other items
|
|
|
(16 |
) |
|
|
311 |
|
|
|
(70 |
) |
|
|
|
|
|
|
225 |
|
Income taxes
|
|
|
11 |
|
|
|
153 |
|
|
|
2 |
|
|
|
|
|
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before other items
|
|
|
(27 |
) |
|
|
158 |
|
|
|
(72 |
) |
|
|
|
|
|
|
59 |
|
Equity income
|
|
|
82 |
|
|
|
6 |
|
|
|
|
|
|
|
(82 |
) |
|
|
6 |
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
55 |
|
|
|
164 |
|
|
|
(82 |
) |
|
|
(82 |
) |
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-48
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
THE NOVELIS GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
Sales and operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
212 |
|
|
|
4,320 |
|
|
|
1,217 |
|
|
|
|
|
|
|
5,749 |
|
|
related parties
|
|
|
707 |
|
|
|
1,179 |
|
|
|
36 |
|
|
|
(1,450 |
) |
|
|
472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
919 |
|
|
|
5,499 |
|
|
|
1,253 |
|
|
|
(1,450 |
) |
|
|
6,221 |
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and operating expense, excluding depreciation and
amortization noted below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
169 |
|
|
|
3,761 |
|
|
|
1,116 |
|
|
|
|
|
|
|
5,046 |
|
|
related parties
|
|
|
709 |
|
|
|
1,138 |
|
|
|
39 |
|
|
|
(1,450 |
) |
|
|
436 |
|
Depreciation and amortization
|
|
|
10 |
|
|
|
158 |
|
|
|
54 |
|
|
|
|
|
|
|
222 |
|
Selling, general and administrative expenses
|
|
|
55 |
|
|
|
114 |
|
|
|
42 |
|
|
|
|
|
|
|
211 |
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
related parties
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
44 |
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
5 |
|
|
|
16 |
|
|
|
|
|
|
|
21 |
|
|
related parties
|
|
|
|
|
|
|
17 |
|
|
|
2 |
|
|
|
|
|
|
|
19 |
|
Other expense (income) net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
11 |
|
|
|
111 |
|
|
|
(38 |
) |
|
|
|
|
|
|
84 |
|
|
related parties
|
|
|
(20 |
) |
|
|
(66 |
) |
|
|
2 |
|
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
934 |
|
|
|
5,300 |
|
|
|
1,233 |
|
|
|
(1,450 |
) |
|
|
6,017 |
|
Income (loss) before income taxes and other items
|
|
|
(15 |
) |
|
|
199 |
|
|
|
20 |
|
|
|
|
|
|
|
204 |
|
Income taxes (benefit)
|
|
|
(7 |
) |
|
|
66 |
|
|
|
(9 |
) |
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before other items
|
|
|
(8 |
) |
|
|
133 |
|
|
|
29 |
|
|
|
|
|
|
|
154 |
|
Equity income
|
|
|
165 |
|
|
|
6 |
|
|
|
|
|
|
|
(165 |
) |
|
|
6 |
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
157 |
|
|
|
139 |
|
|
|
26 |
|
|
|
(165 |
) |
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-49
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
THE NOVELIS GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
Sales and operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
145 |
|
|
|
4,295 |
|
|
|
1,016 |
|
|
|
|
|
|
|
5,456 |
|
|
related parties
|
|
|
705 |
|
|
|
1,047 |
|
|
|
82 |
|
|
|
(1,397 |
) |
|
|
437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
850 |
|
|
|
5,342 |
|
|
|
1,098 |
|
|
|
(1,397 |
) |
|
|
5,893 |
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and operating expense, excluding depreciation and
amortization noted below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
111 |
|
|
|
3,752 |
|
|
|
934 |
|
|
|
|
|
|
|
4,797 |
|
|
related parties
|
|
|
706 |
|
|
|
1,018 |
|
|
|
84 |
|
|
|
(1,397 |
) |
|
|
411 |
|
Depreciation and amortization
|
|
|
10 |
|
|
|
148 |
|
|
|
53 |
|
|
|
|
|
|
|
211 |
|
Selling, general and administrative expenses
|
|
|
35 |
|
|
|
113 |
|
|
|
35 |
|
|
|
|
|
|
|
183 |
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
related parties
|
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
49 |
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
4 |
|
|
|
16 |
|
|
|
|
|
|
|
20 |
|
|
related parties
|
|
|
|
|
|
|
21 |
|
|
|
1 |
|
|
|
|
|
|
|
22 |
|
Other expense (income) net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1 |
|
|
|
(1 |
) |
|
|
24 |
|
|
|
|
|
|
|
24 |
|
|
related parties
|
|
|
1 |
|
|
|
13 |
|
|
|
8 |
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
864 |
|
|
|
5,135 |
|
|
|
1,155 |
|
|
|
(1,397 |
) |
|
|
5,757 |
|
Income (loss) before income taxes and other items
|
|
|
(14 |
) |
|
|
207 |
|
|
|
(57 |
) |
|
|
|
|
|
|
136 |
|
Income taxes (benefit)
|
|
|
(7 |
) |
|
|
80 |
|
|
|
4 |
|
|
|
|
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before other items
|
|
|
(7 |
) |
|
|
127 |
|
|
|
(61 |
) |
|
|
|
|
|
|
59 |
|
Equity income (loss)
|
|
|
(2 |
) |
|
|
8 |
|
|
|
|
|
|
|
2 |
|
|
|
8 |
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of accounting change
|
|
|
(9 |
) |
|
|
135 |
|
|
|
(53 |
) |
|
|
2 |
|
|
|
75 |
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(9 |
) |
|
|
51 |
|
|
|
(53 |
) |
|
|
2 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-50
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
THE NOVELIS GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and time deposits
|
|
|
|
|
|
|
12 |
|
|
|
19 |
|
|
|
|
|
|
|
31 |
|
Trade receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1 |
|
|
|
399 |
|
|
|
310 |
|
|
|
|
|
|
|
710 |
|
|
related parties
|
|
|
84 |
|
|
|
156 |
|
|
|
7 |
|
|
|
(160 |
) |
|
|
87 |
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
2 |
|
|
|
70 |
|
|
|
46 |
|
|
|
|
|
|
|
118 |
|
|
related parties
|
|
|
45 |
|
|
|
849 |
|
|
|
30 |
|
|
|
(78 |
) |
|
|
846 |
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum
|
|
|
44 |
|
|
|
705 |
|
|
|
332 |
|
|
|
|
|
|
|
1,081 |
|
|
Raw materials
|
|
|
|
|
|
|
18 |
|
|
|
2 |
|
|
|
|
|
|
|
20 |
|
|
Other supplies
|
|
|
6 |
|
|
|
78 |
|
|
|
41 |
|
|
|
|
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
801 |
|
|
|
375 |
|
|
|
|
|
|
|
1,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
182 |
|
|
|
2,287 |
|
|
|
787 |
|
|
|
(238 |
) |
|
|
3,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges and other assets
|
|
|
|
|
|
|
32 |
|
|
|
39 |
|
|
|
|
|
|
|
71 |
|
Investments
|
|
|
1,242 |
|
|
|
168 |
|
|
|
|
|
|
|
(1,288 |
) |
|
|
122 |
|
Long-term receivables from related parties
|
|
|
210 |
|
|
|
104 |
|
|
|
|
|
|
|
(210 |
) |
|
|
104 |
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
273 |
|
|
|
3,883 |
|
|
|
1,350 |
|
|
|
|
|
|
|
5,506 |
|
|
Construction work in progress
|
|
|
6 |
|
|
|
76 |
|
|
|
30 |
|
|
|
|
|
|
|
112 |
|
|
Accumulated depreciation
|
|
|
(167 |
) |
|
|
(2,554 |
) |
|
|
(549 |
) |
|
|
|
|
|
|
(3,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112 |
|
|
|
1,405 |
|
|
|
831 |
|
|
|
|
|
|
|
2,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
|
|
31 |
|
|
|
4 |
|
|
|
|
|
|
|
35 |
|
Goodwill
|
|
|
|
|
|
|
28 |
|
|
|
228 |
|
|
|
|
|
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
1,746 |
|
|
|
4,055 |
|
|
|
1,889 |
|
|
|
(1,736 |
) |
|
|
5,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND INVESTED EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables and accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
22 |
|
|
|
378 |
|
|
|
459 |
|
|
|
|
|
|
|
859 |
|
|
related parties
|
|
|
79 |
|
|
|
429 |
|
|
|
60 |
|
|
|
(167 |
) |
|
|
401 |
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
122 |
|
|
|
107 |
|
|
|
|
|
|
|
229 |
|
|
related parties
|
|
|
|
|
|
|
231 |
|
|
|
152 |
|
|
|
(71 |
) |
|
|
312 |
|
Debt maturing within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
related parties
|
|
|
290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
391 |
|
|
|
1,160 |
|
|
|
779 |
|
|
|
(238 |
) |
|
|
2,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt not maturing within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
|
|
|
|
139 |
|
|
|
|
|
|
|
139 |
|
|
related parties
|
|
|
749 |
|
|
|
1,751 |
|
|
|
17 |
|
|
|
(210 |
) |
|
|
2,307 |
|
Deferred credits and other liabilities
|
|
|
8 |
|
|
|
373 |
|
|
|
91 |
|
|
|
|
|
|
|
472 |
|
Deferred income taxes
|
|
|
43 |
|
|
|
183 |
|
|
|
23 |
|
|
|
|
|
|
|
249 |
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
140 |
|
Invested equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners net investment
|
|
|
467 |
|
|
|
529 |
|
|
|
671 |
|
|
|
(1,200 |
) |
|
|
467 |
|
Accumulated other comprehensive income
|
|
|
88 |
|
|
|
59 |
|
|
|
29 |
|
|
|
(88 |
) |
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
555 |
|
|
|
588 |
|
|
|
700 |
|
|
|
(1,288 |
) |
|
|
555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and invested equity
|
|
|
1,746 |
|
|
|
4,055 |
|
|
|
1,889 |
|
|
|
(1,736 |
) |
|
|
5,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-51
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
THE NOVELIS GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and time deposits
|
|
|
|
|
|
|
8 |
|
|
|
19 |
|
|
|
|
|
|
|
27 |
|
Trade receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
263 |
|
|
|
295 |
|
|
|
|
|
|
|
558 |
|
|
related parties
|
|
|
59 |
|
|
|
228 |
|
|
|
7 |
|
|
|
(131 |
) |
|
|
163 |
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1 |
|
|
|
64 |
|
|
|
32 |
|
|
|
|
|
|
|
97 |
|
|
related parties
|
|
|
21 |
|
|
|
1,202 |
|
|
|
31 |
|
|
|
(87 |
) |
|
|
1,167 |
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum
|
|
|
31 |
|
|
|
558 |
|
|
|
278 |
|
|
|
|
|
|
|
867 |
|
|
Raw materials
|
|
|
|
|
|
|
13 |
|
|
|
1 |
|
|
|
|
|
|
|
14 |
|
|
Other supplies
|
|
|
5 |
|
|
|
82 |
|
|
|
12 |
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36 |
|
|
|
653 |
|
|
|
291 |
|
|
|
|
|
|
|
980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
117 |
|
|
|
2,418 |
|
|
|
675 |
|
|
|
(218 |
) |
|
|
2,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges and other assets
|
|
|
|
|
|
|
85 |
|
|
|
2 |
|
|
|
|
|
|
|
87 |
|
Investments
|
|
|
1,844 |
|
|
|
154 |
|
|
|
|
|
|
|
(1,889 |
) |
|
|
109 |
|
Long-term receivables from related parties
|
|
|
|
|
|
|
614 |
|
|
|
|
|
|
|
|
|
|
|
614 |
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
270 |
|
|
|
3,776 |
|
|
|
1,172 |
|
|
|
|
|
|
|
5,218 |
|
|
Construction work in progress
|
|
|
5 |
|
|
|
66 |
|
|
|
58 |
|
|
|
|
|
|
|
129 |
|
|
Accumulated depreciation
|
|
|
(159 |
) |
|
|
(2,397 |
) |
|
|
(372 |
) |
|
|
|
|
|
|
(2,928 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116 |
|
|
|
1,445 |
|
|
|
858 |
|
|
|
|
|
|
|
2,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
26 |
|
Goodwill
|
|
|
|
|
|
|
24 |
|
|
|
45 |
|
|
|
|
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2,077 |
|
|
|
4,766 |
|
|
|
1,580 |
|
|
|
(2,107 |
) |
|
|
6,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND INVESTED EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables and accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
19 |
|
|
|
404 |
|
|
|
379 |
|
|
|
|
|
|
|
802 |
|
|
related parties
|
|
|
58 |
|
|
|
328 |
|
|
|
31 |
|
|
|
(131 |
) |
|
|
286 |
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
670 |
|
|
|
230 |
|
|
|
|
|
|
|
900 |
|
|
related parties
|
|
|
|
|
|
|
64 |
|
|
|
87 |
|
|
|
(87 |
) |
|
|
64 |
|
Debt maturing within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
80 |
|
|
|
52 |
|
|
|
|
|
|
|
132 |
|
|
related parties
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
77 |
|
|
|
1,556 |
|
|
|
779 |
|
|
|
(218 |
) |
|
|
2,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt not maturing within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
500 |
|
|
|
6 |
|
|
|
|
|
|
|
506 |
|
|
related parties
|
|
|
|
|
|
|
989 |
|
|
|
22 |
|
|
|
|
|
|
|
1,011 |
|
Deferred credits and other liabilities
|
|
|
5 |
|
|
|
323 |
|
|
|
34 |
|
|
|
|
|
|
|
362 |
|
Deferred income taxes
|
|
|
21 |
|
|
|
113 |
|
|
|
18 |
|
|
|
|
|
|
|
152 |
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
117 |
|
|
|
|
|
|
|
117 |
|
Invested equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners net investment
|
|
|
1,890 |
|
|
|
1,149 |
|
|
|
656 |
|
|
|
(1,805 |
) |
|
|
1,890 |
|
Accumulated other comprehensive income
|
|
|
84 |
|
|
|
136 |
|
|
|
(52 |
) |
|
|
(84 |
) |
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,974 |
|
|
|
1,285 |
|
|
|
604 |
|
|
|
(1,889 |
) |
|
|
1,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and invested equity
|
|
|
2,077 |
|
|
|
4,766 |
|
|
|
1,580 |
|
|
|
(2,107 |
) |
|
|
6,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-52
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
THE NOVELIS GROUP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
Cash from (used for) Operating Activities
|
|
|
(60 |
) |
|
|
269 |
|
|
|
21 |
|
|
|
(6 |
) |
|
|
224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of new debt
|
|
|
1,039 |
|
|
|
1,173 |
|
|
|
134 |
|
|
|
(210 |
) |
|
|
2,136 |
|
Debt repayments
|
|
|
|
|
|
|
(935 |
) |
|
|
(63 |
) |
|
|
|
|
|
|
(998 |
) |
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
(614 |
) |
|
|
(160 |
) |
|
|
|
|
|
|
(774 |
) |
|
related parties
|
|
|
|
|
|
|
166 |
|
|
|
78 |
|
|
|
(23 |
) |
|
|
221 |
|
Issuance of preference shares
|
|
|
|
|
|
|
(32 |
) |
|
|
32 |
|
|
|
|
|
|
|
|
|
Dividends minority interest
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
6 |
|
|
|
(4 |
) |
Net payments from (to) Alcan
|
|
|
(714 |
) |
|
|
(828 |
) |
|
|
30 |
|
|
|
|
|
|
|
(1,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from (used for) financing activities
|
|
|
325 |
|
|
|
(1,070 |
) |
|
|
41 |
|
|
|
(227 |
) |
|
|
(931 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(6 |
) |
|
|
(93 |
) |
|
|
(66 |
) |
|
|
|
|
|
|
(165 |
) |
Business acquisitions, net of cash and time deposits acquired
|
|
|
|
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Proceeds from disposal of businesses, investments and other
assets, net of cash
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Change in loans receivable related parties
|
|
|
(259 |
) |
|
|
895 |
|
|
|
5 |
|
|
|
233 |
|
|
|
874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from (used for) investment activities
|
|
|
(265 |
) |
|
|
804 |
|
|
|
(62 |
) |
|
|
233 |
|
|
|
710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and time deposits
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and time deposits
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Cash and time deposits beginning of year
|
|
|
|
|
|
|
8 |
|
|
|
19 |
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and time deposits end of year
|
|
|
|
|
|
|
12 |
|
|
|
19 |
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-53
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
THE NOVELIS GROUP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
Cash from Operating Activities
|
|
|
107 |
|
|
|
65 |
|
|
|
213 |
|
|
|
59 |
|
|
|
444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of new debt
|
|
|
|
|
|
|
971 |
|
|
|
|
|
|
|
|
|
|
|
971 |
|
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
621 |
|
|
|
(44 |
) |
|
|
|
|
|
|
577 |
|
|
related parties
|
|
|
(77 |
) |
|
|
52 |
|
|
|
8 |
|
|
|
(12 |
) |
|
|
(29 |
) |
Net payments to Alcan
|
|
|
(58 |
) |
|
|
(359 |
) |
|
|
(126 |
) |
|
|
(49 |
) |
|
|
(592 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from (used for) financing activities
|
|
|
(135 |
) |
|
|
1,285 |
|
|
|
(162 |
) |
|
|
(61 |
) |
|
|
927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(7 |
) |
|
|
(147 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
(189 |
) |
Business acquisitions, net of cash and time deposits acquired
|
|
|
|
|
|
|
8 |
|
|
|
(9 |
) |
|
|
(10 |
) |
|
|
(11 |
) |
Proceeds from disposal of businesses, investments and other
assets, net of cash
|
|
|
|
|
|
|
8 |
|
|
|
25 |
|
|
|
|
|
|
|
33 |
|
Change in loans receivable related parties
|
|
|
35 |
|
|
|
(1,229 |
) |
|
|
(28 |
) |
|
|
12 |
|
|
|
(1,210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from (used for) investment activities
|
|
|
28 |
|
|
|
(1,360 |
) |
|
|
(47 |
) |
|
|
2 |
|
|
|
(1,377 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and time deposits
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in cash and time deposits
|
|
|
|
|
|
|
(8 |
) |
|
|
4 |
|
|
|
|
|
|
|
(4 |
) |
Cash and time deposits beginning of year
|
|
|
|
|
|
|
16 |
|
|
|
15 |
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and time deposits end of year
|
|
|
|
|
|
|
8 |
|
|
|
19 |
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-54
The Novelis Group
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
THE NOVELIS GROUP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
Cash from (used for) Operating Activities
|
|
|
(14 |
) |
|
|
212 |
|
|
|
212 |
|
|
|
|
|
|
|
410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of new debt
|
|
|
|
|
|
|
80 |
|
|
|
25 |
|
|
|
|
|
|
|
105 |
|
Debt repayments
|
|
|
40 |
|
|
|
(41 |
) |
|
|
(49 |
) |
|
|
|
|
|
|
(50 |
) |
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
(22 |
) |
|
|
(53 |
) |
|
|
|
|
|
|
(75 |
) |
|
related parties
|
|
|
42 |
|
|
|
(91 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
(66 |
) |
Dividends minority interest
|
|
|
|
|
|
|
2 |
|
|
|
(4 |
) |
|
|
|
|
|
|
(2 |
) |
Net payments to Alcan
|
|
|
(49 |
) |
|
|
(9 |
) |
|
|
(95 |
) |
|
|
|
|
|
|
(153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from (used for) financing activities
|
|
|
33 |
|
|
|
(81 |
) |
|
|
(193 |
) |
|
|
|
|
|
|
(241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(5 |
) |
|
|
(135 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
(179 |
) |
Proceeds from disposal of businesses, investments and other
assets, net of cash
|
|
|
|
|
|
|
5 |
|
|
|
19 |
|
|
|
|
|
|
|
24 |
|
Change in loans receivable related parties
|
|
|
(14 |
) |
|
|
9 |
|
|
|
3 |
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from (used for) investment activities
|
|
|
(19 |
) |
|
|
(121 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
(157 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and time deposits
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and time deposits
|
|
|
|
|
|
|
12 |
|
|
|
2 |
|
|
|
|
|
|
|
14 |
|
Cash and time deposits beginning of year
|
|
|
|
|
|
|
4 |
|
|
|
13 |
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and time deposits end of year
|
|
|
|
|
|
|
16 |
|
|
|
15 |
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-55
The Novelis Group
QUARTERLY FINANCIAL DATA
(In millions of US$, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
|
1,810 |
|
|
|
1,929 |
|
|
|
2,000 |
|
|
|
2,016 |
|
|
|
7,755 |
|
Cost of sales and operating expenses
|
|
|
1,585 |
|
|
|
1,690 |
|
|
|
1,757 |
|
|
|
1,824 |
|
|
|
6,856 |
|
Depreciation and amortization
|
|
|
61 |
|
|
|
57 |
|
|
|
60 |
|
|
|
68 |
|
|
|
246 |
|
Income taxes
|
|
|
43 |
|
|
|
23 |
|
|
|
45 |
|
|
|
55 |
|
|
|
166 |
|
Other items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS No. 133 impact
|
|
|
(41 |
) |
|
|
26 |
|
|
|
(22 |
) |
|
|
(32 |
) |
|
|
(69 |
) |
|
Other
|
|
|
93 |
|
|
|
88 |
|
|
|
126 |
|
|
|
194 |
|
|
|
501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (Loss)
|
|
|
69 |
|
|
|
45 |
|
|
|
34 |
|
|
|
(93 |
) |
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.93 |
|
|
|
0.61 |
|
|
|
0.47 |
|
|
|
(1.26 |
) |
|
|
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
0.92 |
|
|
|
0.61 |
|
|
|
0.46 |
|
|
|
(1.26 |
) |
|
|
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
|
1,519 |
|
|
|
1,634 |
|
|
|
1,532 |
|
|
|
1,536 |
|
|
|
6,221 |
|
Cost of sales and operating expenses
|
|
|
1,339 |
|
|
|
1,433 |
|
|
|
1,348 |
|
|
|
1,362 |
|
|
|
5,482 |
|
Depreciation and amortization
|
|
|
54 |
|
|
|
56 |
|
|
|
56 |
|
|
|
56 |
|
|
|
222 |
|
Income taxes
|
|
|
28 |
|
|
|
16 |
|
|
|
28 |
|
|
|
(22 |
) |
|
|
50 |
|
Other items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS No. 133 impact
|
|
|
9 |
|
|
|
(10 |
) |
|
|
(16 |
) |
|
|
(3 |
) |
|
|
(20 |
) |
|
Other
|
|
|
84 |
|
|
|
69 |
|
|
|
88 |
|
|
|
89 |
|
|
|
330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
5 |
|
|
|
70 |
|
|
|
28 |
|
|
|
54 |
|
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.07 |
|
|
|
0.94 |
|
|
|
0.38 |
|
|
|
0.73 |
|
|
|
2.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
0.07 |
|
|
|
0.93 |
|
|
|
0.38 |
|
|
|
0.72 |
|
|
|
2.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-56
Novelis, Inc.
INDEX TO UNAUDITED INTERIM CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
F-57
Novelis Inc.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME (unaudited)
(in millions of US$, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30 |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
4,291 |
|
|
|
3,523 |
|
|
related parties (NOTE 7)
|
|
|
|
|
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
4,291 |
|
|
|
3,739 |
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
Cost of sales and operating expenses, excluding depreciation and
amortization noted below
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
3,852 |
|
|
|
3,083 |
|
|
related parties (NOTE 7)
|
|
|
|
|
|
|
192 |
|
Depreciation and amortization
|
|
|
115 |
|
|
|
118 |
|
Selling, administrative and general expenses
|
|
|
152 |
|
|
|
110 |
|
Research and development expenses
|
|
|
19 |
|
|
|
10 |
|
Research and development expenses related parties
(NOTE 7)
|
|
|
|
|
|
|
18 |
|
Interest
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
94 |
|
|
|
21 |
|
|
related parties (NOTE 7)
|
|
|
|
|
|
|
17 |
|
Other expenses (income) net (NOTE 9)
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(3 |
) |
|
|
8 |
|
|
related parties (NOTE 7)
|
|
|
|
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
4,229 |
|
|
|
3,555 |
|
|
|
|
|
|
|
|
Income before income taxes and other items
|
|
|
62 |
|
|
|
184 |
|
Income taxes (NOTE 6)
|
|
|
44 |
|
|
|
66 |
|
|
|
|
|
|
|
|
Income (loss) before other items
|
|
|
18 |
|
|
|
118 |
|
Equity income
|
|
|
4 |
|
|
|
3 |
|
Minority interests
|
|
|
(11 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
Net income
|
|
|
11 |
|
|
|
114 |
|
|
|
|
|
|
|
|
Earnings per share (NOTE 4)
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
|
0.15 |
|
|
|
1.54 |
|
Net income per share diluted
|
|
|
0.15 |
|
|
|
1.53 |
|
|
|
|
|
|
|
|
Dividends per common share
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information (NOTE 1)
|
|
|
|
|
|
|
|
|
Net income attributable to consolidated results of Novelis from
January 6 to June 30, 2005 increase (decrease)
to Retained earnings
|
|
|
41 |
|
|
|
|
|
Net loss attributable to combined results of Novelis from
January 1 to January 5, 2005 decrease to
Owners net investment
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-58
Novelis Inc.
CONSOLIDATED AND COMBINED BALANCE SHEETS
(in millions of US$, except number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
As at |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
(audited) |
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
129 |
|
|
|
31 |
|
Trade receivables (net of allowances of $32 in 2005 and $33 in
2004)
|
|
|
|
|
|
|
|
|
|
third parties (NOTE 8)
|
|
|
1,030 |
|
|
|
710 |
|
|
related parties (NOTES 7 and 8)
|
|
|
|
|
|
|
87 |
|
Other receivables
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
249 |
|
|
|
118 |
|
|
related parties (NOTE 7)
|
|
|
35 |
|
|
|
846 |
|
Inventories
|
|
|
|
|
|
|
|
|
|
Aluminum
|
|
|
962 |
|
|
|
1,081 |
|
|
Raw materials
|
|
|
18 |
|
|
|
20 |
|
|
Other supplies
|
|
|
142 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
1,122 |
|
|
|
1,226 |
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,565 |
|
|
|
3,018 |
|
|
|
|
|
|
|
|
Deferred charges and other assets
|
|
|
235 |
|
|
|
193 |
|
Long-term receivables from related parties (NOTE 7)
|
|
|
82 |
|
|
|
104 |
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
Cost (excluding Construction work in progress)
|
|
|
5,282 |
|
|
|
5,506 |
|
|
Construction work in progress
|
|
|
117 |
|
|
|
112 |
|
|
Accumulated depreciation
|
|
|
(3,218 |
) |
|
|
(3,270 |
) |
|
|
|
|
|
|
|
|
|
|
2,181 |
|
|
|
2,348 |
|
|
|
|
|
|
|
|
Intangible assets (net of accumulated amortization of $10 in
2005 and $9 in 2004)
|
|
|
30 |
|
|
|
35 |
|
Goodwill
|
|
|
248 |
|
|
|
256 |
|
|
|
|
|
|
|
|
Total assets
|
|
|
5,341 |
|
|
|
5,954 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-59
Novelis Inc.
CONSOLIDATED AND COMBINED BALANCE SHEETS
(in millions of US$, except number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
As at |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
(audited) |
|
LIABILITIES AND SHAREHOLDERS/ INVESTED EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Payables and accrued liabilities
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1,302 |
|
|
|
859 |
|
|
related parties (NOTE 7)
|
|
|
37 |
|
|
|
401 |
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
23 |
|
|
|
229 |
|
|
related parties (NOTE 7)
|
|
|
|
|
|
|
312 |
|
Debt maturing within one year (NOTE 10)
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
3 |
|
|
|
1 |
|
|
related parties (NOTE 7)
|
|
|
|
|
|
|
290 |
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,365 |
|
|
|
2,092 |
|
|
|
|
|
|
|
|
Debt not maturing within one year (NOTE 10)
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
2,757 |
|
|
|
139 |
|
|
related parties (NOTE 7)
|
|
|
|
|
|
|
2,307 |
|
Deferred credits and other liabilities
|
|
|
486 |
|
|
|
472 |
|
Deferred income taxes
|
|
|
198 |
|
|
|
249 |
|
Minority interests
|
|
|
144 |
|
|
|
140 |
|
Shareholders/ Invested equity
|
|
|
|
|
|
|
|
|
Common shares, no par value unlimited number of
shares authorized; issued and outstanding:
73,993,006 shares (NOTE 11)
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
434 |
|
|
|
|
|
Retained earnings
|
|
|
27 |
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
(70 |
) |
|
|
88 |
|
Owners net investment
|
|
|
|
|
|
|
467 |
|
|
|
|
|
|
|
|
|
|
|
391 |
|
|
|
555 |
|
|
|
|
|
|
|
|
Commitments and contingencies (NOTE 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders/invested equity
|
|
|
5,341 |
|
|
|
5,954 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-60
Novelis Inc.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
(In millions of US$)
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30 |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
|
11 |
|
|
|
114 |
|
Adjustments to determine cash from operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
115 |
|
|
|
118 |
|
|
Deferred income taxes
|
|
|
(17 |
) |
|
|
15 |
|
|
Equity income
|
|
|
(4 |
) |
|
|
(3 |
) |
|
Stock option compensation
|
|
|
1 |
|
|
|
1 |
|
|
Change in operating working capital
|
|
|
|
|
|
|
|
|
|
|
Change in receivables
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
62 |
|
|
|
(115 |
) |
|
|
|
related parties
|
|
|
|
|
|
|
(114 |
) |
|
|
Change in inventories
|
|
|
12 |
|
|
|
(135 |
) |
|
|
Change in payables and accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
131 |
|
|
|
141 |
|
|
|
|
related parties
|
|
|
(8 |
) |
|
|
125 |
|
|
Change in deferred charges and other assets
|
|
|
9 |
|
|
|
(22 |
) |
|
Change in deferred credits and other liabilities
|
|
|
(28 |
) |
|
|
2 |
|
|
Other net
|
|
|
4 |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
Cash from operating activities
|
|
|
288 |
|
|
|
99 |
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from issuance of new debt third parties
|
|
|
2,750 |
|
|
|
441 |
|
Debt repayments
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(1,633 |
) |
|
|
(28 |
) |
|
related parties
|
|
|
(1,180 |
) |
|
|
|
|
Short-term borrowings (repayments) net
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(468 |
) |
|
|
(129 |
) |
|
related parties
|
|
|
(74 |
) |
|
|
8 |
|
Dividends common shareholders
|
|
|
(14 |
) |
|
|
|
|
Dividends minority interests
|
|
|
(7 |
) |
|
|
(3 |
) |
Net receipts from (payments to) Alcan
|
|
|
104 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
Cash from (used for) financing activities
|
|
|
(522 |
) |
|
|
272 |
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(56 |
) |
|
|
(59 |
) |
Proceeds from disposal of businesses, investments and other
assets, net of cash
|
|
|
9 |
|
|
|
|
|
Change in long-term and other receivables
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
341 |
|
|
|
(311 |
) |
|
related parties
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash from (used for) investing activities
|
|
|
336 |
|
|
|
(370 |
) |
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
102 |
|
|
|
1 |
|
Effect of exchange rate changes on cash balances held in foreign
currencies
|
|
|
(4 |
) |
|
|
|
|
Cash and cash equivalents beginning of period
|
|
|
31 |
|
|
|
27 |
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
|
129 |
|
|
|
28 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the interim
financial statements.
F-61
Novelis Inc.
CONSOLIDATED AND COMBINED STATEMENTS OF SHAREHOLDERS/
INVESTED EQUITY (unaudited)
(In millions of US$, except number of shares which is in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
Common Shares |
|
|
Additional |
|
|
|
|
Comprehensive |
|
|
Owners |
|
|
|
|
|
|
|
|
Paid-in |
|
|
Retained |
|
|
Income |
|
|
Net |
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
(Loss) |
|
|
Investment |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
467 |
|
|
|
555 |
|
Net income six months ended June 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
(30 |
)(b) |
|
|
11 |
|
Other comprehensive loss (NOTE 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(158 |
) |
|
|
|
|
|
|
(158 |
) |
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
(7 |
) |
|
|
(21 |
) |
Transfer from Alcan net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
Issuance of common stock in connection with the distribution
|
|
|
73,989 |
|
|
|
|
|
|
|
434 |
(a) |
|
|
|
|
|
|
|
|
|
|
(434 |
) |
|
|
|
|
Issuance of common stock in connection with stock plans
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2005
|
|
|
73,993 |
|
|
|
|
|
|
|
434 |
|
|
|
27 |
|
|
|
(70 |
) |
|
|
|
|
|
|
391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the amount of Owners net investment after
transfers from Alcan net and the net loss from
January 1 to January 5, 2005 as well as other
post-transaction adjustments. |
|
|
|
(b) |
|
Refer to note 1 Background and Basis of
Presentation. |
|
The accompanying notes are an integral part of the financial
statements.
F-62
Novelis Inc.
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(unaudited)
(in millions of US$, except where indicated)
|
|
1. |
BACKGROUND AND BASIS OF PRESENTATION
|
On May 18, 2004, Alcan Inc. (Alcan) announced its intention
to separate its rolled products business into a separate company
and to pursue a spin-off of that business to its shareholders.
The rolled products businesses were managed under two separate
operating segments within Alcan; Rolled Products Americas and
Asia and Rolled Products Europe. Alcan and its subsidiaries
contributed and, on January 6, 2005, transferred to a new
public company, Novelis Inc. (the Company, Novelis, we, us or
our), substantially all of the aluminum rolled products
businesses operated by Alcan prior to its 2003 acquisition of
Pechiney, together with some of Alcans alumina and primary
metal-related businesses in Brazil, which are fully integrated
with the rolled products operations there, as well as four
former Pechiney rolling facilities in Europe, as their end-use
markets and customers are more similar to those of Novelis.
Novelis, which was formed in Canada on September 21, 2004,
acquired the abovementioned businesses on January 6, 2005,
through the reorganization transactions described above.
On January 6, 2005, the spin-off occurred following the
approval by Alcans Board of Directors and shareholders,
and the receipt of other required legal and regulatory
approvals. Alcan shareholders received one Novelis common share
for every five Alcan common shares held. Common shares of
Novelis began trading on a when issued basis on the
Toronto (TSX) and New York (NYSE) stock exchanges on
January 6, 2005, with a distribution record date of
January 11, 2005. Regular Way trading began on
the TSX on January 7, 2005, and on the NYSE on
January 19, 2005.
The Company together with its subsidiaries produces aluminum
sheet and light gauge products where the end-use destination of
the products includes the construction and industrial, beverage
and food cans, foil products and transportation markets. The
Company operates in four continents, North America, South
America, Asia and Europe through 36 operating plants and three
research facilities in 11 countries. In addition to aluminum
rolled products plants, the Companys South American
businesses include bauxite mining, aluminum refining and
smelting facilities that are integrated with the rolling plants
in Brazil.
In 2004 and prior years, Alcan was considered a related party
due to its parent-subsidiary relationship with the Novelis
entities. However, subsequent to the spin-off, Alcan is no
longer a related party as defined in Statement of Financial
Accounting Standards (SFAS) No. 57, Related Party
Disclosures. Refer to note 7 Related Party
Transactions.
|
|
|
Post-transaction adjustments
|
The agreements giving effect to the spin-off provide for various
post-transaction adjustments and the resolution of outstanding
matters, which are expected to be carried out by the parties by
the end of 2005. These adjustments, for the most part, will be
reflected as changes to shareholders equity and could
include items such as working capital, pension assets and
liabilities and adjustments to opening balance sheet accounts.
|
|
|
Agreements between Novelis and Alcan
|
Novelis has entered into various agreements with Alcan for the
use of transitional and technical services, the supply of
Alcans metal and alumina, the licensing of certain of
Alcans patents, trademarks and other intellectual property
rights, and the use of certain buildings, machinery and
equipment, technology and employees at certain facilities
retained by Alcan, but required in Noveliss business.
F-63
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
The consolidated and combined financial statements for the six
months ended June 30, 2005 include the results for the
period from January 1 to January 5, 2005 prior to the
Companys spin-off from Alcan, in addition to the results
for the period from January 6 to June 30, 2005, as
described below. The unaudited combined financial results for
the period from January 1 to January 5, 2005 represent the
operations and cash flows of the Novelis entities on a carve-out
basis. The unaudited consolidated results as at June 30,
2005 and for the period from January 6 (the date of the spin-off
from Alcan) to June 30, 2005 represent the operations, cash
flows and financial position of the Company as a stand-alone
entity.
All income earned and cash flows generated by the Novelis
entities as well as the risks and rewards of these businesses
from January 1 to January 5, 2005 were primarily attributed
to Novelis and are included in the unaudited consolidated
results for the period from January 6 to June 30, 2005,
with the exception of mark-to-market losses of $30 on derivative
contracts primarily with Alcan. These mark-to-market losses for
the period from January 1 to 5, 2005, were recorded in the
unaudited consolidated and combined statements of income for the
six months ended June 30, 2005, and are reflected as a
decrease in Owners net investment.
The historical combined financial statements as at
December 31, 2004 (audited) and for the six months
ended June 30, 2004 (unaudited) (hereafter, the
historical combined financial statements) have been
derived from the accounting records of Alcan using the
historical results of operations and historical basis of assets
and liabilities of the businesses subsequently transferred to
Novelis. Management believes the assumptions underlying the
historical combined financial statements, including the
allocations described below, are reasonable. However, the
historical combined financial statements included herein may not
necessarily reflect the Companys results of operations,
financial position and cash flows or what its results of
operations, financial position and cash flows would have been
had Novelis been a stand-alone company during the periods
presented. Alcans investment in the Novelis businesses,
presented as Owners net investment in the historical
combined financial statements, includes the accumulated earnings
of the businesses as well as cash transfers related to cash
management functions performed by Alcan.
In the opinion of management of the Company, the unaudited
consolidated and combined and historical combined financial
statements reflect all adjustments (including normal recurring
adjustments) necessary for a fair statement of the financial
position and the results of operations and cash flows in
accordance with accounting principles generally accepted in the
United States of America (U.S. GAAP), applied on a
consistent basis. The presentation of financial statements in
accordance with U.S. GAAP requires management to make
estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates. The results reported in these
unaudited consolidated and combined financial statements are not
necessarily indicative of the results that may be expected for
the entire year. This quarterly report on Form 10-Q should
be read in conjunction with Noveliss annual report on
Form 10-K for the year ended December 31, 2004, which
includes all disclosures required by U.S. GAAP.
As Novelis was not a stand-alone company and operated as a part
of Alcan prior to 2005, the historical combined financial
statements include allocations of certain Alcan expenses, assets
and liabilities, including the items described below.
|
|
|
General Corporate Expenses
|
Alcan allocated general corporate expenses to the Company based
on average head count and capital employed. Capital employed
represents Total assets less Payables and accrued liabilities
and Deferred
F-64
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
credits and other liabilities. These allocations are reflected
in Selling, general and administrative expenses in the
historical combined statements of income for the six months
ended June 30, 2004. The general corporate expense
allocations are primarily for human resources, legal, treasury,
insurance, finance, internal audit, strategy and public affairs
and amounted to $17 for the six months ended June 30, 2004.
Total corporate office costs, including the amounts allocated,
amounted to $20 for the six months ended June 30, 2004. The
costs allocated are not necessarily indicative of the costs that
would have been incurred if the Company had performed these
functions as a stand-alone company, nor are they indicative of
costs that will be charged or incurred in the future. Subsequent
to the spin-off, the Company performs the majority of these
functions using its own resources or purchased services;
however, for an interim period, certain services will continue
to be provided by Alcan. It is not practicable to estimate the
amount of expenses the Company would have incurred for the six
months ended June 30, 2004 had it been a stand-alone
entity, unaffiliated with Alcan.
|
|
|
Pensions and Post-Retirement Benefits
|
Prior to the spin-off, certain Novelis entities had pension
obligations mostly comprised of defined benefit plans in the
U.S. and the U.K., unfunded pension benefits in Germany and lump
sum indemnities payable upon retirement to employees of
businesses in France, Korea and Malaysia. These pension benefits
are managed separately and the related assets, liabilities and
costs are included in both the consolidated and combined and
historical combined financial statements.
Prior to the spin-off, Alcan managed defined benefit plans in
Canada, the U.S., the U.K. and Switzerland that include some of
the entities of the Company. The Companys share of these
plans assets and liabilities is not included in the
historical combined balance sheet as at December 31, 2004.
The historical combined statements of income for the six months
ended June 30, 2004, however, include an allocation of the
costs of the plans that varies depending on whether the entity
was a subsidiary or a division of Alcan at that time. Pension
costs of divisions of Alcan that were transferred to Novelis
were allocated based on the following methods: service costs
were allocated based on a percentage of payroll costs; interest
costs, the expected return on assets, and amortization of
actuarial gains and losses were allocated based on a percentage
of the projected benefit obligation (PBO); and prior service
costs were allocated based on headcount. The total allocation of
such pension costs amounted to $6 for the six months ended
June 30, 2004. Pension costs of subsidiaries of Alcan that
were transferred to Novelis were accounted for on the same basis
as a multi-employer pension plan whereby the subsidiaries
contributions for the period were recognized as net periodic
pension cost. There were no contributions by the subsidiaries
for the six months ended June 30, 2004.
Prior to the spin-off, Alcan provided post-retirement benefits
in the form of unfunded healthcare and life insurance benefits
to retired employees in Canada and the U.S. that include
retired employees of some of the Companys businesses. The
Companys share of these plans liabilities is
included in the historical combined balance sheet as at
December 31, 2004 and the Companys share of these
plans costs is included in the historical combined
statement of income for the six months ended June 30, 2004.
Subsequent to the spin-off, certain changes were made to the
Alcan plans covering Novelis employees and new pension plans
were also established by Novelis, as described in
note 17 Post-Retirement Benefits. Refer to
note 2 Accounting Policies for the
Companys accounting policies related to the new pension
plans.
F-65
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
Income taxes for 2004 were calculated as if all of the
Companys operations had been separate tax paying legal
entities, each filing a separate tax return in its local tax
jurisdiction. For jurisdictions where there was no tax sharing
agreement, amounts currently payable were included in
Owners net investment.
Cash and cash equivalents in the historical combined balance
sheet as at December 31, 2004 are comprised of the cash and
cash equivalents of the Companys businesses, primarily in
South America, Asia and parts of Europe, that perform their own
cash management functions. Historically, Alcan performed cash
management functions on behalf of certain of the Companys
businesses primarily in North America, the United Kingdom, and
parts of Europe. Cash deposits from these businesses were
transferred to Alcan on a regular basis. As a result, none of
Alcans cash and cash equivalents were allocated to the
Company in the historical combined financial statements.
Transfers to and from Alcan were netted against Owners net
investment. Subsequent to the spin-off, the Company is
responsible for its own cash management functions.
The Company obtains short and long-term financing from third
parties and prior to the spin-off, from related parties.
Interest is charged on all short and long-term debt and is
included in Interest in both the consolidated and combined and
historical combined statements of income.
Historically, Alcan provided certain financing to the Novelis
entities and incurred third party debt at the parent level. This
financing is reflected in the historical combined balance sheet
as at December 31, 2004 within the amounts due to Alcan and
is interest-bearing as described in note 7
Related Party Transactions. As a result of this arrangement, the
historical combined financial statements for the six months
ended June 30, 2004 do not include an allocation of
additional interest expense. The Companys interest expense
as a stand-alone company is higher than reflected in the
historical combined statements of income for the six months
ended June 30, 2004.
The Company primarily enters into derivative contracts to manage
a portion of its foreign exchange, commodity and interest rate
risks. These contracts are reported at their fair value on the
balance sheet. Changes in the fair value of these contracts are
recorded in the statement of income, included in Other expenses
(income) net.
Stock option expense and other stock-based compensation expense
in the historical combined statements of income include the
Alcan expenses related to the fair value of awards held by
certain employees of Alcans Rolled Products businesses
during the periods presented as well as an allocation,
calculated based on the average of headcount and capital
employed, for Alcans corporate office employees. These
expenses are not necessarily indicative of what the expenses
would have been had the Company been a separate stand-alone
entity in 2004.
F-66
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
Prior to the spin-off, the Company was not a separate legal
entity with common shares outstanding. Earnings per share for
2004 have been presented using the Novelis common shares
outstanding immediately after completion of the spin-off on
January 6, 2005.
The consolidated and combined financial statements (audited
December 31, 2004, unaudited for all other periods) are
based upon accounting policies and methods of their application
consistent with those used and described in the Companys
annual financial statements as contained in the most recent
annual report, except for the accounting policies described
below and the recently adopted accounting policies described in
note 3 Accounting Changes. Certain
reclassifications have been made to prior period amounts to
conform to the current period presentation. These financial
statements should be read in conjunction with the Companys
2004 Annual Report on Form 10-K filed on March 30,
2005.
|
|
|
Principles of Consolidation
|
The unaudited consolidated and combined financial statements
include the accounts of subsidiaries that are controlled by
Novelis, all of which are majority owned, as well as a variable
interest entity, in which the Company is the primary
beneficiary. Investments in entities over which Novelis has
significant influence are accounted for using the equity method.
Under the equity method, Noveliss investment is increased
or decreased by Noveliss share of the undistributed net
income or loss and deferred translation adjustments since
acquisition. Investments in joint ventures over which Novelis
has an undivided interest in the assets and liabilities are
consolidated to the extent of Noveliss ownership or
participation in the assets and liabilities. All other
investments in joint ventures are accounted for using the equity
method. Other investments are accounted for using the cost
method. Under the cost method, dividends received are recorded
as income. Cost investments for which there is an active market
are accounted for as available-for-sale. Intercompany balances
and transactions, including profits in inventories, are
eliminated in the consolidated and combined financial statements.
Debt issuance costs related to the Credit Facility are recorded
in Deferred charges and other assets and amortized over the life
of the related borrowing in Interest, using the effective
interest amortization method.
Declaration of dividends will depend on, among other things, the
Companys financial resources, cash flows generated by its
business, cash requirements, restrictions under the instruments
governing its indebtedness and other relevant factors.
|
|
|
Pensions and Post-Retirement Benefits
|
Using appropriate actuarial methods and assumptions, the
Companys defined benefit pension plans are accounted for
in accordance with SFAS No. 87, Employers
Accounting for Pensions. Other post-retirement benefits are
accounted for in accordance with SFAS No. 106,
Employers Accounting for Post-Retirement Benefits Other
than Pensions. Pension and post-retirement benefit obligations
are actuarially calculated using managements best
estimates and based on expected service period, salary increases
and
F-67
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
retirement ages of employees. Pension and post-retirement
benefit expense includes the actuarially computed cost of
benefits earned during the current service period, the interest
cost on accrued obligations, the expected return on plan assets
based on fair market value and the straight-line amortization of
net actuarial gains and losses and adjustments due to plan
amendments. All net actuarial gains and losses are amortized
over the expected average remaining service life of the
employees.
|
|
|
Recently Issued Accounting Standards
|
|
|
|
Conditional Asset Retirement Obligations
|
In March 2005, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 47 (FIN 47),
Accounting for Conditional Asset Retirement Obligations.
FIN 47 clarifies that the term conditional asset
retirement obligation used in SFAS No. 143,
Accounting for Asset Retirement Obligations, refers to a legal
obligation to perform an asset retirement activity in which the
timing and/or method of settlement are conditional on a future
event that may or may not be within the control of the entity.
According to FIN 47, uncertainty about the timing and/or
method of settlement of a conditional asset retirement
obligation should be factored into the measurement of a
liability when sufficient information exists. This
interpretation is effective no later than the end of fiscal
years ending after December 15, 2005. Retrospective
application of interim financial information is permitted but
not required. The Company expects to adopt the provisions of
FIN 47 in the fourth quarter 2005 as required, and is
currently assessing the impact of its adoption.
In December 2004, the FASB issued SFAS No. 123
(Revised 2004), Share-Based Payment (SFAS No. 123(R)),
which is a revision to SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123(R) requires all
share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements
based on their fair values. The Company will adopt
SFAS No. 123(R) on January 1, 2006, as required
by the Securities and Exchange Commission. The Company adopted
the fair value based method of accounting for share-based
payments effective January 1, 2004 using the retroactive
restatement method described in SFAS No. 148,
Accounting for Stock-Based Compensation Transition
and Disclosure. Currently, the Company uses the Black-Scholes
valuation model to estimate the value of stock options granted
to employees. The Company is currently assessing the impact of
adoption of SFAS 123(R).
|
|
|
Stock Options and Other Stock-Based Compensation
|
Effective January 1, 2004, Alcan retroactively adopted the
fair value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation for stock options
granted to employees. Both the consolidated and combined and
historical combined financial statements include the
compensation cost for options granted to certain employees of
the Company. In addition, the historical combined financial
statements include an allocation for Alcans corporate
office employees. Beginning January 1, 1999, all periods
were restated to reflect compensation cost as if the fair value
method had been applied for awards issued to these employees
after January 1, 1995. The Company applies the fair value
recognition provisions of SFAS No. 123 to its new
stock option plans as described in note 12
Stock Options and Other Stock-Based Compensation.
F-68
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
|
|
|
Consolidation of Variable Interest Entities
|
The Company adopted FASB Interpretation No. 46 (revised
December 2003) (FIN 46(R)), Consolidation of Variable
Interest Entities. In 2004, the Company determined it was the
primary beneficiary of Logan Aluminum Inc. (Logan), a variable
interest entity. As a result, both the consolidated and combined
and historical combined balance sheets include the assets and
liabilities of Logan. Logan is a joint venture that manages a
tolling arrangement for the Company and an unrelated party. At
the date of adoption of FIN 46(R), assets of $38 and
liabilities of $38 related to Logan that were previously not
recorded on the balance sheet were recorded by the Company.
Prior periods were not restated.
The Companys investment, plus any unfunded pension
liability related to Logan totaled approximately $37 and
represented the Companys maximum exposure to loss.
Creditors of Logan do not have recourse to the general credit of
the Company as a result of including it in the Companys
financial statements.
The treasury stock method for calculating the dilutive impact of
stock options is used. The following table outlines the
calculation of basic and diluted earnings per share on net
income.
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
11 |
|
|
|
114 |
|
|
|
|
|
|
|
|
Denominator (number of common shares in millions):
|
|
|
|
|
|
|
|
|
|
Weighted average number of outstanding shares
|
|
|
73.99 |
|
|
|
73.99 |
|
|
Effect of dilutive stock options
|
|
|
0.21 |
|
|
|
0.44 |
|
|
|
|
|
|
|
|
|
Adjusted number of outstanding shares
|
|
|
74.20 |
|
|
|
74.43 |
|
|
|
|
|
|
|
|
Earnings per share basic
|
|
|
0.15 |
|
|
|
1.54 |
|
|
|
|
|
|
|
|
Earnings per share diluted
|
|
|
0.15 |
|
|
|
1.53 |
|
|
|
|
|
|
|
|
Options to purchase an aggregate of 2,719,814 Novelis common
shares were held by the Companys employees as at
June 30, 2005. Of these, 1,378,671 options to purchase
common shares at an average price of $19.41 per share are
dilutive for the periods presented. These dilutive stock options
are equivalent to 206,025 Novelis common shares for the six
months ended June 30, 2005. The number of antidilutive
Novelis options held by the Companys employees as at
June 30, 2005 is 1,341,143.
For the six months ended June 30, 2004 under rules
applicable to carve-out statements, the effect of dilutive stock
options was calculated based on an aggregate of 1,356,735 Alcan
common shares held by Noveliss employees. Of these,
685,285 options to purchase Alcan common shares, at an average
exercise price of CAN$38.86 ($29.96) per share were dilutive for
the period presented. These dilutive stock options were
equivalent to 443,351 Novelis common shares for the six months
ended June 30, 2004. The number of antidilutive Alcan
options held by Noveliss employees as at June 30,
2004 was 671,450.
F-69
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
|
|
5. |
RESTRUCTURING PROGRAMS
|
|
|
|
2005 Restructuring Activities
|
No material restructuring activities took place during the six
months ended June 30, 2005. As part of its strategic plan,
the Company continually reviews its restructuring plans.
|
|
|
2004 Restructuring Activities
|
In line with its objective of value maximization, the Company
undertook various restructuring initiatives in 2004.
In the fourth quarter of 2004, the Company recorded liabilities
of $19 for restructuring costs in connection with the exit of
certain operations of Pechiney and these costs were recorded in
the allocation of the purchase price of Pechiney as at
December 31, 2004. These costs relate to a plant closure in
Flemalle, Belgium (Novelis Europe) and comprise $17 of severance
costs and $2 of other charges. No further charges are expected
to be incurred in relation to this plant closure.
|
|
|
Other 2004 restructuring activities
|
In the third quarter of 2004, the Company incurred restructuring
charges of $19 relating to the consolidation of its U.K.
aluminum sheet-rolling activities in Rogerstone, Wales (Novelis
Europe) in order to improve competitiveness through better
capacity utilization and economies of scale. Production ceased
at the rolling mill in Falkirk, Scotland (Novelis Europe) in
December 2004 and the facility was closed in the first quarter
of 2005. The charges of $19 include $6 of severance costs, $8 of
asset impairment charges, $2 of pension costs, $2 of
decommissioning and environmental costs and $1 of other charges,
which were recorded in other expenses (income) net
in the historical combined statement of income.
In 2004, the Company incurred restructuring charges of $3 (Q1:
nil; Q2: nil; Q3: $1; Q4: $2), relating to the closure of a
corporate office in Germany, comprised of $2 (Q1: nil; Q2: nil;
Q3: $1; Q4: $1) for severance costs and $1 (Q1: nil; Q2:
nil; Q3: nil; Q4: $1) related to costs to consolidate
facilities, which were recorded in Other expenses
(income) net in the historical combined statement of
income. No further charges are expected to be incurred in
relation to these restructuring activities.
|
|
|
2001 Restructuring Program
|
In 2001, Alcan implemented a restructuring program, resulting in
a series of plant sales, closures and divestments throughout the
organization. A detailed business portfolio review was
undertaken in 2001 to identify high cost operations, excess
capacity and non-core products. Impairment charges arose as a
result of negative projected cash flows and recurring losses.
These charges related principally to buildings, machinery and
equipment. This program was essentially completed in 2003.
In 2004, the Company recorded recoveries related to the 2001
restructuring program comprised of $7 (Q1: $7; Q2: nil; Q3: nil;
Q4: nil) relating to a gain on the sale of assets related to the
closure of facilities in Glasgow, U.K. (Novelis Europe) and a
write-back of $1 (Q1: nil; Q2: $1; Q3: nil; Q4: nil) relating to
a provision in the U.S. (Novelis North America).
F-70
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
The schedule provided below shows details of the provision
balances, related cash payments and recoveries for the
significant restructuring activities included in other expenses
(income) net in the Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset |
|
|
|
|
|
|
|
Severance |
|
|
Impairment |
|
|
|
|
|
|
|
Costs |
|
|
Provisions |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision balance as at January 1, 2004
|
|
|
19 |
|
|
|
|
|
|
|
12 |
|
|
|
31 |
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges (recoveries) recorded in the statement of income
|
|
|
7 |
|
|
|
8 |
|
|
|
(1 |
) |
|
|
14 |
|
Liabilities recorded in the allocation of the Pechiney purchase
price
|
|
|
17 |
|
|
|
|
|
|
|
2 |
|
|
|
19 |
|
Cash payments net
|
|
|
(14 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
(19 |
) |
Non-cash charges (recoveries)
|
|
|
|
|
|
|
(8 |
) |
|
|
6 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision balance as at December 31, 2004
|
|
|
29 |
|
|
|
|
|
|
|
14 |
|
|
|
43 |
|
Six Months Ended June 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges (recoveries) recorded in the statement of income
|
|
|
(3 |
) |
|
|
|
|
|
|
1 |
|
|
|
(2 |
) |
Cash payments net
|
|
|
(15 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision balance as at June 30, 2005
|
|
|
11 |
|
|
|
|
|
|
|
11 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes is comprised of the following:
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
Current
|
|
|
61 |
|
|
|
51 |
|
Deferred
|
|
|
(17 |
) |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
66 |
|
|
|
|
|
|
|
|
The effective tax rates for the six months ended June 30,
2005 and 2004 were 71% and 36%, respectively, compared to
composite statutory rates of 27% and 36%.
|
|
7. |
RELATED PARTY TRANSACTIONS
|
The table below describes the nature and amount of transactions
the Company has with related parties. All of the transactions
are part of the ordinary course of business and were agreed to
by the Company and the related parties. In 2004 and prior years,
Alcan was considered a related party to Novelis. However,
subsequent to the spin-off, Alcan is no longer a related party,
as defined in SFAS No. 57,
F-71
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
Related Party Disclosures, and accordingly, all transactions
between Novelis and Alcan are considered as third party:
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
Sales and operating revenues(A)
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
|
|
|
|
216 |
|
|
|
|
|
|
|
|
Cost of sales and operating expenses(A)
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
|
|
|
|
192 |
|
|
|
|
|
|
|
|
Research and development expenses(B)
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
Interest(C)
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
Other expenses (income) net
|
|
|
|
|
|
|
|
|
Service fee income(D)
|
|
|
|
|
|
|
(27 |
) |
Service fee expense(E)
|
|
|
|
|
|
|
19 |
|
Interest income(F)
|
|
|
|
|
|
|
(11 |
) |
Derivatives(G)
|
|
|
|
|
|
|
(8 |
) |
Other
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
Total other expenses (income) net arising from
transactions with Alcan
|
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
Interest income from Aluminum Norf GmbH
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
Total other expenses (income) net arising from
transactions with related parties
|
|
|
|
|
|
|
(22 |
) |
|
|
|
|
|
|
|
Purchase of inventory/tolling services
|
|
|
|
|
|
|
|
|
Aluminum Norf GmbH
|
|
|
102 |
|
|
|
96 |
|
Alcan(H)
|
|
|
|
|
|
|
983 |
|
|
|
|
|
|
|
|
|
|
(A) |
The Company sells inventory to Alcan and certain investees
accounted for under the equity method in the ordinary course of
business. In 2004, Alcan was considered a related party to
Novelis. |
|
|
|
|
(B) |
|
These expenses are comprised of an allocation of research and
development expenses incurred by Alcan on behalf of the Company.
In 2004, Alcan was considered a related party to Novelis. |
|
|
|
(C) |
|
As discussed further below and in note 10 Debt
Not Maturing Within One Year, the Company had various short-term
and long-term debt payable to Alcan where interest was charged
on both a fixed and a floating rate basis. |
|
|
|
(D) |
|
Service fee income relates to revenues generated through sales
of research and development and other corporate services to
Alcan. |
|
|
|
(E) |
|
Service fee expense relates to the purchase of corporate
services from Alcan. |
|
|
|
(F) |
|
Interest income earned on outstanding advances and loans to
Alcan. |
|
|
|
(G) |
|
Alcan was the counterparty to all of the Companys metal
derivatives and most of the Companys currency derivatives. |
|
F-72
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
|
|
|
|
(H) |
|
Alcan is the primary supplier of prime and sheet ingot to the
Company. Refer to note 13 Commitments and
Contingencies. |
|
The table below describes the nature and amount of balances the
Company has with related parties:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
As at |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
Trade receivables(A)
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
|
|
|
|
87 |
|
|
|
|
|
|
|
|
Other receivables
|
|
|
|
|
|
|
|
|
Alcan(B)
|
|
|
|
|
|
|
801 |
|
Aluminium Norf GmbH(C)
|
|
|
35 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
846 |
|
|
|
|
|
|
|
|
Long-term receivables
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
|
|
|
|
2 |
|
Aluminium Norf GmbH(C)
|
|
|
82 |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
82 |
|
|
|
104 |
|
|
|
|
|
|
|
|
Payables and accrued liabilities(A)
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
|
|
|
|
356 |
|
Aluminium Norf GmbH
|
|
|
37 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
401 |
|
|
|
|
|
|
|
|
Short-term borrowings(D)
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
|
|
|
|
312 |
|
|
|
|
|
|
|
|
Debt maturing within one year(E)
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
|
|
|
|
290 |
|
|
|
|
|
|
|
|
Debt not maturing within one year(E)
|
|
|
|
|
|
|
|
|
Alcan
|
|
|
|
|
|
|
2,307 |
|
|
|
|
|
|
|
|
|
|
(A) |
The Company purchases from and sells inventory to Alcan and
purchases services from an investee accounted for under the
equity method, in the ordinary course of business. |
|
|
|
|
(B) |
|
The balance at December 31, 2004 included various
short-term floating rate notes totaling
266 million
and $55 maturing within one year that were settled by Alcan in
2005 as part of the spin-off of Novelis. |
|
|
|
(C) |
|
Current and non-current portions of a loan to an investee
accounted for under the equity method. |
|
|
|
(D) |
|
The balance at December 31, 2004 comprised loans due to
Alcan in various currencies including
193 million
and GBP 20 million that were repaid in 2005 as part of the
spin-off of Novelis. |
|
|
|
(E) |
|
The Company had various loans payable to Alcan as at
December 31, 2004 as described in note 10
Debt Not Maturing Within One Year. |
|
F-73
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
|
|
8. |
SALES AND FORFAITING OF RECEIVABLES
|
Prior to the spin-off, the Company sold third party trade
receivables to a related party which were then subsequently sold
to a financial institution under Alcans accounts
receivable securitization program. Subsequent to the spin-off,
the Company has not securitized any of its third party trade
receivables.
As at June 30, 2005, Novelis Korea Limited forfaited third
party receivables of $55 (2004: $50) to a financial institution.
Forfaiting is a customary, ordinary-course cash management
practice in the Korean marketplace where receivables typically
run 60 days to 120 days or longer.
|
|
9. |
OTHER EXPENSES (INCOME) NET
|
Other expenses (income) net is comprised of the
following:
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
Restructuring costs (recoveries) net
|
|
|
(2 |
) |
|
|
2 |
|
Gain on disposals of fixed assets(1)
|
|
|
(11 |
) |
|
|
(6 |
) |
Interest income
|
|
|
(4 |
) |
|
|
(13 |
) |
Realized (gains) losses on monetization of cross-currency
interest rate swaps
|
|
|
(45 |
) |
|
|
|
|
Realized (gains) losses on derivatives(2)
|
|
|
(15 |
) |
|
|
|
|
Exchange (gains) losses
|
|
|
2 |
|
|
|
3 |
|
Unrealized (gains) losses on change in market value of
derivatives and reclassifications(3)
|
|
|
47 |
|
|
|
(15 |
) |
Service fee expense net
|
|
|
|
|
|
|
1 |
|
Bridge financing commitment fee
|
|
|
13 |
|
|
|
|
|
Other expenses (income)
|
|
|
12 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
(1) |
Includes a gain on the sale of land in Asia of ($11) for the
second quarter of 2005. |
|
|
|
(2) |
Includes metal, natural gas and energy. |
|
|
|
(3) |
Included within the $47 for the six months ended June 30,
2005, is $45 pre-tax ($30 after-tax) unrealized losses on the
change in market value of derivative contracts, primarily with
Alcan, for the period from January 1 to 5, 2005, as
described in note 1 Background and Basis of
Presentation. |
|
F-74
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
|
|
10. |
DEBT NOT MATURING WITHIN ONE YEAR
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
As at |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
DUE TO RELATED PARTIES
|
|
|
|
|
|
|
|
|
Total debt due to related parties(A)
|
|
|
|
|
|
|
2,597 |
|
Debt maturing within one year included in current liabilities
|
|
|
|
|
|
|
(290 |
) |
|
|
|
|
|
|
|
Debt not maturing within one year due to related parties
|
|
|
|
|
|
|
2,307 |
|
|
|
|
|
|
|
|
DUE TO THIRD PARTIES
|
|
|
|
|
|
|
|
|
Novelis Inc.
|
|
|
|
|
|
|
|
|
Floating rate Term Loan B, due 2012(B)(C)
|
|
|
411 |
|
|
|
|
|
7.25% Senior notes, due 2015(D)
|
|
|
1,400 |
|
|
|
|
|
Novelis Corporation
|
|
|
|
|
|
|
|
|
Floating rate Term Loan B, due 2012(B)(C)(F)
|
|
|
714 |
|
|
|
|
|
Novelis Switzerland S.A.
|
|
|
|
|
|
|
|
|
Capital lease obligation, due 2020 (CHF 62 million)
|
|
|
48 |
|
|
|
|
|
Novelis Korea Limited(E)
|
|
|
|
|
|
|
|
|
Bank loan, due 2008
|
|
|
50 |
|
|
|
|
|
Bank loan, due 2007
|
|
|
70 |
|
|
|
70 |
|
Bank loan, due 2007 (Korean won (KRW) 40 billion)
|
|
|
39 |
|
|
|
39 |
|
Bank loan, due 2007 (KRW 25 billion)
|
|
|
24 |
|
|
|
24 |
|
Bank loans, due 2005/2011 (KRW 2 billion)
|
|
|
2 |
|
|
|
2 |
|
Other
|
|
|
|
|
|
|
|
|
Bank loans, due 2005/2011(F)
|
|
|
2 |
|
|
|
3 |
|
Other debt, due 2005/2010
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2,760 |
|
|
|
140 |
|
Debt maturing within one year included in current liabilities
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
Debt not maturing within one year due to third parties
|
|
|
2,757 |
|
|
|
139 |
|
|
|
|
|
|
|
|
|
|
(A) |
All of the Companys related party debt of $2,597 as at
December 31, 2004 was payable to Alcan and was fully repaid
in the first quarter of 2005. The related party debt was
comprised of a combination of fixed and floating rate debt of
$1,392 and fixed rate promissory notes (Alcan Notes) obtained in
December 2004 of $1,205. The Alcan Notes comprised a major
portion of the $1,375 bridge financing provided by Alcan to the
Company as a result of the reorganization transactions described
in note 1 Background and Basis of Presentation.
The remaining balance of the Alcan Notes of $170 was obtained in
January 2005. The Alcan Notes were duly refinanced with the
proceeds of the $1.4 billion 10-year Senior Notes issued in
February 2005 (refer to (D) below). |
|
|
|
|
(B) |
|
In connection with the reorganization transactions described in
note 1 Background and Basis of Presentation,
the Company entered into senior secured credit facilities
providing for aggregate borrowings of up to $1.8 billion.
These facilities consist of a $1.3 billion seven-year
senior secured Term Loan B facility, bearing interest at
LIBOR plus 1.75%, all of which was borrowed on January 10,
2005, and a $500 five-year multi-currency revolving credit
facility. The Term Loan B |
|
F-75
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
|
|
|
|
|
|
facility consists of an $825 Term Loan B in the U.S. and a
$475 Term Loan B in Canada. The proceeds of the Term
Loan B facility were used in connection with the
reorganization transactions, the Companys separation from
Alcan and to pay related fees and expenses. Debt issuance costs
incurred in relation to these facilities have been recorded in
Deferred charges and other assets and are being amortized over
the life of the related borrowing in Interest using the
effective interest amortization method. |
|
|
|
(C) |
|
The Company has entered into interest rate swaps to fix the
interest rate on $310 of the variable rate Term Loan B debt
at an effective weighted average interest rate of 5.5% for
periods of up to three years. |
|
|
|
(D) |
|
On February 3, 2005, Novelis sold $1.4 billion
aggregate principal amount of senior unsecured debt securities
(Senior Notes). The Senior Notes, which were priced at par, bear
interest at 7.25% and will mature on February 15, 2015. The
net proceeds of the placement were used to repay the Alcan Notes. |
|
|
|
(E) |
|
In 2004, Novelis Korea Limited (Novelis Korea), formerly Alcan
Taihan Aluminium Limited, entered into a $70 floating rate
long-term loan which was subsequently swapped for a 4.55% fixed
rate KRW 73 billion loan and into two long-term
floating rate loans of KRW 40 billion and
KRW 25 billion that were swapped for fixed rates of
4.80% and 4.45%, respectively. In 2005, interest on another loan
for KRW 2 billion ranges from 3.00% to 4.43% (2004:
3.00% to 5.50%). In February 2005, Novelis Korea entered into a
$50 floating rate long-term loan which was subsequently swapped
for a 5.30% fixed rate KRW 51 billion loan. |
|
|
|
(F) |
|
Interest rates are a function of the lenders prime
commercial rates or LIBOR/ EURIBOR rates. |
|
In 2004 the Company entered into a loan and corresponding
deposit and guarantee agreement for $90 which has a balance at
June 30, 2005 of $80. We do not include the amounts in our
financial statements as the agreements include a legal right of
setoff.
Based on rates of exchange at June 30, 2005, debt repayment
requirements for the remainder of fiscal 2005 and over the next
five years amount to $3 in 2005; $3 in 2006; $136 in 2007; $53
in 2008; $3 in 2009 and $3 in 2010. The Company made an optional
prepayment of $85 of its Term Loans on March 31, 2005 and,
in the process, satisfied a 1% per annum amortization
requirement through fiscal year 2010. The Company made another
optional prepayment of $90 of its Term Loans on June 30,
2005 and, in the process, satisfied additional amortization
requirements through fiscal year 2011. Separately, the Credit
Agreement also requires the Company to prepay annually an
additional portion of its Term Loans, based on a defined
formula; this amount cannot be determined in advance, and has
therefore not been included in the amounts above.
The authorized common share capital is an unlimited number of
common shares without nominal or par value. On June 30,
2005, there were 73,993,006 common shares outstanding.
The Companys initial board of directors approved in 2004 a
plan whereby each of Noveliss common shares carries one
right to purchase additional common shares. The rights expire in
2014, subject to re-confirmation at the annual meetings of
shareholders in 2008 and 2011. The rights under the plan are not
currently exercisable. The rights may become exercisable upon
the acquisition by a person or group of affiliated or associated
persons (Acquiring Person) of beneficial ownership of 20% or
more of Noveliss
F-76
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
outstanding voting shares or upon the commencement of a takeover
bid. Holders of rights, with the exception of an Acquiring
Person or bidding party, in such circumstances will be entitled
to purchase from Novelis, upon payment of the exercise price
(currently $200.00), such number of common shares as can be
purchased for twice the exercise price, based on the market
value of Noveliss common shares at the time the rights
become exercisable.
The plan has a permitted bid feature which allows a takeover bid
to proceed without the rights becoming exercisable, provided
that the bid meets specified minimum standards of fairness and
disclosure, even if the Companys board of directors does
not support the bid. The rights may be redeemed by the
Companys board of directors prior to the expiration or
re-authorization of the rights agreement, with the prior consent
of the holders of rights or common shares, for $0.01 per
right. In addition, under specified conditions, the
Companys board of directors may waive the application of
the rights.
|
|
12. |
STOCK OPTIONS AND OTHER STOCK-BASED COMPENSATION
|
|
|
|
Executive Share Option Plan
|
Under the Alcan executive share option plan, certain key
employees may purchase common shares at an exercise price that
is based on the market value of the shares on the date of the
grant of each option. On January 6, 2005, 1,372,664 Alcan
options representing options granted under the Alcan executive
share option plan held by the Companys employees who were
Alcan employees immediately prior to the spin-off were replaced
with options to purchase the Companys common shares. The
new options cover 2,723,914 common shares at a weighted average
exercise price per share of $21.57. All converted options that
were vested on the separation date continue to be vested. Any
that were unvested will vest in four equal installments on the
anniversary of the separation date on each of the next four
years. As at June 30, 2005, 2,719,814 options were
outstanding at a weighted average price of $21.58. Of the total
outstanding on June 30, 2005, 322,106 options were
exercisable at a weighted average price of $20.09.
As described in note 3 Accounting Changes, the
Company retroactively adopted the fair value recognitions of
SFAS No. 123, Accounting for Stock-Based Compensation.
The Black-Scholes valuation model was used to determine the fair
value of the options granted. For the six months ended
June 30, 2005, stock-based compensation expense was $1
(2004: $1). The fair value of each option grant is estimated on
the date of grant with the following weighted average
assumptions used for the option grants:
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
Dividend yield(%)
|
|
|
1.56 |
|
|
|
1.85 |
|
Expected volatility(%)
|
|
|
30.30 |
|
|
|
27.87 |
|
Risk-free interest rate(%)
|
|
|
3.73 |
|
|
|
4.56 |
|
Expected life (years)
|
|
|
5.47 |
|
|
|
6.00 |
|
|
|
|
Compensation To Be Settled in Cash
|
|
|
|
Stock Price Appreciation Unit Plan
|
A small number of employees were entitled to receive Alcan Stock
Price Appreciation Units (SPAUs) whereby they were entitled to
receive cash in an amount equal to the excess of the market
value of an Alcan common share on the date of exercise of a SPAU
over the market value of an Alcan common share as of the date of
grant of such SPAUs. On January 6, 2005, 211,035 Alcan
SPAUs held by the Companys employees who were Alcan
employees immediately prior to the spin-off were replaced with
the Companys SPAUs, consisting of 418,777 SPAUs at a
weighted average exercise price per SPAU of
F-77
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
$22.04. Of the total outstanding on June 30, 2005, 14,315
SPAUs were exercisable at a weighted average price of $16.59.
|
|
|
Total Shareholder Return Performance Plan
|
Certain employees of Novelis were entitled to receive cash
awards under the Alcan Total Shareholder Return Performance Plan
(TSR Plan), a cash incentive plan which provides performance
awards to eligible employees based on the relative performance
of Alcans common share price and cumulative dividend yield
performance compared to other corporations included in the
Standard & Poors Industrials Index measured over
three-year periods commencing on October 1, 2003 and 2002.
On January 6, 2005, the Companys employees who were
Alcan employees immediately prior to the spin-off and who were
eligible to participate in the Alcan TSR Plan ceased to actively
participate in, and accrue benefits under, the TSR Plan. The
current three-year performance periods, namely 2002 to 2005 and
2003 to 2006, were truncated as of the date of the separation.
The accrued award amounts for each participant in the TSR Plan
were converted to 452,667 restricted share units (RSUs) in the
Company. These RSUs and related dividends totaling 337,430 and
118,732 RSUs will vest on September 30, 2005 and 2006,
respectively. At the end of each performance period, each holder
of RSUs will receive the net proceeds based on the
Companys common share price at that time, including
declared dividends.
|
|
|
Non-Executive Directors Deferred Share Unit Plan
|
On January 5, 2005, the Company established the
Non-Executive Directors Deferred Share Unit Plan whereby
non-executive directors receive 50% of compensation payable in
the form of Directors Deferred Share Units (DDSUs) and 50%
in the form of either cash, additional DDSUs or a combination of
these two at the election of each non-executive director. The
number of DDSUs is determined by dividing the quarterly amount
payable so elected by the average closing prices of a common
share on the Toronto and New York stock exchanges on the last
five trading days of each quarter (average share price) with any
currency conversion being made at the Bank of Canada noon rate
of exchange on the relevant day. Additional DDSUs are credited
to each holder thereof corresponding to dividends declared on
common shares. The DDSUs are redeemable following retirement
from the board. The amount to be paid by the Company upon
redemption is calculated by multiplying the accumulated balance
of DDSUs by the average share price at the time of redemption.
During the six months ended June 30, 2005, 14,077 DDSUs
were granted and none were redeemed. As at June 30, 2005,
14,077 DDSUs were outstanding.
|
|
|
Novelis Founders Performance Awards
|
In March 2005, the Company established a plan whereby certain
key executives will be eligible to receive an award of
Performance Share Units (PSUs) if certain Novelis share price
improvement targets are achieved within prescribed time periods.
There will be three equal tranches of PSUs and each will have a
specific share price improvement target. For the first tranche,
the target applies for the period March 24, 2005 to
March 23, 2008. For the second tranche, the target applies
for the period March 24, 2006 to March 23, 2008. For
the third tranche, the target applies for the period
March 24, 2007 to March 23, 2008. If awarded, a
particular tranche will be paid in cash on the later of six
months from the date the specific share price target is reached
or twelve months after the start of the performance period and
will be based on the average of the daily stock closing prices
on the NYSE for the last five trading days prior to the payment
date. Upon the occurrence of a termination as a result of
retirement, death or disability, all PSUs awarded prior to the
termination will be paid at the same time as for active
participants. For any other termination, all PSUs will be
forfeited. As at June 30, 2005, 180,350 PSUs were
outstanding. The share price improvement targets for the first
tranche have been achieved and
F-78
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
178,700 PSUs were awarded on June 30, 2005. The liability
for this award will be accrued over the term of the first
tranche. These PSUs will be settled in cash on March 24,
2006 based on the average of the daily stock closing prices on
the NYSE for the five trading days prior to the payment date.
For the six months ended June 30, 2005, expense for PSUs
that can be settled in cash was $0.1 (2004: nil).
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|
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Deferred Share Agreements
|
On January 6, 2005, 33,500 Alcan deferred shares held by
one of the Companys executives who was an Alcan employee
immediately prior to the spin-off were replaced with 66,477
Novelis deferred shares. These were paid in cash on
August 3, 2005.
For the six months ended June 30, 2005, stock-based
compensation expense for arrangements that can be settled in
cash was $3 (2004: nil) including the amounts listed above for
the Founders Performance Awards.
|
|
13. |
COMMITMENTS AND CONTINGENCIES
|
Minimum rental obligations under capital leases are estimated at
$3 in the remainder of 2005, $5 in each of the fiscal years
ending 2006 through 2010 and $51 for the subsequent periods in
aggregate.
As described in note 7 Related Party
Transactions, Alcan is the primary supplier of primary and sheet
ingot to the Company. Purchases from Alcan for the six months
ended June 30, 2005 represent 41% of total prime and sheet
ingot purchases (2004: 53%).
The Company, in the course of its operations, is subject to
environmental and other claims, lawsuits and contingencies. The
Company is named as a defendant in relation to environmental
contingencies for approximately 11 existing and former Company
sites and third-party sites. Accruals have been made in specific
instances where it is probable that liabilities will be incurred
and where such liabilities can be reasonably estimated.
The Company is subject to various laws relating to the
protection of the environment. The Company has established
procedures for the ongoing evaluation of its operations to
identify potential environmental exposures and to comply with
regulatory policies and procedures.
The Company is involved in proceedings, as described below,
under the U.S. Superfund or analogous state provisions
regarding the usage, storage, treatment or disposal of hazardous
substances 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 it has operations, including Brazil and
certain countries in the European Union.
PAS Site. Alcan Aluminum Corporation (AAC) (renamed
Novelis Corporation after the spin-off from Alcan) and third
parties were defendants in a lawsuit instituted in July 1987 by
the U.S. Environmental Protection Agency, or EPA, relating
to the Pollution Abatement Services, or PAS, a third-party
disposal site, in Oswego, New York. In January 1991, the
U.S. District Court for the Northern District of New York
found AAC liable for a share of the clean-up costs for the site,
and in December 1991 determined the amount of such share to be
$3.2 plus interest and costs. AAC appealed this decision to the
United States Court of Appeals, Second Circuit. In April 1993,
the Second Circuit reversed the District Court and remanded the
case for a hearing on what liability, if any, might be assigned
to AAC depending on whether AAC could prove that its waste did
not contribute to the costs of remediation at the site. This
matter was consolidated with another case, instituted in October
1991 by the EPA against AAC
F-79
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
in the U.S. District Court for the Northern District of New
York seeking clean-up costs in regard to the Fulton Terminals
Superfund site in Oswego County, New York, which was also owned
by PAS. The remand hearing was held in October of 1999. The
trial court re-instituted its judgment holding AAC liable. The
amount of the judgment plus interest was $13.5 as at December
2000. The case was appealed. In the first quarter 2003, the
Second Circuit affirmed the decision of the trial court. In
2004, AAC paid $13.9 in respect of the EPA claim, representing
the full amount of the judgment plus interest, and $1.6 to the
State of New York. AAC is currently responsible for future
oversight costs, which are currently estimated at approximately
$0.6.
PAS Oswego Site Performing Company. AAC has also been
sued by ten other potentially responsible parties, or PRPs, at
the PAS site seeking contribution from AAC for costs they
collectively incurred in cleaning up the PAS site from 1990 to
the present. The costs incurred by the PRPs to date total
approximately $6.4 plus accrued interest. Based upon currently
available record evidence, AAC is contesting responsibility for
costs incurred by the PRPs.
Oswego North Ponds. In the late 1960s and early 1970s,
AAC in Oswego used an oil containing polychlorinated biphenyls,
or PCBs, in its re-melt operations. At the time, AAC utilized a
once-through cooling water system that discharged through a
series of constructed ponds and wetlands, collectively referred
to as the North Ponds. In the early 1980s, low levels of PCBs
were detected in the cooling water system discharge and AAC
performed several subsequent investigations. The PCB-containing
hydraulic oil, Pydraul, which was eliminated from use by AAC in
the early 1970s, was identified as the source of contamination.
In the mid-1980s, the Oswego North Ponds site was classified as
an inactive hazardous waste disposal site and added
to the New York State Registry. AAC ceased discharge through the
North Ponds in mid-2002.
In cooperation with the New York State Department of
Environmental Conservation, or NYSDEC, and the New York State
Department of Health, AAC entered into a consent decree in
August 2000 to develop and implement a remedial program to
address the PCB contamination at the Oswego North Ponds site. A
remedial investigation report was submitted in January 2004 and
we anticipate that the NYSDEC will issue a proposed remedial
action plan and record of decision during the second half of
2005. The Company expects that the remedial plan will be
implemented in 2006. The estimated cost associated with this
remediation is approximately $25.
Butler Tunnel Site. AAC was a party in a 1989 EPA lawsuit
before the U.S. District Court for the Middle District of
Pennsylvania involving the Butler Tunnel Superfund site, a
third-party disposal site. In May 1991, the Court granted
summary judgment against AAC for alleged disposal of hazardous
waste. After unsuccessful appeals, AAC paid the entire judgment
plus interest.
The United States government filed a second cost recovery action
against Alcan seeking recovery of expenses associated with the
installation of an early warning system for potential future
releases from the Butler site. The complaint does not disclose
the amount of costs sought by the government. The case has been
held in abeyance since shortly after it was filed and,
therefore, there has been no opportunity for discovery to fully
determine the type of remedial action sought, the total cost,
the existence of other settlements or the existence of other
non-settling PRPs that may exist for potential contribution. In
December 2004, a motion for partial summary judgment was heard
and is under advisement.
Tri-Cities Site. In 1994, AAC and other companies
responded to an EPA inquiry concerning the shipment of old drums
to Tri-Cities Inc., a third party barrel-reprocessing facility
in upstate New York. In 1996 the EPA issued an administrative
order directing the defendants to clean up the site. AAC refused
to participate, claiming that the drums sent to Tri-Cities were
empty at the time of delivery. In September
F-80
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
2002, AAC received notice from the EPA contending that AAC was
responsible for past and future response costs with accrued
interest as well as penalties for its violation of the
administrative order. AAC responded by outlining its objections
to the EPAs determination. The EPA subsequently referred
the matter to the Department of Justice, or DOJ, for
enforcement. In December 2004, a consent decree was negotiated
with the DOJ and EPA. Under this consent agreement, AAC paid
$0.4 as a civil penalty as well as $0.6 in past costs. Future
costs have been capped at a maximum payment of $0.8 payable over
an extended period of time.
Quanta Resources Site. In June 2003, the DOJ filed a
Superfund costs recovery action in the U.S. District Court
for the Northern District of New York against AAC and Russell
Mahler, the site owner, seeking unreimbursed response costs
stemming from the disposal of rolling oil emulsion at the Quanta
Resources facility in Syracuse, New York. The parties are in the
process of discovery. In 2003, AAC met with the DOJ and the EPA
who quantified potential liability for unreimbursed costs and
penalties in the amount of $1.4.
Sealand Site. New York State and the EPA claim that
AACs waste that was sent to the Sealand, New York
Restoration site is a hazardous substance that contributed to
the occurrence of response costs. There are several PRPs at this
site. In 1993, AAC declined a request to participate in a
program to provide drinking water to area residents, contending
that AACs waste did not cause or contribute to the harm at
the site. In 2003, Alcan met with the DOJ and the EPA who
quantified potential liability for unreimbursed costs at $2.6.
Toyo Coal Tar Remediation. Prior property owners
contaminated the soil at the Joliet, Illinois facility with coal
tar. Following litigation, AAC received a 90% cost allocation
from two defendants. In 1998, a remediation plan was developed
to clean-up soil and groundwater. The remedial program was
implemented in 1999. AAC continues to monitor the remediation.
AACs estimated costs are approximately $0.3.
Diamond Alkali Superfund Site-Lower Passaic River
Initiative. In 2003, AAC received a letter from the EPA
regarding an investigation being launched into possible
contamination of the Lower Passaic River in 1965. AAC has been
identified as a PRP arising from one of its former plants in
Newark, New Jersey that may have generated hazardous waste. A
remedial investigation feasibility study is scheduled to be
carried out over several years. AAC has entered into a consent
decree with other PRPs and will participate in a remedial
feasibility study. AACs estimated environmental costs have
been set at approximately $0.2.
Jarl Extrusions (Rochester, NY). The affected property in
Rochester, New York was acquired in 1988. Operations at the
property were subsequently discontinued and the property was
sold in December 1996. AAC retained liability under the terms of
sale. AAC entered into a consent decree with NYSDEC under which
evaluation of the site was performed in 1990 and 1991. Most of
the contamination was determined to have come from an adjoining
site. In its response to AACs investigation report, the
NYSDEC asked AAC to admit to liability for off-site pollution (a
Superfund site is located next door) and that hazardous sludge
was dumped in the ponds behind the building. AAC denied these
allegations. In light of the States failure to cooperate
with AAC in the remediation of this site under the consent
decree, AAC filed a notice of protest with the State. AACs
appeal was denied, but the State later approved a new remedial
investigation report negotiated between NYSDEC and AAC. A
feasibility study for site remediation was then approved by
NYSDEC.
Negotiations on a consent order for remedial design
construction were completed and the restrictive deed covenants
have been filed for the property. The clean-up has been
completed and NYSDEC approved a long-term operation and
monitoring plan (O&M). AAC continues to conduct
O&M and has
F-81
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
sought permission to decommission two monitoring wells.
Estimated costs associated with this matter are approximately
$0.2.
Terre Haute TCE Issue. Trichloroethylene (TCE) soil
and groundwater contamination was discovered on the Terre Haute
site in 1990. A site investigation was performed in between 1991
and 1994 whereby the extent of TCE groundwater and soil
contamination was delineated. The subsurface contamination was
located on-site with groundwater plume migrating off-site, with
impacts to private homeowner drinking water wells. Terre Haute
entered into the Indiana Voluntary Remediation Program in 1995.
A remediation plan was developed which consisted of Soil
Venting/ Air Sparging for subsurface soil remediation. Point
source carbon treatment systems were installed on impacted
homeowners wells. The active subsurface soil remediation was
completed in 2003. Now that the remediation phase has been
completed, AAC is required to support a post-remedial
groundwater and drinking water well monitoring program. Periodic
monitoring will be required until groundwater clean up goals are
met. Based on historical trends in TCE contamination, it is
anticipated that clean up objectives will be met within
10 years. Once the clean-up objectives are met, the project
will be considered closed. Estimated costs associated with
funding the required monitoring program for a period of
10 years are approximately $0.6.
It is the Companys policy to accrue estimated
environmental clean-up costs (investigation and remediation)
when such amounts can reasonably be estimated and it is probable
that the Company will be required to incur such costs. The
Company has estimated its undiscounted remaining clean-up costs
related to these 11 sites will be in the range of $37 to $41. An
estimated liability of $41 has been recorded on the consolidated
and combined balance sheet at June 30, 2005, in Deferred
credits and other liabilities. Other than these 11 sites, the
Company is currently not aware of any material exposure to
environmental liabilities. However, adverse changes in
environmental regulations, new information or other factors
could impact the Company.
The Company has agreed to indemnify Alcan and its subsidiaries
and each of their respective directors, officers and employees,
against liabilities relating to, among other things:
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the contributed businesses, liabilities or contracts; |
|
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|
|
liabilities or obligations associated with the contributed
businesses, as defined in the separation agreement between
Novelis and Alcan, or otherwise assumed by the Company pursuant
to the separation agreement; and |
|
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|
|
|
any breach by the Company of the separation agreement or any of
the ancillary agreements entered into with Alcan in connection
with the separation. |
|
Although there is a possibility that liabilities may arise in
other instances for which no accruals have been made, the
Company does not believe that it is reasonably possible that any
losses in excess of accrued amounts would be sufficient to
significantly impair its operations, have a material adverse
effect on its financial position or liquidity, or materially and
adversely affect its results of operations for any particular
reporting period, absent unusual circumstances.
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|
14. |
FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS
|
In conducting its business, the Company uses various derivative
and non-derivative instruments, including forward contracts to
manage the risks arising from fluctuations in exchange rates,
interest rates, aluminum prices and other commodity prices.
Generally, such instruments are used for risk management
purposes only. The principal counterparty to the Companys
aluminum forward contracts, and some of its aluminum options is
Alcan. As described in note 7 Related Party
Transactions, in 2004 and prior years,
F-82
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
Alcan was considered a related party to Novelis. However,
subsequent to the spin-off, Alcan is no longer a related party,
as defined in SFAS No. 57, Related Party Disclosures.
There have been no material changes in financial instruments and
commodity contracts during the first six months of 2005, except
as noted below.
During the first quarter, the Company entered into US dollar
interest rate swaps totaling $310 with respect to the Term
Loan B in the U.S., and $766 of cross-currency interest
rate swaps (
475 million, GBP 62 million, CHF 35 million) with
respect to intercompany loans to several European subsidiaries.
During the second quarter, the Company monetized the initial
cross-currency interest rate swaps and replaced them with new
cross-currency interest rate swaps totaling $712
(
475 million, GBP 62 million, CHF 35 million). The
aggregate fair value of these derivatives at June 30, 2005
was ($16) (2004: nil).
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Financial Instruments Fair Value
|
On June 30, 2005, the fair value of the Companys
long-term debt totaling $2,760 (2004: $2,737) approximates its
book value. The fair values of all other financial assets and
liabilities are approximately equal to their carrying values.
|
|
15. |
SUPPLEMENTARY INFORMATION
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Six months ended June 30 |
|
2005 |
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2004 |
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Statement of Income
|
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|
|
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Interest on long-term debt
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85 |
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25 |
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Capitalized interest
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(1 |
) |
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Statement of Cash Flows
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Interest paid
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43 |
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38 |
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Income taxes paid
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38 |
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36 |
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June 30, |
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December 31, |
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As at |
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2005 |
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2004 |
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Balance Sheet
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Payables and accrued liabilities include the following:
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Trade payables
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825 |
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899 |
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Accrued liabilities
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514 |
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361 |
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At June 30, 2005, the weighted average interest rate on
short-term borrowings was 4.0% (2004: 2.5%).
F-83
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
The following table reconciles net income (loss) to
comprehensive income (loss):
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Six months ended June 30 |
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2005 |
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2004 |
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Net income (loss)
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11 |
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114 |
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Other comprehensive income (loss):
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Net change in deferred translation adjustments
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(144 |
) |
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(44 |
) |
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Net change in minimum pension liability, net of taxes of ($8)
for the six months ended June 30, 2005 (2004: nil)
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(14 |
) |
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Comprehensive income (loss)
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(147 |
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70 |
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The components of accumulated comprehensive income (loss) are as
follows:
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June 30, |
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December 31, |
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As at |
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2005 |
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2004 |
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Deferred translation adjustments
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(24 |
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120 |
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Minimum pension liability
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(46 |
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(32 |
) |
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Accumulated other comprehensive income (loss)
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(70 |
) |
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88 |
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17. |
POST-RETIREMENT BENEFITS
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The Companys pension obligations relate to funded defined
benefit pension plans it has established in the United States,
Canada and the United Kingdom, unfunded pension benefits in
Germany, and lump sum indemnities payable upon retirement to
employees of businesses in France, Korea and Malaysia. Pension
benefits are generally based on the employees service and
either on a flat dollar rate or on the highest average eligible
compensation before retirement. In addition, some of the
entities of the Company participate in defined benefit plans
managed by Alcan in the U.S. and Switzerland.
In 2005, the following transactions transpired related to
existing Alcan pension plans covering Novelis employees:
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a) In the U.S., for Novelis employees previously
participating in the Alcancorp Pension Plan and the Alcan
Supplemental Executive Retirement Plan, Alcan agreed to
recognize up to one year of additional service in its plan as
long as such employee worked for Novelis and Novelis paid to
Alcan the normal cost (in the case of the Alcancorp Pension
Plan) and the current service cost (in the case of the Alcan
Supplemental Executive Retirement Plan). |
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b) In the U.K., the sponsorship of the Alusuisse Holdings
U.K. Ltd Pension Plan was transferred from Alcan to Novelis. No
new plan was established. |
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c) In Switzerland, Novelis became a participating employer
in the Alcan Swiss Pension Plans and Novelis employees are
participating in these plans for up to one year (or longer with
Alcan approval) provided Novelis makes the required pension
contributions. |
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F-84
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
The following plans were newly established in 2005 to replace
the Alcan pension plans that previously covered Novelis
employees (other Alcan pension plans covering Novelis employees
were assumed by Novelis):
Canada Pension Plan The Canada Pension Plan
(CPP) provides for pensions calculated on service (no cap)
and eligible earnings which consist of the average annual salary
and the short term incentive award up to its target during the
36 consecutive months when they were the greatest. The normal
form of payment of pensions is a lifetime annuity with either a
guaranteed minimum of 60 monthly payments or a 50% lifetime
pension to the surviving spouse.
Pension Plan for Officers The Pension Plan
for Officers (PPO) provides for pensions calculated on
service up to 20 years as an officer of Novelis or of Alcan
and eligible earnings which consist of the excess of the average
annual salary and target short-term incentive award during the
60 consecutive months when they were the greatest over eligible
earnings in the U.S. Plan or the U.K. Plan, as applicable.
The normal form of payment of pensions is a lifetime annuity.
Pensions will not be subject to any deduction for social
security or other offset amounts.
Alcan provides unfunded health care and life insurance benefits
to retired employees in Canada and the United States, which
include retired employees of some of the Companys
businesses. The Companys share of these plans
liabilities and costs are included in the historical combined
financial statements. The Company expects to pay benefits of $8
in 2005 from operating cash flows.
Components of net periodic benefit cost are shown in the table
below:
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Pension |
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Other |
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Benefits |
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Benefits |
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Six months ended June 30 |
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2005 |
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2004 |
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2005 |
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2004 |
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Service cost
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16 |
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10 |
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2 |
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1 |
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Interest cost
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15 |
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14 |
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6 |
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3 |
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Expected return on assets
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(12 |
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(12 |
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Amortization
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actuarial losses
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4 |
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2 |
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prior service cost
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2 |
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2 |
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Curtailment/ settlement gains
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(19 |
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Net periodic benefit cost
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25 |
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(3 |
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8 |
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4 |
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The expected long-term rate of return on plan assets is 7.5% in
2005.
The Companys pension funding policy is to contribute the
amount required to provide for contractual benefits attributed
to service to date, and to amortize unfunded actuarial
liabilities, for the most part over periods of 15 years or
less. Novelis previously disclosed in its financial statements
for the year ended December 31, 2004, that it expected to
contribute $10 to its funded pension plans in 2005. The
contributions are expected to be fully comprised of cash. As of
June 30, 2005, $17 has been contributed, and the Company
expects to contribute an additional $9 over the remainder of the
year. The additional contributions were necessary to fund
pension plans where the Company is participating in Alcan plans
as well as new pension plans created subsequent to the spin-off.
The Company also expected to pay $7 of unfunded pension benefits
and lump sum indemnities from operating cash flows in 2005. As
of June 30, 2005, $4 has been paid and the Company expects
to pay an additional $3 over the remainder of the year.
F-85
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
During the year, the Company will determine whether it will
transfer its share of pension assets and liabilities from or
retain them in the Alcan plans. This determination may have a
material impact on the financial statements of the Company.
|
|
18. |
INFORMATION BY OPERATING SEGMENTS
|
The following presents selected information by operating
segment, viewed on a stand-alone basis. The operating management
structure is comprised of four operating segments. The four
operating segments are Novelis North America, Novelis Europe,
Novelis Asia and Novelis South America. Subsequent to its
spin-off from Alcan in 2005, the Company, as a stand-alone
entity, measures the profitability of its operating segments
based on Regional Income. Prior periods presented have been
recast. Regional Income comprises earnings before interest,
income taxes, minority interests, depreciation and amortization
and excludes certain items such as corporate costs,
restructuring costs, impairment and other rationalization
charges. These items are managed by the Companys corporate
office, which focuses on strategy development and oversees
corporate governance, policy, legal compliance, human resources
and finance matters. Regional Income is the measure by which
management evaluates the performance of the Companys
business. The change in fair market value of derivatives, with
the exception of unrealized gains or losses on certain cash flow
hedges, is removed from individual Regional Income and is shown
on a separate line. The Company believes that this presentation
provides a more accurate portrayal of underlying regional group
results and is in line with the Companys portfolio
approach to risk management.
Prior to the spin-off, profitability of the operating segments
was measured based on Business Group Profit (BGP). BGP was
similar to Regional Income, except for the following:
|
|
|
|
a) BGP excluded restructuring costs related only to major
corporate-wide acquisitions or initiatives whereas Regional
Income excludes all restructuring costs; |
|
|
|
|
b) BGP included pension costs based on the normal current
service cost with all actuarial gains, losses and other
adjustments being included in Intersegment and other. Regional
Income includes all these pension costs in the applicable
operating segment; and |
|
|
|
|
c) BGP excluded certain corporate non-operating costs
incurred by an operating segment and included such costs in
Intersegment and other. Under the current management structure,
these costs remain in the operating segment. |
|
Transactions between operating segments are conducted on an
arms-length basis and reflect market prices.
The accounting principles used to prepare the information by
operating segment are the same as those used to prepare the
consolidated and combined financial statements of the Company,
except the operating segments include the Companys
proportionate share of joint ventures (including joint ventures
accounted for using the equity method) as they are managed
within each operating segment, with the adjustments for
equity-accounted joint ventures shown on a separate line in the
reconciliation to Income before taxes and other items.
The operating segments are described below:
Headquartered in Cleveland, Ohio, U.S.A., this group encompasses
aluminum sheet and light gauge products and operates 12 plants,
including two recycling facilities, in two countries.
F-86
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
Headquartered in Zurich, Switzerland, this group comprises
aluminum sheet, including automotive, can and lithographic sheet
as well as foil stock and operates 16 plants in six countries
including two recycling facilities. The group ceased operations
in Falkirk, Scotland, in December 2004 and Flemalle, Belgium, in
May 2005.
Headquartered in Seoul, South Korea, this group encompasses
aluminum sheet and light gauge products and operates three
plants in two countries.
Headquartered in Sao Paulo, Brazil, this group comprises bauxite
mining, alumina refining, smelting operations, power generation,
carbon products, aluminum sheet and light gauge products and
operates five plants in Brazil. The Brazilian bauxite, alumina
and smelting assets are included in the group because they are
integrated with the Brazilian rolling operations.
This classification includes all costs incurred by the
Companys corporate offices in Atlanta, Georgia, U.S.A.,
and Toronto, Ontario, Canada. Under Alcans management
structure, this classification was referred to as Intersegment
and other and it included the deferral or realization of profits
on intersegment sales of aluminum and alumina, corporate office
costs as well as other non-operating items.
All four operating segments transacted with Rexam Plc (Rexam)
during 2005 and 2004. Revenues from Rexam totaled $510 for the
six months ended June 30, 2005, respectively (2004: $434),
and amounted to approximately 12% of total revenues for the six
months ended June 30, 2005 (2004: 12%):
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
Sales and operating revenues intersegment
|
|
|
|
|
|
|
|
|
Novelis North America
|
|
|
1 |
|
|
|
5 |
|
Novelis Europe
|
|
|
28 |
|
|
|
13 |
|
Novelis Asia
|
|
|
5 |
|
|
|
4 |
|
Novelis South America
|
|
|
30 |
|
|
|
27 |
|
Adjustments for equity-accounted joint ventures
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
(64 |
) |
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-87
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
Sales and operating revenues
|
|
|
|
|
|
|
|
|
Novelis North America
|
|
|
1,667 |
|
|
|
1,419 |
|
Novelis Europe
|
|
|
1,640 |
|
|
|
1,523 |
|
Novelis Asia
|
|
|
698 |
|
|
|
566 |
|
Novelis South America
|
|
|
293 |
|
|
|
235 |
|
Adjustments for equity-accounted joint ventures
|
|
|
(7 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
4,291 |
|
|
|
3,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
Regional Income
|
|
|
|
|
|
|
|
|
Novelis North America
|
|
|
91 |
|
|
|
141 |
|
Novelis Europe
|
|
|
115 |
|
|
|
98 |
|
Novelis Asia
|
|
|
59 |
|
|
|
43 |
|
Novelis South America
|
|
|
57 |
|
|
|
72 |
|
|
|
|
|
|
|
|
Total Regional Income
|
|
|
322 |
|
|
|
354 |
|
Corporate costs
|
|
|
7 |
|
|
|
(20 |
) |
Impairment, restructuring and rationalization costs
|
|
|
11 |
|
|
|
5 |
|
Adjustments for equity-accounted joint ventures
|
|
|
(22 |
) |
|
|
(21 |
) |
Adjustments for change in fair market value and
reclassifications of derivatives
|
|
|
(47 |
) |
|
|
22 |
|
Depreciation and amortization
|
|
|
(115 |
) |
|
|
(118 |
) |
Interest
|
|
|
(94 |
) |
|
|
(38 |
) |
|
|
|
|
|
|
|
Income before income taxes and other items
|
|
|
62 |
|
|
|
184 |
|
|
|
|
|
|
|
|
On August 3, 2005, the Company filed a registration
statement on Form S-4 in connection with its offer to
exchange up to $1,400,000,000 of new 7.25% Senior Notes due
2015 for any and all of the outstanding old 7.25% Senior
Notes due 2015. The Company anticipates this registration will
become effective in the third quarter of 2005.
|
|
20. |
SUPPLEMENTAL GUARANTOR INFORMATION
|
In connection with the issuance of the Companys senior
unsecured debt securities on February 3, 2005 (Senior
Notes), certain wholly-owned subsidiaries of the Company
provided guarantees of the Senior Notes. These guarantees are
full and unconditional as well as joint and several. The
guarantor subsidiaries (the Guarantors) comprise the majority of
the Companys businesses in Canada, the United States, the
United Kingdom, Brazil and Switzerland, as well as certain
Novelis businesses in Germany. Certain Guarantors may be subject
to certain restrictions on their ability to distribute earnings
to Novelis Inc. (the Parent). The remaining subsidiaries (the
Non-Guarantors) of the Parent are not guarantors of the Senior
Notes.
The following unaudited information sets forth the condensed
consolidating statements of income for the six months ended
June 30, 2005 and 2004, condensed consolidating statements
of cash flows for the
F-88
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
six months ended June 30, 2005 and 2004, and condensed
consolidating balance sheets of the Company as of June 30,
2005 and December 31, 2004 of the Parent, the Guarantors,
and the Non-Guarantors on a combined basis. Investments include
investments in subsidiaries as well as investments in net assets
of divisions included in the Parent. Investments in subsidiaries
and divisional net assets have been presented using the equity
method of accounting. General corporate expenses and stock
option and other stock-based compensation expenses allocated by
Alcan Inc. to the Company have also been included in the
Parents information.
F-89
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
NOVELIS INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
Sales and operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
109 |
|
|
|
2,996 |
|
|
|
1,186 |
|
|
|
|
|
|
|
4,291 |
|
|
related parties
|
|
|
518 |
|
|
|
532 |
|
|
|
70 |
|
|
|
(1,120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
627 |
|
|
|
3,528 |
|
|
|
1,256 |
|
|
|
(1,120 |
) |
|
|
4,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and operating expense, excluding depreciation and
amortization noted below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
92 |
|
|
|
2,674 |
|
|
|
1,086 |
|
|
|
|
|
|
|
3,852 |
|
|
related parties
|
|
|
518 |
|
|
|
532 |
|
|
|
70 |
|
|
|
(1,120 |
) |
|
|
|
|
Depreciation and amortization
|
|
|
5 |
|
|
|
80 |
|
|
|
30 |
|
|
|
|
|
|
|
115 |
|
Selling, general and administrative expenses
|
|
|
32 |
|
|
|
89 |
|
|
|
31 |
|
|
|
|
|
|
|
152 |
|
Research and development expenses
|
|
|
13 |
|
|
|
5 |
|
|
|
1 |
|
|
|
|
|
|
|
19 |
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
58 |
|
|
|
29 |
|
|
|
7 |
|
|
|
|
|
|
|
94 |
|
|
related parties
|
|
|
|
|
|
|
35 |
|
|
|
8 |
|
|
|
(43 |
) |
|
|
|
|
Other expense (income) net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(30 |
) |
|
|
22 |
|
|
|
5 |
|
|
|
|
|
|
|
(3 |
) |
|
related parties
|
|
|
(36 |
) |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
652 |
|
|
|
3,462 |
|
|
|
1,235 |
|
|
|
(1,120 |
) |
|
|
4,229 |
|
Income (loss) before income taxes and other items
|
|
|
(25 |
) |
|
|
66 |
|
|
|
21 |
|
|
|
|
|
|
|
62 |
|
Income taxes(benefit)
|
|
|
(8 |
) |
|
|
50 |
|
|
|
2 |
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before other items
|
|
|
(17 |
) |
|
|
16 |
|
|
|
19 |
|
|
|
|
|
|
|
18 |
|
Equity income (loss)
|
|
|
28 |
|
|
|
4 |
|
|
|
|
|
|
|
(28 |
) |
|
|
4 |
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
|
11 |
|
|
|
20 |
|
|
|
8 |
|
|
|
(28 |
) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-90
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
THE NOVELIS GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
Sales and operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
86 |
|
|
|
2,456 |
|
|
|
981 |
|
|
|
|
|
|
|
3,523 |
|
|
related parties
|
|
|
453 |
|
|
|
652 |
|
|
|
10 |
|
|
|
(899 |
) |
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
539 |
|
|
|
3,108 |
|
|
|
991 |
|
|
|
(899 |
) |
|
|
3,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and operating expense, excluding depreciation and
amortization noted below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
60 |
|
|
|
2,116 |
|
|
|
907 |
|
|
|
|
|
|
|
3,083 |
|
|
related parties
|
|
|
454 |
|
|
|
627 |
|
|
|
10 |
|
|
|
(899 |
) |
|
|
192 |
|
Depreciation and amortization
|
|
|
5 |
|
|
|
81 |
|
|
|
32 |
|
|
|
|
|
|
|
118 |
|
Selling, general and administrative expenses
|
|
|
41 |
|
|
|
45 |
|
|
|
24 |
|
|
|
|
|
|
|
110 |
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
related parties
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
18 |
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
11 |
|
|
|
10 |
|
|
|
|
|
|
|
21 |
|
|
related parties
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
17 |
|
Other expense (income) net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
3 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
related parties
|
|
|
(47 |
) |
|
|
23 |
|
|
|
2 |
|
|
|
|
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
516 |
|
|
|
2,953 |
|
|
|
985 |
|
|
|
(899 |
) |
|
|
3,555 |
|
Income before income taxes and other items
|
|
|
23 |
|
|
|
155 |
|
|
|
6 |
|
|
|
|
|
|
|
184 |
|
Income taxes (benefit)
|
|
|
(4 |
) |
|
|
68 |
|
|
|
2 |
|
|
|
|
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other items
|
|
|
27 |
|
|
|
87 |
|
|
|
4 |
|
|
|
|
|
|
|
118 |
|
Equity income
|
|
|
87 |
|
|
|
3 |
|
|
|
|
|
|
|
(87 |
) |
|
|
3 |
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
|
114 |
|
|
|
90 |
|
|
|
(3 |
) |
|
|
(87 |
) |
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-91
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
NOVELIS INC.
CONDENSED CONSOLIDATING BALANCE SHEET
As at June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of US$) |
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
18 |
|
|
|
81 |
|
|
|
30 |
|
|
|
|
|
|
|
129 |
|
Trade receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
25 |
|
|
|
677 |
|
|
|
328 |
|
|
|
|
|
|
|
1,030 |
|
|
related parties
|
|
|
90 |
|
|
|
128 |
|
|
|
5 |
|
|
|
(223 |
) |
|
|
|
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
25 |
|
|
|
175 |
|
|
|
49 |
|
|
|
|
|
|
|
249 |
|
|
related parties
|
|
|
255 |
|
|
|
141 |
|
|
|
118 |
|
|
|
(479 |
) |
|
|
35 |
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum
|
|
|
39 |
|
|
|
624 |
|
|
|
299 |
|
|
|
|
|
|
|
962 |
|
|
Raw materials
|
|
|
|
|
|
|
16 |
|
|
|
2 |
|
|
|
|
|
|
|
18 |
|
|
Other supplies
|
|
|
5 |
|
|
|
81 |
|
|
|
56 |
|
|
|
|
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
721 |
|
|
|
357 |
|
|
|
|
|
|
|
1,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
457 |
|
|
|
1,923 |
|
|
|
887 |
|
|
|
(702 |
) |
|
|
2,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges and other assets
|
|
|
36 |
|
|
|
53 |
|
|
|
36 |
|
|
|
|
|
|
|
125 |
|
Investments
|
|
|
675 |
|
|
|
156 |
|
|
|
|
|
|
|
(721 |
) |
|
|
110 |
|
Long-term receivables from related parties
|
|
|
1,169 |
|
|
|
81 |
|
|
|
1 |
|
|
|
(1,169 |
) |
|
|
82 |
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
277 |
|
|
|
3,746 |
|
|
|
1,259 |
|
|
|
|
|
|
|
5,282 |
|
|
Construction work in progress
|
|
|
8 |
|
|
|
73 |
|
|
|
36 |
|
|
|
|
|
|
|
117 |
|
|
Accumulated depreciation
|
|
|
(171 |
) |
|
|
(2,525 |
) |
|
|
(522 |
) |
|
|
|
|
|
|
(3,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114 |
|
|
|
1,294 |
|
|
|
773 |
|
|
|
|
|
|
|
2,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
|
|
27 |
|
|
|
3 |
|
|
|
|
|
|
|
30 |
|
Goodwill
|
|
|
|
|
|
|
26 |
|
|
|
222 |
|
|
|
|
|
|
|
248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2,451 |
|
|
|
3,560 |
|
|
|
1,922 |
|
|
|
(2,592 |
) |
|
|
5,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables and accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
108 |
|
|
|
709 |
|
|
|
485 |
|
|
|
|
|
|
|
1,302 |
|
|
related parties
|
|
|
71 |
|
|
|
147 |
|
|
|
42 |
|
|
|
(223 |
) |
|
|
37 |
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
1 |
|
|
|
22 |
|
|
|
|
|
|
|
23 |
|
|
related parties
|
|
|
40 |
|
|
|
376 |
|
|
|
63 |
|
|
|
(479 |
) |
|
|
|
|
Debt maturing within one year
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
219 |
|
|
|
1,233 |
|
|
|
615 |
|
|
|
(702 |
) |
|
|
1,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt not maturing within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1,811 |
|
|
|
760 |
|
|
|
186 |
|
|
|
|
|
|
|
2,757 |
|
|
related parties
|
|
|
|
|
|
|
979 |
|
|
|
190 |
|
|
|
(1,169 |
) |
|
|
|
|
Deferred credits and other liabilities
|
|
|
16 |
|
|
|
376 |
|
|
|
94 |
|
|
|
|
|
|
|
486 |
|
Deferred income taxes
|
|
|
14 |
|
|
|
172 |
|
|
|
12 |
|
|
|
|
|
|
|
198 |
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
144 |
|
|
|
|
|
|
|
144 |
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
434 |
|
Retained earnings
|
|
|
27 |
|
|
|
40 |
|
|
|
681 |
|
|
|
(721 |
) |
|
|
27 |
|
Accumulated other comprehensive income (loss)
|
|
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
391 |
|
|
|
40 |
|
|
|
681 |
|
|
|
(721 |
) |
|
|
391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
2,451 |
|
|
|
3,560 |
|
|
|
1,922 |
|
|
|
(2,592 |
) |
|
|
5,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-92
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
THE NOVELIS GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As at December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of US$) |
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
12 |
|
|
|
19 |
|
|
|
|
|
|
|
31 |
|
Trade receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1 |
|
|
|
399 |
|
|
|
310 |
|
|
|
|
|
|
|
710 |
|
|
related parties
|
|
|
84 |
|
|
|
156 |
|
|
|
7 |
|
|
|
(160 |
) |
|
|
87 |
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
2 |
|
|
|
70 |
|
|
|
46 |
|
|
|
|
|
|
|
118 |
|
|
related parties
|
|
|
45 |
|
|
|
849 |
|
|
|
30 |
|
|
|
(78 |
) |
|
|
846 |
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum
|
|
|
44 |
|
|
|
705 |
|
|
|
332 |
|
|
|
|
|
|
|
1,081 |
|
|
Raw materials
|
|
|
|
|
|
|
18 |
|
|
|
2 |
|
|
|
|
|
|
|
20 |
|
|
Other supplies
|
|
|
6 |
|
|
|
78 |
|
|
|
41 |
|
|
|
|
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
801 |
|
|
|
375 |
|
|
|
|
|
|
|
1,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
182 |
|
|
|
2,287 |
|
|
|
787 |
|
|
|
(238 |
) |
|
|
3,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges and other assets
|
|
|
|
|
|
|
32 |
|
|
|
39 |
|
|
|
|
|
|
|
71 |
|
Investments
|
|
|
1,242 |
|
|
|
168 |
|
|
|
|
|
|
|
(1,288 |
) |
|
|
122 |
|
Long-term receivables from related parties
|
|
|
210 |
|
|
|
104 |
|
|
|
|
|
|
|
(210 |
) |
|
|
104 |
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
273 |
|
|
|
3,883 |
|
|
|
1,350 |
|
|
|
|
|
|
|
5,506 |
|
|
Construction work in progress
|
|
|
6 |
|
|
|
76 |
|
|
|
30 |
|
|
|
|
|
|
|
112 |
|
|
Accumulated depreciation
|
|
|
(167 |
) |
|
|
(2,554 |
) |
|
|
(549 |
) |
|
|
|
|
|
|
(3,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112 |
|
|
|
1,405 |
|
|
|
831 |
|
|
|
|
|
|
|
2,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
|
|
31 |
|
|
|
4 |
|
|
|
|
|
|
|
35 |
|
Goodwill
|
|
|
|
|
|
|
28 |
|
|
|
228 |
|
|
|
|
|
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
1,746 |
|
|
|
4,055 |
|
|
|
1,889 |
|
|
|
(1,736 |
) |
|
|
5,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND INVESTED EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables and accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
22 |
|
|
|
378 |
|
|
|
459 |
|
|
|
|
|
|
|
859 |
|
|
related parties
|
|
|
79 |
|
|
|
429 |
|
|
|
60 |
|
|
|
(167 |
) |
|
|
401 |
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
122 |
|
|
|
107 |
|
|
|
|
|
|
|
229 |
|
|
related parties
|
|
|
|
|
|
|
231 |
|
|
|
152 |
|
|
|
(71 |
) |
|
|
312 |
|
Debt maturing within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
related parties
|
|
|
290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
391 |
|
|
|
1,160 |
|
|
|
779 |
|
|
|
(238 |
) |
|
|
2,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt not maturing within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
|
|
|
|
139 |
|
|
|
|
|
|
|
139 |
|
|
related parties
|
|
|
749 |
|
|
|
1,751 |
|
|
|
17 |
|
|
|
(210 |
) |
|
|
2,307 |
|
Deferred credits and other liabilities
|
|
|
8 |
|
|
|
373 |
|
|
|
91 |
|
|
|
|
|
|
|
472 |
|
Deferred income taxes
|
|
|
43 |
|
|
|
183 |
|
|
|
23 |
|
|
|
|
|
|
|
249 |
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
140 |
|
Invested equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners net investment
|
|
|
467 |
|
|
|
529 |
|
|
|
671 |
|
|
|
(1,200 |
) |
|
|
467 |
|
Accumulated other comprehensive income
|
|
|
88 |
|
|
|
59 |
|
|
|
29 |
|
|
|
(88 |
) |
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
555 |
|
|
|
588 |
|
|
|
700 |
|
|
|
(1,288 |
) |
|
|
555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and invested equity
|
|
|
1,746 |
|
|
|
4,055 |
|
|
|
1,889 |
|
|
|
(1,736 |
) |
|
|
5,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-93
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
NOVELIS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
Cash from (used for) operating activities
|
|
|
638 |
|
|
|
(192 |
) |
|
|
(110 |
) |
|
|
(48 |
) |
|
|
288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of new debt
|
|
|
1,875 |
|
|
|
2,000 |
|
|
|
379 |
|
|
|
(1,504 |
) |
|
|
2,750 |
|
Debt repayments
|
|
|
(1,276 |
) |
|
|
(1,443 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
(2,813 |
) |
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(20 |
) |
|
|
(366 |
) |
|
|
(82 |
) |
|
|
|
|
|
|
(468 |
) |
|
related parties
|
|
|
(277 |
) |
|
|
317 |
|
|
|
(114 |
) |
|
|
|
|
|
|
(74 |
) |
Proceeds from issuance of preference shares
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
(32 |
) |
|
|
|
|
Dividends common shareholders
|
|
|
(14 |
) |
|
|
(77 |
) |
|
|
(3 |
) |
|
|
80 |
|
|
|
(14 |
) |
Dividends minority interest
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
(7 |
) |
Net payments to Alcan
|
|
|
116 |
|
|
|
(15 |
) |
|
|
3 |
|
|
|
|
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from (used for) financing activities
|
|
|
404 |
|
|
|
416 |
|
|
|
114 |
|
|
|
(1,456 |
) |
|
|
(522 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(5 |
) |
|
|
(33 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
(56 |
) |
Proceeds from disposal of businesses, investments and other
assets, net of cash
|
|
|
|
|
|
|
2 |
|
|
|
7 |
|
|
|
|
|
|
|
9 |
|
Change in long-term and other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
322 |
|
|
|
19 |
|
|
|
|
|
|
|
341 |
|
related parties
|
|
|
(1,019 |
) |
|
|
(443 |
) |
|
|
|
|
|
|
1,504 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from (used for) investment activities
|
|
|
(1,024 |
) |
|
|
(152 |
) |
|
|
8 |
|
|
|
1,504 |
|
|
|
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
18 |
|
|
|
72 |
|
|
|
12 |
|
|
|
|
|
|
|
102 |
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
(4 |
) |
Cash and cash equivalents beginning of period
|
|
|
|
|
|
|
12 |
|
|
|
19 |
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
|
18 |
|
|
|
81 |
|
|
|
30 |
|
|
|
|
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-94
Novelis Inc.
NOTES TO THE CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS
(unaudited) (Continued)
(in millions of US$, except where indicated)
THE NOVELIS GROUP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Parent |
|
|
Guarantors |
|
|
Guarantors |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of US$) |
|
Cash from (used for) operating activities
|
|
|
12 |
|
|
|
(55 |
) |
|
|
144 |
|
|
|
(2 |
) |
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of new debt
|
|
|
|
|
|
|
439 |
|
|
|
2 |
|
|
|
|
|
|
|
441 |
|
Debt repayments
|
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
(28 |
) |
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
(125 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
(129 |
) |
|
related parties
|
|
|
90 |
|
|
|
(60 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
8 |
|
Dividends minority interest
|
|
|
(5 |
) |
|
|
7 |
|
|
|
(5 |
) |
|
|
|
|
|
|
(3 |
) |
Net payments to Alcan
|
|
|
(70 |
) |
|
|
137 |
|
|
|
(86 |
) |
|
|
2 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from (used for) financing activities
|
|
|
15 |
|
|
|
398 |
|
|
|
(139 |
) |
|
|
(2 |
) |
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(1 |
) |
|
|
(33 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
(59 |
) |
Change in long-term and other receivables
|
|
|
(26 |
) |
|
|
(310 |
) |
|
|
21 |
|
|
|
4 |
|
|
|
(311 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from (used for) investment activities
|
|
|
(27 |
) |
|
|
(343 |
) |
|
|
(4 |
) |
|
|
4 |
|
|
|
(370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Cash and cash equivalents beginning of period
|
|
|
|
|
|
|
8 |
|
|
|
19 |
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
|
|
|
|
|
8 |
|
|
|
20 |
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-95
NOVELIS INC.
$1,400,000,000
71/4% Senior
Notes due 2015
PROSPECTUS
All tendered old notes, executed letters of transmittal and
other related documents should be directed to the exchange agent
at the numbers and address below. Requests for assistance and
for additional copies of the prospectus, the letter of
transmittal and other related documents should also be directed
to the exchange agent.
The exchange agent for the exchange offer is:
The Bank of New York Trust Company, N.A.
Corporate Trust Operations
Reorganization Unit
101 Barclay Street 7 East
New York, NY 10286
Attn: Randolph Holder
|
|
|
To Confirm by Telephone: |
|
Facsimile Transmissions (eligible institutions only): |
(212) 815-5098 |
|
(212) 298-1915 |
,
2005
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
|
ITEM 20. |
Indemnification of Directors and Officers
|
The Canada Business Corporations Act (the Act), the
governing act to which the Company is subject, provides that,
|
|
|
(1) a corporation may indemnify a Director or Officer of
the Corporation, a former Director or Officer of the Corporation
or another individual who acts or acted at the
Corporations request as a Director or Officer or an
individual acting in a similar capacity, of another entity,
against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably
incurred by the individual in respect of any civil, criminal,
administrative, investigative or other proceeding in which the
individual is involved because of that association with the
Corporation or other entity. |
|
|
(2) a corporation may advance moneys to a Director, Officer
or other individual for the costs, charges and expenses of a
proceeding referred to paragraph (1). However, the
individual shall repay the moneys if he or she does not fulfill
the conditions of paragraph (3). |
|
|
(3) a corporation may not indemnify an individual under
paragraph (1), unless the individual |
(a) acted honestly and in good faith with a view to the
best interests of the Corporation, or, as the case may be, to
the best interests of the other entity for which the individual
acted as a director or officer or in a similar capacity at the
Corporations request; and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, the
individual had reasonable grounds for believing that the
individuals conduct was lawful.
|
|
|
(4) A Corporation may with the approval of a court
indemnify a person referred to in paragraph (1), or advance
moneys under paragraph (2), in respect of an action by or
on behalf of the Corporation or other entity to procure a
judgment in its favor, to which the individual is made a party
because of the individuals association with the
Corporation or other entity as described in
paragraph (1) against all costs, charges and expenses
reasonably incurred by the individual in connection with such
action if the individual fulfils the conditions set out in
paragraph (3). |
|
|
(5) Despite paragraph (1), an individual referred to
in paragraph (I) is entitled to indemnity from the
Corporation in respect of all costs, charges and expenses
reasonably incurred by the individual in connection with the
defense of any civil, criminal, administrative, investigative or
other proceeding to which the individual is subject because of
the individuals association with the Corporation or other
entity as described in paragraph (1), if the individual
seeking indemnity: |
(a) was not judged by the court or other competent
authority to have committed any fault or omitted to do anything
that the individual ought to have done; and
(b) fulfils the conditions set out in paragraph (3).
The Directors Standing Resolution pertaining to
indemnification of Directors and Officers of the Corporation
represents, in general terms, the extent to which Directors and
Officers may be indemnified by the Company under the Act. This
resolution provides as follows:
|
|
|
17. (1) INDEMNITY Subject to the
limitations contained in the governing Act but without limit to
the right of the Corporation to indemnify as provided for in the
Act, the Corporation shall indemnify a Director or Officer, a
former Director or Officer, or a person who acts or acted at the
Corporations request as a Director or Officer of a body
corporate of which the Corporation is or was a Shareholder or
creditor (or a person who undertakes or has undertaken any
liability on behalf of the Corporation or at the
Corporations request on behalf of any such body corporate)
and his heirs and legal representatives, against all costs,
charges and expenses, including an amount paid to settle an |
II-1
|
|
|
action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal, administrative, investigative or
other proceeding to which he is made a party by reason of being
or having been a Director or Officer of the Corporation or such
body corporate or by reason of having undertaken such liability. |
|
|
(2) ADVANCE OF COSTS The Corporation shall
advance moneys to a Director, Officer or other individual for
the costs, charges and expenses of a proceeding referred to in
subsection (1). The individual shall repay the moneys if
the individual does not fulfill the conditions of
subsection (3). |
|
|
(3) LIMITATION The Corporation may not
indemnify an individual under subsection (1) unless
the individual |
(a) acted honestly and in good faith with a view to the
best interests of the Corporation; and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he had
reasonable grounds for believing that his conduct was
lawful.
The Company also has an insurance policy covering Directors and
Officers of the Company and of its subsidiaries against certain
liabilities which might be incurred by them in their capacities
as such, but excluding those claims for which such insured
persons could be indemnified by the Company or its subsidiaries.
|
|
ITEM 21. |
Exhibits and Financial Statement Schedules
|
(a) Exhibits
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
3 |
.1 |
|
Restated Certificate and Articles of Incorporation of Novelis
Inc. (incorporated by reference to Exhibit 3.1 to the
Form 8-K filed by Novelis Inc. on January 7, 2005
(File No. 001-32312).) |
|
3 |
.2 |
|
By-law No. 1 of Novelis Inc. (incorporated by reference to
Exhibit 3.2 to the Form 10 filed by Novelis Inc. on
November 17, 2004 (File No. 001-32312).) |
|
|
3 |
.3 |
|
Articles of Amendment to the Articles of Incorporation of
Novelis Corporation (formerly Alcan Aluminum Corporation) |
|
|
3 |
.4 |
|
Articles of Amendment to the Articles of Incorporation of
Novelis Corporation |
|
|
3 |
.5 |
|
Articles of Incorporation of Novelis Corporation |
|
|
3 |
.6 |
|
Bylaws of Novelis Corporation |
|
|
3 |
.7 |
|
Certificate of Amendment of Certificate of Incorporation of
Novelis PAE Corporation (formerly Pechiney Aluminum Engineering,
Inc.) |
|
|
3 |
.8 |
|
Certificate of Incorporation of Novelis PAE Corporation |
|
|
3 |
.9 |
|
By-laws of Novelis PAE Corporation |
|
|
3 |
.10 |
|
Certificate of Incorporation of Eurofoil Inc. (USA) |
|
|
3 |
.11 |
|
By-laws of Eurofoil Inc. (USA) |
|
|
3 |
.12 |
|
Articles of Association of Novelis do Brasil Ltda. |
|
|
3 |
.13 |
|
Certificate and Articles of Incorporation of 4260848 Canada
Inc. |
|
|
3 |
.14 |
|
By-law No. 1 of 4260848 Canada Inc. |
|
|
3 |
.15 |
|
Certificate and Articles of Incorporation of 4260856 Canada
Inc. |
|
|
3 |
.16 |
|
By-law No. 1 of 4260856 Canada Inc. |
|
|
3 |
.17 |
|
Amendment of Articles of Incorporation of Novelis Cast House
Technology Ltd. |
|
|
3 |
.18 |
|
Certificate and Articles of Incorporation of Novelis Cast House
Technology Ltd. |
|
|
3 |
.19 |
|
By-law No. 2 of Novelis Cast House Technology Ltd. |
|
|
3 |
.20 |
|
By-law No. 1 of Novelis Cast House Technology Ltd. |
|
|
3 |
.21 |
|
Bylaws of Novelis Deutschland GmbH |
II-2
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
|
3 |
.22 |
|
Certificate of Incorporation on Change of Name of Novelis
Aluminium Holding Company |
|
|
3 |
.23 |
|
Memorandum and Articles of Association of Novelis Aluminium
Holding Company |
|
|
3 |
.24 |
|
Articles of Association of Novelis AG |
|
|
3 |
.25 |
|
Articles of Association of Novelis Technology AG |
|
|
3 |
.26 |
|
Articles of Association for Novelis Switzerland S.A. |
|
|
3 |
.27 |
|
Memorandum of Association of Novelis UK Ltd. |
|
|
3 |
.28 |
|
Articles of Association of Novelis UK Ltd. |
|
|
3 |
.29 |
|
Memorandum of Association of Novelis Europe Holdings Ltd. |
|
|
3 |
.30 |
|
Articles of Association of Novelis Europe Holdings Ltd. |
|
|
4 |
.1 |
|
Indenture, relating to the Notes, dated as of February 3,
2005, between the Company, the guarantors named on the signature
pages thereto and The Bank of New York Trust Company, N.A.,
as trustee (incorporated by reference to Exhibit 4.1 to our
Current Report on Form 8-K filed on February 3, 2005
(File No. 001-32312)) |
|
|
4 |
.2 |
|
Registration Rights Agreement, dated as of February 3,
2005, among the Company, the guarantors named on the signature
pages thereto, Citigroup Global Markets Inc., Morgan
Stanley & Co. Incorporated and UBS Securities LLC, as
Representatives of the Initial Purchasers (incorporated by
reference to Exhibit 4.2 to our Current Report on
Form 8-K filed on February 3, 2005 (File
No. 001-32312)) |
|
|
4 |
.3 |
|
Form of Note for
71/4% Senior
Notes due 2015 (included as part of Exhibit 4.1) |
|
|
5 |
.1 |
|
Opinion of Sullivan & Cromwell LLP regarding the
legality of securities being registered |
|
|
5 |
.2 |
|
Opinion of Ogilvy Renault LLP |
|
|
5 |
.3 |
|
Opinion of Jones Day |
|
|
5 |
.4 |
|
Opinion of MacFarlanes |
|
|
5 |
.5 |
|
Opinion of Internal Counsel of Novelis Inc. |
|
|
5 |
.6 |
|
Opinion of Internal Counsel of Novelis Inc. |
|
|
5 |
.7 |
|
Opinion of A&L Goodbody |
|
|
5 |
.8 |
|
Opinion of Levy & Salomão Advogados |
|
|
10 |
.1 |
|
Separation Agreement between Alcan Inc. and Novelis Inc.
(incorporated by reference to Exhibit 10.1 to our Annual
Report on Form 10-K filed on March 30, 2005 (File No.
001-32312)) |
|
|
10 |
.2 |
|
Metal Supply Agreement between Novelis Inc., as Purchaser, and
Alcan Inc., as Supplier, for the supply of remelt aluminum
ingot** (incorporated by reference to Exhibit 10.2 to our
Annual Report on Form 10-K filed on March 30, 2005
(File No. 001-32312)) |
|
|
10 |
.3 |
|
Molten Metal Supply Agreement between Novelis Inc., as
Purchaser, and Alcan Inc., as Supplier, for the supply of molten
metal to Purchasers Saguenay Works facility**
(incorporated by reference to Exhibit 10.3 to our Annual
Report on Form 10-K filed on March 30, 2005 (File
No. 001-32312)) |
|
10 |
.4 |
|
Metal Supply Agreement between Novelis Inc., as Purchaser, and
Alcan Inc., as Supplier, for the supply of sheet ingot in North
America** (incorporated by reference to Exhibit 10.4 to our
Annual Report on Form 10-K filed on March 30, 2005
(File No. 001-32312)) |
|
|
10 |
.5 |
|
Metal Supply Agreement between Novelis Inc., as Purchaser, and
Alcan Inc., as Supplier, for the supply of sheet ingot in
Europe** (incorporated by reference to Exhibit 10.5 to our
Annual Report on Form 10-K filed on March 30, 2005
(File No. 001-32312)) |
|
|
10 |
.6 |
|
Tax Sharing and Disaffiliation Agreement between Alcan Inc.,
Novelis Inc., Arcustarget Inc., Alcan Corporation and Novelis
Corporation (incorporated by reference to Exhibit 10.6 to
our Annual Report on Form 10-K filed on March 30, 2005
(File No. 001-32312)) |
|
|
10 |
.7 |
|
Transitional Services Agreement between Alcan Inc. and Novelis
Inc. (incorporated by reference to Exhibit 10.7 to our
Annual Report on Form 10-K filed on March 30, 2005
(File No. 001-32312)) |
II-3
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
|
10 |
.8 |
|
Principal Intellectual Property Agreement between Alcan
International Limited and Novelis Inc.** (incorporated by
reference to Exhibit 10.8 to our Annual Report on
Form 10-K filed on March 30, 2005 (File
No. 001-32312)) |
|
|
10 |
.9 |
|
Secondary Intellectual Property Agreement between Novelis Inc.
and Alcan International Limited** (incorporated by reference to
Exhibit 10.9 to our Annual Report on Form 10-K filed
on March 30, 2005 (File No. 001-32312)) |
|
|
10 |
.10 |
|
Master Metal Hedging Agreement between Alcan Inc. and Novelis
Inc.** (incorporated by reference to Exhibit 10.10 to our
Annual Report on Form 10-K filed on March 30, 2005
(File No. 001-32312)) |
|
|
10 |
.11 |
|
Credit Agreement, dated as of January 7, 2005, among
Novelis Inc., Novelis Corporation, Novelis Deutschland GmbH,
Novelis UK Limited and Novelis AG, as Borrowers, the Lenders and
Issuers Party (as defined in the agreement), Citigroup North
America, Inc., as Administrative Agent and Collateral Agent,
Morgan Stanley Senior Funding, Inc. and UBS Securities LLC, as
Co-Syndication Agents, and Citigroup Global Markets Inc., Morgan
Stanley Senior Funding, Inc. and UBS Securities LLC, as Joint
Lead Arrangers and Joint Book-Running Managers. (incorporated by
reference to Exhibit 10.11 to our Annual Report on
Form 10-K filed on March 30, 2005 (File
No. 001-32312)) |
|
|
10 |
.11.1 |
|
Amendment No. 1 dated as of September 19, 2005 to Credit
Agreement (incorporated by reference to Exhibit 10.1 to our
Current Report on Form 8-K filed on September 20, 2005
(File No. 001-32312)) |
|
|
10 |
.12* |
|
Employee Matters Agreement between Alcan Inc. and Novelis Inc.
(incorporated by reference to Exhibit 10.12 to our Annual
Report on Form 10-K filed on March 30, 2005 (File
No. 001-32312)) |
|
|
10 |
.13* |
|
Employment Agreement of Brian W. Sturgell (incorporated by
reference to Exhibit 10.32 to the Form 10 filed by
Novelis Inc. on December 22, 2004 (File
No. 001-32312).) |
|
|
10 |
.14* |
|
Employment Agreement of Martha Finn Brooks (incorporated by
reference to Exhibit 10.33 to the Form 10 filed by
Novelis Inc. on December 22, 2004 (File
No. 001-32312).) |
|
|
10 |
.15* |
|
Employment Agreement of Christopher Bark-Jones (incorporated by
reference to Exhibit 10.34 to the Form 10 filed by
Novelis Inc. on December 27, 2004 (File
No. 001-32312).) |
|
|
10 |
.16* |
|
Employment Agreement of Pierre Arseneault (incorporated by
reference to Exhibit 10.35 to the Form 10 filed by
Novelis Inc. on December 22, 2004 (File
No. 001-32312).) |
|
|
10 |
.17* |
|
Employment Agreement of Geoffrey P. Batt (incorporated by
reference to Exhibit 10.36 to the Form 10 filed by
Novelis Inc. on December 22, 2004 (File
No. 001-32312).) |
|
|
10 |
.18* |
|
Form of Change of Control Agreement between Alcan Inc. and
executive officers of Novelis Inc. (incorporated by reference to
Exhibit 10.37 to the Form 10 filed by Novelis Inc. on
December 22, 2004 (File No. 001-32312).) |
|
|
10 |
.19* |
|
Change of Control Agreement dated as of August 1, 2002
between Alcan Inc. and Brian W. Sturgell, as amended by a letter
dated May 11, 2004 from Travis Engen, President and Chief
Executive Officer of Alcan Inc. (incorporated by reference to
Exhibit 10.1 to the Form 8-K filed by Novelis Inc. on
January 7, 2005 (File No. 001-32312).) |
|
|
10 |
.20* |
|
Change of Control Agreement dated as of December 22, 2004
between Alcan Inc. and Martha Finn Brooks (incorporated by
reference to Exhibit 10.2 to the Form 8-K filed by
Novelis Inc. on January 7, 2005 (File No. 001-32312).) |
|
|
10 |
.21* |
|
Change of Control Agreement dated as of December 23, 2004
between Alcan Inc. and Christopher Bark-Jones (incorporated by
reference to Exhibit 10.3 to the Form 8-K filed by
Novelis Inc. on January 7, 2005 (File No. 001-32312).) |
|
|
10 |
.22* |
|
Change of Control Agreement dated as of November 12, 2004
between Alcan Inc. and Pierre Arseneault (incorporated by
reference to Exhibit 10.4 to the Form 8-K filed by
Novelis Inc. on January 7, 2005 (File No. 001-32312).) |
|
|
10 |
.23* |
|
Change of Control Agreement dated as of November 8, 2004
between Alcan Inc. and Geoffrey P. Batt (incorporated by
reference to Exhibit 10.5 to the Form 8-K filed by
Novelis Inc. on January 7, 2005 (File No. 001-32312).) |
II-4
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
|
10 |
.24* |
|
Novelis Conversion Plan of 2005 (incorporated by reference to
Exhibit 10.6 to the Form 8-K filed by Novelis Inc. on
January 7, 2005 (File No. 001-32312).) |
II-4.1
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
|
10 |
.25* |
|
Written description of Novelis Short Term Incentive
Plan 2005 Performance Measures (incorporated by
reference to Exhibit 10.25 to our Annual Report on
Form 10-K filed on March 30, 2005 (File
No. 001-32312)) |
|
|
10 |
.26* |
|
Novelis Inc. Deferred Share Unit Plan for Non-Executive
Directors (incorporated by reference to Exhibit 10.26 to
our Annual Report on Form 10-K filed on March 30, 2005
(File No. 001-32312)) |
|
|
10 |
.27* |
|
Employment Agreement of Jack Morrison (incorporated by reference
to Exhibit 10.27 to our Annual Report on Form 10-K
filed on March 30, 2005 (File No. 001-32312)) |
|
|
10 |
.28* |
|
Form of Offer Letter with certain Novelis executive officers
(incorporated by reference to Exhibit 10.28 to our Annual
Report on Form 10-K filed on March 30, 2005 (File No.
001-32312)) |
|
|
10 |
.29* |
|
Written description of Novelis Pension Plan for Officers
(incorporated by reference to Exhibit 10.29 to our Annual
Report on Form 10-K filed on March 30, 2005 (File No.
001-32312)) |
|
|
10 |
.30* |
|
Written description of Novelis Founders Performance Award Plan
(incorporated by reference to Exhibit 10.30 to our Annual
Report on Form 10-K filed on March 30, 2005 (File
No. 001-32312)) |
|
|
10 |
.31* |
|
Deferred Share Agreement, dated as of July 1, 2002, between
Alcan Corporation and Martha Finn Brooks (incorporated by
reference to Exhibit 10.1 to the Form 8-K filed by Novelis
Inc. on August 1, 2005 (File No. 001-32312)) |
|
|
10 |
.32* |
|
Amendment to Deferred Share Agreement, dated as of July 27,
2005, between Novelis Inc. and Martha Finn Brooks (incorporated
by reference to Exhibit 10.2 to the Form 8-K filed by
Novelis Inc. on August 1, 2005) (File No. 001-32312) |
|
|
12 |
.1 |
|
Statement regarding computation of ratio of earnings to fixed
charges |
|
|
21 |
.1 |
|
List of Subsidiaries of Novelis Inc. (incorporated by reference
to Exhibit 21.1 to our Annual Report on Form 10-K
filed on March 30, 2005 (File No. 001-32312)) |
|
|
23 |
.1 |
|
Consent of PricewaterhouseCoopers LLP |
|
|
23 |
.2 |
|
Consent of Sullivan & Cromwell LLP (included as part of
Exhibit 5.1) |
|
|
23 |
.3 |
|
Consent of Ogilvy Renault LLP (included as part of
Exhibit 5.2) |
|
|
23 |
.4 |
|
Consent of Jones Day (included as part of Exhibit 5.3) |
|
|
23 |
.5 |
|
Consent of MacFarlanes (included as part of
Exhibit 5.4) |
|
|
23 |
.6 |
|
Consent of Internal Counsel of Novelis Inc. (included as part of
Exhibit 5.5) |
|
|
23 |
.7 |
|
Consent of Internal Counsel of Novelis Inc. (included as part of
Exhibit 5.6) |
|
|
23 |
.8 |
|
Consent of A&L Goodbody (included as part of
Exhibit 5.7) |
|
|
23 |
.9 |
|
Consent of Levy & Salomão Advogados (included as
part of Exhibit 5.8) |
|
|
24 |
.1 |
|
Powers of Attorney (included in the signature pages to this
Registration Statement) |
|
|
25 |
.1 |
|
Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939 of The Bank of New York Trust
Company, N.A., as trustee of the Indenture |
|
|
99 |
.1 |
|
Form of Letter of Transmittal |
|
|
99 |
.2 |
|
Form of Notice of Guaranteed Delivery |
|
|
99 |
.3 |
|
Exchange Agent Agreement between Novelis Inc. and The Bank of
New York Trust Company, N.A. |
|
|
|
|
* |
Indicates a management contract or compensatory plan or
arrangement. |
|
|
** |
Confidential treatment requested for certain portions of this
Exhibit, which portions have been omitted and filed separately
with the Securities and Exchange Commission. |
|
|
|
|
|
|
Previously filed. |
|
|
|
|
|
Certain powers of attorney previously filed. |
|
II-5
b) Financial Statement Schedules
None.
(1) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
approximate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(2) The undersigned Registrant hereby undertakes to respond
to requests for information that is incorporated by reference
into the prospectus pursuant to items 4, 10(b), 11, or
13 of this Form, within one business day of receipt of such
request, and to send the incorporating documents by first class
mail or other equally prompt means. This includes information
contained in the documents filed subsequent to the effective
date of the registration statement through the date of
responding to the request.
(3) The undersigned Registrant hereby undertakes to supply
by means of a post-effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in
the registration statement when it became effective.
(4) The undersigned registrant hereby undertakes:
|
|
|
(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement: |
|
|
|
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act. |
|
|
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement. |
|
|
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement. |
|
|
|
(b) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof. |
|
|
(c) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering. |
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
|
|
Name: Brian W. Sturgell |
|
Title: Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Brian
W. Sturgell |
|
Director, Chief Executive Officer
(Principal Executive Officer) |
|
September 22, 2005 |
|
*
Geoffrey
P. Batt |
|
Chief Financial Officer
(Principal Financial Officer) |
|
September 22, 2005 |
|
*
Jo-Ann
Longworth |
|
Vice President and Controller
(Principal Accounting Officer) |
|
September 22, 2005 |
|
*
J.E.
Newall |
|
Non-Executive Chairman |
|
September 22, 2005 |
|
Jacques
Bougie |
|
Director |
|
|
|
*
Charles
G. Cavell |
|
Director |
|
September 22, 2005 |
|
Clarence
J. Chandran |
|
Director |
|
|
|
*
C.
Roberto Cordaro |
|
Director |
|
September 22, 2005 |
|
*
Helmut
Eschwey |
|
Director |
|
September 22, 2005 |
|
*
David
J. FitzPatrick |
|
Director |
|
September 22, 2005 |
|
*
Suzanne
Labarge |
|
Director |
|
September 22, 2005 |
II-7
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
William
T. Monahan |
|
Director |
|
September 22, 2005 |
|
*
Rudolph
Rupprecht |
|
Director |
|
September 22, 2005 |
|
*
Edward
Yang |
|
Director |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
Leslie
J. Parrette, Jr. |
|
Authorized Representative in the United States of America |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
*Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
|
|
Name: Charles R. Aley |
|
Title: Secretary |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Kevin
Greenawalt |
|
Director, President
(Principal Executive Officer) |
|
September 22, 2005 |
|
*
Glen
Guman |
|
Director, Vice President and Treasurer
(Principal Financial Officer) |
|
September 22, 2005 |
|
*
Robert
Sabelli |
|
Assistant Treasurer
(Principal Accounting Officer) |
|
September 22, 2005 |
|
*
Charles
R. Aley |
|
Director |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
*Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
|
|
Name: Charles R. Aley |
|
Title: Secretary |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Jo-Ann
Longworth |
|
Vice President and Treasurer
(Principal Executive Officer)
(Principal Financial Officer) |
|
September 22, 2005 |
|
*
Robert
Sabelli |
|
Assistant Treasurer
(Principal Accounting Officer) |
|
September 22, 2005 |
|
*
Charles
R. Aley |
|
Director |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
*Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
|
|
Name: Charles R. Aley |
|
Title: Secretary |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Jo-Ann
Longworth |
|
Vice President and Treasurer
(Principal Executive Officer)
(Principal Financial Officer) |
|
September 22, 2005 |
|
*
Robert
Sabelli |
|
Assistant Treasurer
(Principal Accounting Officer) |
|
September 22, 2005 |
|
*
Charles
R. Aley |
|
Director |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
*Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
NOVELIS CAST HOUSE TECHNOLOGY LTD. |
|
|
|
|
|
Name: David Kennedy |
|
Title: President |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
David
Kennedy |
|
Director, President
(Principal Executive Officer)
(Principal Financial Officer)
(Principal Accounting Officer) |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
Leslie
J. Parrette, Jr. |
|
Authorized Representative in the
United States of America |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
*Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
|
|
Name: David Kennedy |
|
Title: President |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
David
Kennedy |
|
Director, President
(Principal Executive Officer)
(Principal Financial Officer)
(Principal Accounting Officer) |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
Leslie
J. Parrette, Jr. |
|
Authorized Representative in the
United States of America |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
*Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
|
|
Name: David Kennedy |
|
Title: President |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
David
Kennedy |
|
Director, President
(Principal Executive Officer)
(Principal Financial Officer)
(Principal Accounting Officer) |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
Leslie
J. Parrette, Jr. |
|
Authorized Representative in the
United States of America |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
* Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
NOVELIS EUROPE HOLDINGS LTD. |
|
|
|
|
|
Name: Christopher Bark-Jones |
|
Title: Director |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Christopher
Bark-Jones |
|
Director,
(Principal Executive Officer) |
|
September 22, 2005 |
|
*
Erwin
Faust |
|
Director,
(Principal Financial Officer,)
(Principal Accounting Officer) |
|
September 22, 2005 |
|
*
Jim
Wilkie |
|
Director |
|
September 22, 2005 |
|
James
Gunningham |
|
Director |
|
|
|
/s/ Leslie J. Parrette,
Jr.
Leslie
J. Parrette, Jr. |
|
Authorized Representative in the
United States of America |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
* Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
|
|
Name: Christopher Bark-Jones |
|
Title: Director |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Christopher
Bark-Jones |
|
Director,
(Principal Executive Officer) |
|
September 22, 2005 |
|
*
Erwin
Faust |
|
Director,
(Principal Financial Officer,)
(Principal Accounting Officer) |
|
September 22, 2005 |
|
William
Morris |
|
Director |
|
|
|
/s/ Leslie J. Parrette,
Jr.
Leslie
J. Parrette, Jr. |
|
Authorized Representative in the United States of America |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
* Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
|
|
Name: Antonio Tadeu Coelho Nardocci |
|
Title: President |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Antonio
Tadeu Coelho Nardocci |
|
Director, President
(Principal Executive Officer) |
|
September 22, 2005 |
|
*
Alexandre
Almeida |
|
Finance Director
(Principal Financial Officer)
(Principal Accounting Officer) |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
Leslie
J. Parrette, Jr. |
|
Authorized Representative in the United States of America |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
* Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
|
|
Name: Christopher Bark-Jones |
|
Title: Director |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Christopher
Bark-Jones |
|
Director,
(Principal Executive Officer) |
|
September 22, 2005 |
|
*
Erwin
Faust |
|
(Director, Principal Financial Officer,) (Principal Accounting
Officer) |
|
September 22, 2005 |
|
Erwin
Mayr |
|
Director |
|
|
|
/s/ Leslie J. Parrette,
Jr.
Leslie
J. Parrette, Jr. |
|
Authorized Representative in the United States of America |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
*Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
|
|
Name: Christopher Bark-Jones |
|
Title: Chairman |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Christopher
Bark-Jones |
|
Director,
(Principal Executive Officer) |
|
September 22, 2005 |
|
*
Erwin
Faust |
|
Director,
(Principal Financial Officer,)
(Principal Accounting Officer) |
|
September 22, 2005 |
|
Erwin
Mayr |
|
Director |
|
|
|
/s/ Leslie J. Parrette,
Jr.
Leslie
J. Parrette, Jr. |
|
Authorized Representative in the
United States of America |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
*Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
|
|
Name: Christopher Bark-Jones |
|
Title: Chairman |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Christopher
Bark-Jones |
|
Director,
(Principal Executive Officer) |
|
September 22, 2005 |
|
*
Erwin
Faust |
|
Director,
(Principal Financial Officer,)
(Principal Accounting Officer) |
|
September 22, 2005 |
|
Erwin
Mayr |
|
Director |
|
|
|
/s/ Leslie J. Parrette,
Jr.
Leslie
J. Parrette, Jr. |
|
Authorized Representative in the
United States of America |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
*Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
NOVELIS ALUMINIUM HOLDING COMPANY |
|
|
|
|
|
Name: Erwin Faust |
|
Title: Managing Director |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Nikolaus
von Verschuer |
|
Managing Director,
Principal Executive Officer |
|
September 22, 2005 |
|
*
Erwin
Faust |
|
Managing Director,
Principal Financial Officer
Principal Accounting Officer |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
Leslie
J. Parrette, Jr. |
|
Authorized Representative in the
United States of America |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
* Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on
September 22, 2005.
|
|
|
|
|
Name: Erwin Faust |
|
Title: Managing Director |
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Nikolaus
vonVerschner |
|
Managing Director
(Principal Executive Officer) |
|
September 22, 2005 |
|
*
Erwin
Faust |
|
Managing Director
(Principal Financial Officer)
(Principal Accounting Officer) |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
Leslie
J. Parrette, Jr. |
|
Authorized Representative in the United States of America |
|
September 22, 2005 |
|
/s/ Leslie J. Parrette,
Jr.
*Leslie
J. Parrette, Jr.
Attorney-in-Fact |
|
|
|
|
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Leslie J.
Parrette Jr. and David Kennedy his attorney-in-fact, for
him in any and all capacities, to sign any amendments to this
registration statement, and any related registration statement
filed pursuant to Rule 462(b), and to file the same, with
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorney-in-fact, or his
substitute, may do or cause to be done by virtue hereof.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Nikolaus Von
Verschuer
Nikolaus
Von Verschuer |
|
Director |
|
August 2, 2005 |
|
/s/ Erwin Faust
Erwin
Faust |
|
Director |
|
August 2, 2005 |
II-22
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
3 |
.1 |
|
Restated Certificate and Articles of Incorporation of Novelis
Inc. (incorporated by reference to Exhibit 3.1 to the
Form 8-K filed by Novelis Inc. on January 7, 2005
(File No. 001-32312).) |
|
|
3 |
.2 |
|
By-law No. 1 of Novelis Inc. (incorporated by reference to
Exhibit 3.2 to the Form 10 filed by Novelis Inc. on
November 17, 2004 (File No. 001-32312).) |
|
|
3 |
.3 |
|
Articles of Amendment to the Articles of Incorporation of
Novelis Corporation (formerly Alcan Aluminum Corporation) |
|
|
3 |
.4 |
|
Articles of Amendment to the Articles of Incorporation of
Novelis Corporation |
|
|
3 |
.5 |
|
Articles of Incorporation of Novelis Corporation |
|
|
3 |
.6 |
|
Bylaws of Novelis Corporation |
|
|
3 |
.7 |
|
Certificate of Amendment of Certificate of Incorporation of
Novelis PAE Corporation (formerly Pechiney Aluminum Engineering,
Inc.) |
|
|
3 |
.8 |
|
Certificate of Incorporation of Novelis PAE Corporation |
|
|
3 |
.9 |
|
By-laws of Novelis PAE Corporation |
|
|
3 |
.10 |
|
Certificate of Incorporation of Eurofoil Inc. (USA) |
|
|
3 |
.11 |
|
By-laws of Eurofoil Inc. (USA) |
|
|
3 |
.12 |
|
Articles of Association of Novelis do Brasil Ltda. |
|
|
3 |
.13 |
|
Certificate and Articles of Incorporation of 4260848 Canada
Inc. |
|
|
3 |
.14 |
|
By-law No. 1 of 4260848 Canada Inc. |
|
|
3 |
.15 |
|
Certificate and Articles of Incorporation of 4260856 Canada
Inc. |
|
|
3 |
.16 |
|
By-law No. 1 of 4260856 Canada Inc. |
|
|
3 |
.17 |
|
Amendment of Articles of Incorporation of Novelis Cast House
Technology Ltd. |
|
|
3 |
.18 |
|
Certificate and Articles of Incorporation of Novelis Cast House
Technology Ltd. |
|
|
3 |
.19 |
|
By-law No. 2 of Novelis Cast House Technology Ltd. |
|
|
3 |
.20 |
|
By-law No. 1 of Novelis Cast House Technology Ltd. |
|
|
3 |
.21 |
|
Bylaws of Novelis Deutschland GmbH |
|
|
3 |
.22 |
|
Certificate of Incorporation on Change of Name of Novelis
Aluminium Holding Company |
|
|
3 |
.23 |
|
Memorandum and Articles of Association of Novelis Aluminium
Holding Company |
|
|
3 |
.24 |
|
Articles of Association of Novelis AG |
|
|
3 |
.25 |
|
Articles of Association of Novelis Technology AG |
|
|
3 |
.26 |
|
Articles of Association for Novelis Switzerland S.A. |
|
|
3 |
.27 |
|
Memorandum of Association of Novelis UK Ltd. |
|
|
3 |
.28 |
|
Articles of Association of Novelis UK Ltd. |
|
|
3 |
.29 |
|
Memorandum of Association of Novelis Europe Holdings Ltd. |
|
|
3 |
.30 |
|
Articles of Association of Novelis Europe Holdings Ltd. |
|
|
4 |
.1 |
|
Indenture, relating to the Notes, dated as of February 3,
2005, between the Company, the guarantors named on the signature
pages thereto and The Bank of New York Trust Company, N.A.,
as trustee (incorporated by reference to Exhibit 4.1 to our
Current Report on Form 8-K filed on February 3, 2005
(File No. 001-32312)) |
|
|
4 |
.2 |
|
Registration Rights Agreement, dated as of February 3,
2005, among the Company, the guarantors named on the signature
pages thereto, Citigroup Global Markets Inc., Morgan
Stanley & Co. Incorporated and UBS Securities LLC, as
Representatives of the Initial Purchasers (incorporated by
reference to Exhibit 4.2 to our Current Report on
Form 8-K filed on February 3, 2005 (File
No. 001-32312)) |
|
|
4 |
.3 |
|
Form of Note for
71/4% Senior
Notes due 2015 (included as part of Exhibit 4.1) |
|
|
5 |
.1 |
|
Opinion of Sullivan & Cromwell LLP regarding the
legality of securities being registered |
|
|
5 |
.2 |
|
Opinion of Ogilvy Renault LLP |
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
|
5 |
.3 |
|
Opinion of Jones Day |
|
|
5 |
.4 |
|
Opinion of MacFarlanes |
|
|
5 |
.5 |
|
Opinion of Internal Counsel of Novelis Inc. |
|
|
5 |
.6 |
|
Opinion of Internal Counsel of Novelis Inc. |
|
|
5 |
.7 |
|
Opinion of A&L Goodbody |
|
|
5 |
.8 |
|
Opinion of Levy & Salomão Advogados |
|
|
10 |
.1 |
|
Separation Agreement between Alcan Inc. and Novelis Inc.
(incorporated by reference to Exhibit 10.1 to our Annual
Report on Form 10-K filed on March 30, 2005 (File No.
001-32312)) |
|
|
10 |
.2 |
|
Metal Supply Agreement between Novelis Inc., as Purchaser, and
Alcan Inc., as Supplier, for the supply of remelt aluminum
ingot**(incorporated by reference to Exhibit 10.2 to our
Annual Report on Form 10-K filed on March 30, 2005
(File No. 001-32312)) |
|
|
10 |
.3 |
|
Molten Metal Supply Agreement between Novelis Inc., as
Purchaser, and Alcan Inc., as Supplier, for the supply of molten
metal to Purchasers Saguenay Works facility**(incorporated
by reference to Exhibit 10.3 to our Annual Report on
Form 10-K filed on March 30, 2005 (File
No. 001-32312)) |
|
|
10 |
.4 |
|
Metal Supply Agreement between Novelis Inc., as Purchaser, and
Alcan Inc., as Supplier, for the supply of sheet ingot in North
America**(incorporated by reference to Exhibit 10.4 to our
Annual Report on Form 10-K filed on March 30, 2005
(File No. 001-32312)) |
|
|
10 |
.5 |
|
Metal Supply Agreement between Novelis Inc., as Purchaser, and
Alcan Inc., as Supplier, for the supply of sheet ingot in
Europe**(incorporated by reference to Exhibit 10.5 to our
Annual Report on Form 10-K filed on March 30, 2005
(File No. 001-32312)) |
|
|
10 |
.6 |
|
Tax Sharing and Disaffiliation Agreement between Alcan Inc.,
Novelis Inc., Arcustarget Inc., Alcan Corporation and Novelis
Corporation (incorporated by reference to Exhibit 10.6 to
our Annual Report on Form 10-K filed on March 30, 2005
(File No. 001-32312)) |
|
|
10 |
.7 |
|
Transitional Services Agreement between Alcan Inc. and Novelis
Inc. (incorporated by reference to Exhibit 10.7 to our
Annual Report on Form 10-K filed on March 30, 2005
(File No. 001-32312)) |
|
|
10 |
.8 |
|
Principal Intellectual Property Agreement between Alcan
International Limited and Novelis Inc.**(incorporated by
reference to Exhibit 10.8 to our Annual Report on
Form 10-K filed on March 30, 2005 (File
No. 001-32312)) |
|
|
10 |
.9 |
|
Secondary Intellectual Property Agreement between Novelis Inc.
and Alcan International Limited**(incorporated by reference to
Exhibit 10.9 to our Annual Report on Form 10-K filed
on March 30, 2005 (File No. 001-32312)) |
|
|
10 |
.10 |
|
Master Metal Hedging Agreement between Alcan Inc. and Novelis
Inc.**(incorporated by reference to Exhibit 10.10 to our
Annual Report on Form 10-K filed on March 30, 2005
(File No. 001-32312)) |
|
|
10 |
.11 |
|
Credit Agreement, dated as of January 7, 2005, among
Novelis Inc., Novelis Corporation, Novelis Deutschland GmbH,
Novelis UK Limited and Novelis AG, as Borrowers, the Lenders and
Issuers Party (as defined in the agreement), Citigroup North
America, Inc., as Administrative Agent and Collateral Agent,
Morgan Stanley Senior Funding, Inc. and UBS Securities LLC, as
Co-Syndication Agents, and Citigroup Global Markets Inc., Morgan
Stanley Senior Funding, Inc. and UBS Securities LLC, as Joint
Lead Arrangers and Joint Book-Running Managers. (incorporated by
reference to Exhibit 10.11 to our Annual Report on
Form 10-K filed on March 30, 2005 (File
No. 001-32312)) |
|
|
10 |
.11.1 |
|
Amendment No. 1 dated as of September 19, 2005 to Credit
Agreement (incorporated by reference to Exhibit 10.1 to our
Current Report on Form 8-K filed on September 20, 2005
(File No. 001-32312)) |
|
|
10 |
.12* |
|
Employee Matters Agreement between Alcan Inc. and Novelis Inc.
(incorporated by reference to Exhibit 10.12 to our Annual
Report on Form 10-K filed on March 30, 2005 (File
No. 001-32312)) |
|
|
10 |
.13* |
|
Employment Agreement of Brian W. Sturgell (incorporated by
reference to Exhibit 10.32 to the Form 10 filed by
Novelis Inc. on December 22, 2004 (File
No. 001-32312).) |
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
|
10 |
.14* |
|
Employment Agreement of Martha Finn Brooks (incorporated by
reference to Exhibit 10.33 to the Form 10 filed by
Novelis Inc. on December 22, 2004 (File
No. 001-32312).) |
|
|
10 |
.15* |
|
Employment Agreement of Christopher Bark-Jones (incorporated by
reference to Exhibit 10.34 to the Form 10 filed by
Novelis Inc. on December 27, 2004 (File
No. 001-32312).) |
|
|
10 |
.16* |
|
Employment Agreement of Pierre Arseneault (incorporated by
reference to Exhibit 10.35 to the Form 10 filed by
Novelis Inc. on December 22, 2004 (File
No. 001-32312).) |
|
|
10 |
.17* |
|
Employment Agreement of Geoffrey P. Batt (incorporated by
reference to Exhibit 10.36 to the Form 10 filed by
Novelis Inc. on December 22, 2004 (File
No. 001-32312).) |
|
|
10 |
.18* |
|
Form of Change of Control Agreement between Alcan Inc. and
executive officers of Novelis Inc. (incorporated by reference to
Exhibit 10.37 to the Form 10 filed by Novelis Inc. on
December 22, 2004 (File No. 001-32312).) |
|
|
10 |
.19* |
|
Change of Control Agreement dated as of August 1, 2002
between Alcan Inc. and Brian W. Sturgell, as amended by a letter
dated May 11, 2004 from Travis Engen, President and Chief
Executive Officer of Alcan Inc. (incorporated by reference to
Exhibit 10.1 to the Form 8-K filed by Novelis Inc. on
January 7, 2005 (File No. 001-32312).) |
|
|
10 |
.20* |
|
Change of Control Agreement dated as of December 22, 2004
between Alcan Inc. and Martha Finn Brooks (incorporated by
reference to Exhibit 10.2 to the Form 8-K filed by
Novelis Inc. on January 7, 2005 (File No. 001-32312).) |
|
|
10 |
.21* |
|
Change of Control Agreement dated as of December 23, 2004
between Alcan Inc. and Christopher Bark-Jones (incorporated by
reference to Exhibit 10.3 to the Form 8-K filed by
Novelis Inc. on January 7, 2005 (File No. 001-32312).) |
|
|
10 |
.22* |
|
Change of Control Agreement dated as of November 12, 2004
between Alcan Inc. and Pierre Arseneault (incorporated by
reference to Exhibit 10.4 to the Form 8-K filed by
Novelis Inc. on January 7, 2005 (File No. 001-32312).) |
|
|
10 |
.23* |
|
Change of Control Agreement dated as of November 8, 2004
between Alcan Inc. and Geoffrey P. Batt (incorporated by
reference to Exhibit 10.5 to the Form 8-K filed by
Novelis Inc. on January 7, 2005 (File No. 001-32312).) |
|
|
10 |
.24* |
|
Novelis Conversion Plan of 2005 (incorporated by reference to
Exhibit 10.6 to the Form 8-K filed by Novelis Inc. on
January 7, 2005 (File No. 001-32312).) |
|
|
10 |
.25* |
|
Written description of Novelis Short Term Incentive
Plan 2005 Performance Measures (incorporated by
reference to Exhibit 10.25 to our Annual Report on
Form 10-K filed on March 30, 2005 (File
No. 001-32312)) |
|
|
10 |
.26* |
|
Novelis Inc. Deferred Share Unit Plan for Non-Executive
Directors (incorporated by reference to Exhibit 10.26 to
our Annual Report on Form 10-K filed on March 30, 2005
(File No. 001-32312)) |
|
|
10 |
.27* |
|
Employment Agreement of Jack Morrison (incorporated by reference
to Exhibit 10.27 to our Annual Report on Form 10-K
filed on March 30, 2005 (File No. 001-32312)) |
|
|
10 |
.28* |
|
Form of Offer Letter with certain Novelis executive officers
(incorporated by reference to Exhibit 10.28 to our Annual
Report on Form 10-K filed on March 30, 2005 (File No.
001-32312)) |
|
|
10 |
.29* |
|
Written description of Novelis Pension Plan for Officers
(incorporated by reference to Exhibit 10.29 to our Annual
Report on Form 10-K filed on March 30, 2005 (File No.
001-32312)) |
|
|
10 |
.30* |
|
Written description of Novelis Founders Performance Award Plan
(incorporated by reference to Exhibit 10.30 to our Annual
Report on Form 10-K filed on March 30, 2005 (File
No. 001-32312)) |
|
|
10 |
.31* |
|
Deferred Share Agreement, dated as of July 1, 2002, between
Alcan Corporation and Martha Finn Brooks (incorporated by
reference to Exhibit 10.2 to the Form 8-K filed by Novelis
Inc. on August 1, 2005 (File No. 001-32312)) |
|
|
10 |
.32* |
|
Amendment to Deferred Share Agreement, dated as of July 27,
2005, between Novelis Inc. and Martha Finn Brooks (incorporated
by reference to Exhibit 10.1 to the Form 8-K filed by
Novelis Inc. on August 1, 2005 (File No. 001-32312)) |
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
|
12 |
.1 |
|
Statement regarding computation of ratio of earnings to fixed
charges |
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21 |
.1 |
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List of Subsidiaries of Novelis Inc. (incorporated by reference
to Exhibit 21.1 to our Annual Report on Form 10-K
filed on March 30, 2005 (File No. 001-32312)) |
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23 |
.1 |
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Consent of PricewaterhouseCoopers LLP |
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23 |
.2 |
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Consent of Sullivan & Cromwell LLP (included as part of
Exhibit 5.1) |
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23 |
.3 |
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Consent of Ogilvy Renault LLP (included as part of
Exhibit 5.2) |
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23 |
.4 |
|
Consent of Jones Day (included as part of Exhibit 5.3) |
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23 |
.5 |
|
Consent of MacFarlanes (included as part of
Exhibit 5.4) |
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23 |
.6 |
|
Consent of Internal Counsel of Novelis Inc. (included as part of
Exhibit 5.5) |
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23 |
.7 |
|
Consent of Internal Counsel of Novelis Inc. (included as part of
Exhibit 5.6) |
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23 |
.8 |
|
Consent of A&L Goodbody (included as part of
Exhibit 5.7) |
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23 |
.9 |
|
Consent of Levy & Salomão Advogados (included as
part of Exhibit 5.8) |
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24 |
.1 |
|
Powers of Attorney (included in the signature pages to this
Registration Statement) |
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25 |
.1 |
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Statement of Eligibility on Form T-1 under the Trust
Indenture Act of 1939 of The Bank of New York Trust
Company, N.A., as trustee of the Indenture |
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99 |
.1 |
|
Form of Letter of Transmittal |
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99 |
.2 |
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Form of Notice of Guaranteed Delivery |
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99 |
.3 |
|
Exchange Agent Agreement between Novelis Inc. and The Bank of
New York Trust Company, N.A. |
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* |
Indicates a management contract or compensatory plan or
arrangement. |
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** |
Confidential treatment requested for certain portions of this
Exhibit, which portions have been omitted and filed separately
with the Securities and Exchange Commission. |
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Previously filed. |
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Certain powers of attorney previously filed. |
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