UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended March
31, 2008
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Or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission file number
001-32312
Novelis Inc.
(Exact name of registrant as
specified in its charter)
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Canada
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98-0442987
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification Number)
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3399 Peachtree Road NE, Suite 1500,
Atlanta, GA
(Address of principal
executive offices)
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30326
(Zip Code)
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(404) 814-4200
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act of
1933. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 (the Exchange
Act). Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the preceding 12 months (or for
such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one) (Do not check if a smaller
reporting company):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller
reporting
company o
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Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of May 30, 2008, the registrant had 77,459,658 common
shares outstanding. All of the Registrants outstanding
shares were held indirectly by Hindalco Industries Ltd., the
Registrants parent company.
DOCUMENTS INCORPORATED BY REFERENCE
None
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET
DATA
This document 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 Item 1. Business,
Item 1A. Risk Factors and Item 7.
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. Examples of forward-looking statements in this
Annual Report on
Form 10-K
include, but are not limited to, our expectations with respect
to the impact of metal price movements on our financial
performance; our metal price ceiling exposure; the effectiveness
of our hedging programs and controls; and our future borrowing
availability. These statements are based on beliefs and
assumptions of Novelis management, which in turn are based
on currently available information. 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.
This document also 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,
product shipments and share of production. Actual market results
may differ from those predicted. We do not know what impact any
of these differences may have on our business, our results of
operations, financial condition, and cash flow. 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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the level of our indebtedness and our ability to generate cash;
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changes in the prices and availability of aluminum (or premiums
associated with such prices) or other materials and raw
materials we use;
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the effect of metal price ceilings in certain of our sales
contracts;
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the effectiveness of our metal hedging activities, including our
internal used beverage can (UBC) and smelter hedges;
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relationships with, and financial and operating conditions of,
our customers, suppliers and other stakeholders;
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integration with Hindalco Industries Limited;
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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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continuing obligations and other relationships resulting from
our spin-off from Alcan, Inc.;
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changes in the relative values of various currencies and the
effectiveness of our currency hedging activities;
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factors affecting our operations, such as litigation,
environmental remediation and
clean-up
costs, labor 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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our ability to maintain effective internal control over
financial reporting and disclosure controls and procedures in
the future;
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changes in the fair value of derivative instruments;
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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;
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changes in government regulations, particularly those affecting
taxes, environmental, health or safety compliance;
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changes in interest rates that have the effect of increasing the
amounts we pay under our principal credit agreement and other
financing agreements; and
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the effect of taxes and changes in tax rates.
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The above list of factors is not exhaustive. These and other
factors are discussed in more detail under Item 1A.
Risk Factors and Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
In this Annual Report on
Form 10-K,
unless otherwise specified, the terms we,
our, us, Company,
Novelis and Novelis Group refer to
Novelis Inc., a company incorporated in Canada under the
Canadian Business Corporations Act (CBCA) and its subsidiaries.
References herein to Hindalco refer to Hindalco
Industries Limited. In October 2007, Rio Tinto Group purchased
all of the outstanding shares of Alcan, Inc. References herein
to Alcan refer to Rio Tinto Alcan Inc.
Exchange
Rate Data
We prepare our financial statements in United States (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
consolidated and combined financial statements.
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Period
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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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Year Ended December 31, 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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Year Ended December 31, 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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Year Ended December 31, 2005
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1.1656
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1.2083
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1.2703
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1.1507
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Year Ended December 31, 2006
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1.1652
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1.1310
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1.1726
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1.0955
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Three Months Ended March 31, 2007(2)
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1.1530
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1.1674
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1.1852
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1.1530
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April 1, 2007 Through May 15, 2007(2)
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1.0976
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1.1022
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1.1583
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1.0976
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May 16, 2007 Through March 31, 2008(2)
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1.0275
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1.0180
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1.1028
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0.9168
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(1) |
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The average of the noon buying rates on the last day of each
month during the period. |
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See Note 1 Business and Summary of Significant
Accounting Policies to our accompanying consolidated and
combined financial statements. |
All dollar figures herein are in U.S. dollars unless
otherwise indicated.
Commonly
Referenced Data
As used in this Annual Report, 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 (kt) is 1,000 metric tonnes. The term aluminum
rolled products is synonymous with the terms flat
rolled products and FRP commonly used by
manufacturers and third party analysts in our industry.
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PART I
Overview
We are the worlds leading aluminum rolled products
producer based on shipment volume in fiscal 2008, with total
shipments of approximately 3,150 kt. With operations on four
continents comprised of 33 operating plants, one research
facility and several market-focused innovation centers in 11
countries as of March 31, 2008. 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
aluminum products in all of these geographic regions. We had net
sales of approximately $11.2 billion on a combined basis
for the twelve months ended March 31, 2008 (see
Acquisition of Novelis Common Stock and Predecessor and
Successor Reporting below).
Change
in Fiscal Year End
On June 26, 2007, our board of directors approved the
change of our fiscal year end to March 31 from December 31.
On June 28, 2007, we filed a Transition Report on
Form 10-Q
for the three month period ended March 31, 2007 with the
United States Securities and Exchange Commission (SEC) pursuant
to
Rule 13a-10
under the Securities Exchange Act of 1934 for transition period
reporting. Accordingly, these consolidated and combined
financial statements present our financial position as of
March 31, 2008 and 2007, and the results of our operations,
cash flows and changes in shareholders/invested equity for
the periods from May 16, 2007 through March 31, 2008
and from April 1, 2007 through May 15, 2007, the three
months ended March 31, 2007 and the years ended
December 31, 2006 and 2005.
Organization
and Description of Business
Novelis Inc., formed in Canada on September 21, 2004, and
its subsidiaries, is the worlds leading aluminum rolled
products producer based on shipment volume. We produce aluminum
sheet and light gauge products where the end-use destination of
the products includes the construction and industrial, beverage
and food cans, foil products and transportation markets. As of
March 31, 2008, we had operations on four continents: North
America; South America; Asia; and Europe, through 33 operating
plants, one research facility and several market-focused
innovation centers in 11 countries. In addition to aluminum
rolled products plants, our South American businesses include
bauxite mining, alumina refining, primary aluminum smelting and
power generation facilities that are integrated with our rolling
plants in Brazil.
On May 18, 2004, Alcan announced its intention to transfer
its rolled products businesses into a separate company and to
pursue a spin-off of that company 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. On
January 6, 2005, Alcan and its subsidiaries contributed and
transferred to Novelis substantially all of the aluminum rolled
products businesses operated by Alcan, 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 rolling facilities in Europe whose
end-use markets and customers were similar.
The spin-off occurred on January 6, 2005, following
approval by Alcans board of directors and shareholders,
and legal and regulatory approvals. Alcan shareholders received
one Novelis common share for every five Alcan common shares
held. Our common shares 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.
Prior to January 6, 2005, Alcan was considered a related
party due to its parent-subsidiary relationship with the Novelis
entities. Following the spin-off, Alcan is no longer a related
party as defined in Financial Accounting Standards Board (FASB)
Statement No. 57, Related Party Disclosures.
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Acquisition
of Novelis Common Stock and Predecessor and Successor
Reporting
On May 15, 2007, the Company was acquired by Hindalco
through its indirect wholly-owned subsidiary AV Metals Inc.
(Acquisition Sub) pursuant to a plan of arrangement (the
Arrangement) entered into on February 10, 2007 and approved
by the Ontario Superior Court of Justice on May 14, 2007
(see Note 2 Acquisition of Novelis Common Stock
in the accompanying consolidated and combined financial
statements).
Subsequent to completion of the Arrangement on May 15,
2007, all of our common shares were indirectly held by Hindalco.
We are a domestic issuer for purposes of the Securities Exchange
Act of 1934, as amended, because our 7.25% senior unsecured
debt securities are registered with the Securities and Exchange
Commission.
Our acquisition by Hindalco was recorded in accordance with
Staff Accounting Bulletin (SAB) No. 103, Push Down Basis
of Accounting Required in Certain Limited Circumstances
(SAB No. 103). Accordingly, in the accompanying
March 31, 2008 consolidated balance sheet, the
consideration and related costs paid by Hindalco in connection
with the acquisition have been pushed down to us and
have been allocated to the assets acquired and liabilities
assumed in accordance with FASB Statement No. 141,
Business Combinations. Due to the impact of push down
accounting, the Companys consolidated financial statements
and certain note presentations for our fiscal year ended
March 31, 2008 are presented in two distinct periods to
indicate the application of two different bases of accounting
between the periods presented: (1) the period up to, and
including, the acquisition date (April 1, 2007 through
May 15, 2007, labeled Predecessor) and
(2) the period after that date (May 16, 2007 through
March 31, 2008, labeled Successor). All periods
including and prior to the three months ended March 31,
2007 are also labeled Predecessor. The accompanying
consolidated and combined financial statements include a black
line division which indicates that the Predecessor and Successor
reporting entities shown are not comparable.
Our
Industry
The aluminum rolled products market represents the global 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.
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:
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hot mills that require sheet ingot, a
rectangular slab of aluminum, as starter material; and
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continuous casting mills that can convert
molten metal directly into semi-finished sheet.
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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: (1) primary
aluminum, such as molten metal, re-melt ingot and sheet ingot;
and (2) recycled aluminum, such as recyclable material from
fabrication processes, which we refer to as recycled process
material, used beverage cans (UBCs) and other post-consumer
aluminum.
Primary aluminum can generally be purchased at prices set on the
London Metal Exchange (LME), plus a premium that varies by
geographic region of delivery, form (ingot or molten metal) and
purity.
Recycled aluminum is also an important source of input material.
Aluminum is infinitely recyclable and recycling it requires only
approximately 5% of the energy needed to produce primary
aluminum. As a result, in regions where aluminum is widely used,
manufacturers and customers are active in setting up collection
processes in which UBCs and other recyclable aluminum are
collected for re-melting at purpose-built plants.
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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
similar strength as previous generation containers, resulting in
a lower cost per unit. As a result of this trend, aluminum
tonnage across the spectrum of aluminum rolled products, and
particularly for the beverage and 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.
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:
(1) construction and industrial; (2) beverage and food
cans; (3) foil products and (4) 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.
Construction and Industrial. Construction is
the largest application within this end-use market. Aluminum
rolled products developed for the construction industry are
often decorative and non-flammable, 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, facades, roofing and
ceilings.
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, 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 and Food Cans. Beverage cans are the
single largest aluminum rolled products application, accounting
for approximately 22% of total worldwide shipments in the
calendar year ended December 31, 2007, according to market
data from Commodity Research Unit International Limited (CRU),
an independent business analysis and consultancy group focused
on the mining, metals, power, cables, fertilizer and chemical
sectors. 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 (PET plastic), which deteriorate with
every iteration of recycling. Aluminum beverage cans also offer
advantages in fabricating efficiency and product 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 bodies, 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.
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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 ranging
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
ranging from 60 microns to 200 microns.
Transportation. Heat exchangers, such as
radiators and air conditioners, are an important application for
aluminum rolled products in the truck and automobile categories
of the transportation end-use market. Original equipment
manufacturers (OEM) 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
materials.
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 improved emissions performance
associated with these applications.
Aluminum rolled products are also used in aerospace
applications, a segment of the transportation market in which we
are not allowed to compete until January 6, 2010, pursuant
to a non-competition agreement we entered into with Alcan in
connection with the spin-off, as described under the heading
Business Arrangements Between Novelis and
Alcan Non-competition. However,
aerospace-related consumption of aluminum rolled products has
historically represented a relatively small portion of total
aluminum rolled products market shipments.
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.
Market
Structure
The aluminum rolled products industry is characterized by
economies of scale, significant capital investments required to
achieve and maintain technological capabilities and demanding
customer qualification standards. The service and efficiency
demands of large customers have encouraged consolidation among
suppliers of aluminum rolled products.
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 North America, Europe, Asia, and only one mill in
South America produce beverage can body and end stock. In
addition, individual aluminum rolling mills generally supply a
limited range of products for end-use applications, and seek to
maximize profits by producing high volumes of the highest margin
mix per mill hour 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, South Africa, Russia and
China. However, at this time we believe that most of these
producers are generally unable to produce flat rolled products
that meet the quality requirements, lead times and
specifications of customers with more demanding applications. In
addition, high freight costs, import duties, inability to take
back recycled aluminum, lack of technical service capabilities
and
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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.
Competition
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 are as follows:
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North America
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Asia
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Alcoa, Inc. (Alcoa)
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Furukawa-Sky Aluminum Corp.
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Aleris International, Inc. (Aleris)
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Sumitomo Light Metal Company, Ltd.
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Arco Aluminium, (a subsidiary of BP plc)
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Southwest Aluminum Co. Ltd.
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Norandal Aluminum
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Kobe Steel Ltd.
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Wise Metal Group LLC
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Alcoa
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Alcan
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Europe
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South America
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Hydro A.S.A.
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Companhia Brasileira de Alumínio
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Alcan
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Alcoa
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Alcoa
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Aleris
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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
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 others within the aluminum
rolled products industry, we, as well as the other aluminum
rolled products manufacturers, face competition from
non-aluminum material producers, as fabricators and end-users
have, in the past, demonstrated a willingness to substitute
other materials for aluminum. In the beverage and food cans
end-use market, aluminum rolled products primary
competitors are glass, PET plastic, and in some regions, steel.
In the transportation end-use market, aluminum rolled products
compete mainly with steel and composites. Aluminum competes with
wood, plastic, cement and steel in building products
applications. Factors affecting competition with substitute
materials include price, ease of manufacture, consumer
preference and performance characteristics.
Key
Factors Affecting Supply and Demand
The following factors have historically affected the supply of
aluminum rolled products:
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.
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 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
results in the production of a more limited range of products.
8
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 and some foils 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.
The following factors have historically affected the demand for
aluminum rolled products:
Economic Growth. We believe that economic
growth is currently 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.
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 marketing channels and 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.
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 to produce the same number of units requires
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 maintained or
enhanced overall market economics for both users and producers
of aluminum rolled products.
Seasonality. While demand for certain aluminum
rolled products is affected by seasonal factors, such as
increases in consumption of beer and soft drinks packaged in
aluminum cans and the use of aluminum sheet used in the
construction and industrial end-use market during summer months,
our presence in both the northern and southern hemispheres tends
to dampen the impact of seasonality on our business.
Our
Business Strategy
Our primary objective is to deliver value to our shareholder by
being the most innovative and profitable aluminum rolled
products company in the world. We intend to achieve this
objective through the following areas of focus.
Grow
our premium product portfolio
|
|
|
|
|
Optimize our portfolio of rolled products, improving our product
mix and margins by leveraging our assets and technical
capabilities into products and markets that have higher margins,
stability, barriers to entry and growth. Supply these
differentiated and demanding higher value rolled products in all
regions in which we operate.
|
|
|
|
Grow through the development of new market applications and
through the substitution of existing market applications, such
as our Novelis
Fusiontm
technology, where our customers benefit from superior
characteristics
and/or a
substitution to a higher value product. Novelis
Fusiontm
technology allows us to produce a high quality ingot with a core
of one aluminum alloy, combined with one or more layers of
different aluminum alloy(s). The ingot can then be rolled into a
sheet product with
|
9
|
|
|
|
|
different properties on the inside and the outside, allowing
previously unattainable performance for flat rolled products and
creating opportunity for new applications as well as improved
performance and efficiency in existing operations.
|
|
|
|
|
|
Move towards more technologically advanced and profitable
end-use markets by delivering proprietary products and processes
that will be unique and attractive to our customers.
|
Expand
our global leadership position in recycling
|
|
|
|
|
Grow our global leadership position as the largest recycler of
aluminum cans and other forms of aluminum. In fiscal 2008, we
recycled approximately 36 billion cans. We are striving to
increase the availability of recycled metal, focusing on
recycling programs and education in the U.S., Europe, and Brazil.
|
Drive
constant improvement in our operations
|
|
|
|
|
Continue to embrace Lean Six Sigma as our formal approach to
continuous improvement, and implement these techniques
throughout the Company. We continue to expect significant
improvements in our business results globally from our full-time
dedicated continuous improvement staff.
|
|
|
|
Drive best practice sharing and implementation in all
administrative and operational functions.
|
Our
Operating Segments
Due in part to the regional nature of supply and demand of
aluminum rolled products and in order to best serve our
customers, we manage our activities on the basis of geographical
areas and are organized under four operating segments: North
America; Europe; Asia and South America.
As a result of the acquisition by Hindalco, and based on the way
our President and Chief Operating Officer (our chief operating
decision-maker) reviews the results of segment operations, we
changed our segment performance measure to Segment Income, as
discussed in Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) and in Note 20 Segment,
Geographical Area and Major Customer Information in the
accompanying consolidated and combined financial statements. As
a result, certain prior period amounts have been reclassified to
conform to the new segment performance measure.
Net sales and expenses are measured in accordance with the
policies and procedures described in Note 1
Business and Summary of Significant Accounting Policies in the
accompanying consolidated and combined financial statements.
We do not treat all derivative instruments as hedges under FASB
Statement No. 133. Accordingly, changes in fair value are
recognized immediately in earnings, which results in the
recognition of fair value as a gain or loss in advance of the
contract settlement. In the accompanying consolidated statements
of operations, changes in the fair value of derivative
instruments not accounted for as hedges under FASB Statement
No. 133 are recognized in Net income (loss) in (Gain) loss
on change in fair value of derivative instruments
net. These gains or losses may or may not result from cash
settlement. For Segment Income purposes we only include the
impact of the derivative gains or losses to the extent they are
settled in cash (i.e., realized) during that period.
The following is a description of our operating segments:
|
|
|
|
|
North America. Headquartered in Cleveland,
Ohio, this segment manufactures aluminum sheet and light gauge
products and operates 12 plants, including two fully dedicated
recycling facilities, in two countries.
|
|
|
|
Europe. Headquartered in Zurich, Switzerland,
this segment manufactures aluminum sheet and light gauge
products and operates 14 plants, including one recycling
facility, in six countries.
|
10
|
|
|
|
|
Asia. Headquartered in Seoul, South Korea,
this segment manufactures aluminum sheet and light gauge
products and operates three plants in two countries.
|
|
|
|
South America. Headquartered in Sao Paulo,
Brazil, this segment comprises bauxite mining, alumina refining,
smelting operations, power generation, carbon products, aluminum
sheet and light gauge products and operates four plants in
Brazil.
|
Adjustment to Eliminate Proportional
Consolidation. The financial information for our
segments includes the assets and results of our non-consolidated
affiliates on a proportionately consolidated basis, which is
consistent with the way we manage our business segments.
However, under accounting principles generally accepted in the
United States (GAAP), these non-consolidated affiliates are
accounted for using the equity method of accounting. Therefore,
in order to reconcile the financial information for the segments
shown in the tables below to the GAAP-based measure, we must
remove our proportional share of each line item that we included
in the segment amounts. See Note 8 Investment
in and Advances to Non-Consolidated Affiliates and Related Party
Transactions in the accompanying consolidated and combined
financial statements for further information about these
non-consolidated affiliates.
For a discussion of Segment Income and a reconciliation of
Segment Income to Net income (loss), see Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations in this Annual Report on
Form 10-K
and Note 20 Segment, Geographical Area and
Major Customer Information in the accompanying consolidated and
combined financial statements.
The tables below show selected segment financial and operating
information. Rolled products shipments include conversion of
customer-owned metal (tolling) (all amounts in millions, except
shipments, which are in kt).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
May 15,
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,655
|
|
|
|
$
|
446
|
|
|
$
|
925
|
|
|
$
|
3,691
|
|
|
$
|
3,265
|
|
Intersegment sales
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Segment Income (Loss)
|
|
|
266
|
|
|
|
|
(24
|
)
|
|
|
(17
|
)
|
|
|
20
|
|
|
|
193
|
|
Total shipments
|
|
|
1,032
|
|
|
|
|
134
|
|
|
|
286
|
|
|
|
1,229
|
|
|
|
1,194
|
|
Rolled product shipments
|
|
|
974
|
|
|
|
|
128
|
|
|
|
268
|
|
|
|
1,156
|
|
|
|
1,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
May 15,
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,828
|
|
|
|
$
|
510
|
|
|
$
|
1,057
|
|
|
$
|
3,620
|
|
|
$
|
3,093
|
|
Intersegment sales
|
|
|
3
|
|
|
|
|
|
|
|
|
1
|
|
|
|
5
|
|
|
|
31
|
|
Segment Income
|
|
|
241
|
|
|
|
|
32
|
|
|
|
85
|
|
|
|
245
|
|
|
|
195
|
|
Total shipments
|
|
|
974
|
|
|
|
|
132
|
|
|
|
287
|
|
|
|
1,073
|
|
|
|
1,081
|
|
Rolled product shipments
|
|
|
940
|
|
|
|
|
131
|
|
|
|
282
|
|
|
|
1,055
|
|
|
|
1,009
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
May 15,
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,602
|
|
|
|
$
|
216
|
|
|
$
|
413
|
|
|
$
|
1,692
|
|
|
$
|
1,391
|
|
Intersegment sales
|
|
|
10
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
15
|
|
|
|
8
|
|
Segment Income
|
|
|
46
|
|
|
|
|
6
|
|
|
|
16
|
|
|
|
82
|
|
|
|
106
|
|
Total shipments
|
|
|
471
|
|
|
|
|
59
|
|
|
|
117
|
|
|
|
516
|
|
|
|
524
|
|
Rolled product shipments
|
|
|
437
|
|
|
|
|
54
|
|
|
|
107
|
|
|
|
471
|
|
|
|
483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
May 15,
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
885
|
|
|
|
$
|
109
|
|
|
$
|
235
|
|
|
$
|
863
|
|
|
$
|
630
|
|
Intersegment sales
|
|
|
27
|
|
|
|
|
7
|
|
|
|
12
|
|
|
|
50
|
|
|
|
41
|
|
Segment Income
|
|
|
143
|
|
|
|
|
18
|
|
|
|
57
|
|
|
|
165
|
|
|
|
112
|
|
Total shipments
|
|
|
310
|
|
|
|
|
38
|
|
|
|
82
|
|
|
|
305
|
|
|
|
288
|
|
Rolled product shipments
|
|
|
289
|
|
|
|
|
35
|
|
|
|
75
|
|
|
|
278
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Proportional
|
|
|
Corporate
|
|
|
|
|
Total Assets
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Consolidation
|
|
|
and Other
|
|
|
Total
|
|
|
March 31, 2008 (Successor)
|
|
$
|
3,892
|
|
|
$
|
4,430
|
|
|
$
|
1,082
|
|
|
$
|
1,478
|
|
|
$
|
(149
|
)
|
|
$
|
213
|
|
|
$
|
10,946
|
|
|
|
March 31, 2007 (Predecessor)
|
|
|
1,566
|
|
|
|
2,543
|
|
|
|
1,110
|
|
|
|
821
|
|
|
|
(114
|
)
|
|
|
44
|
|
|
|
5,970
|
|
December 31, 2006 (Predecessor)
|
|
|
1,476
|
|
|
|
2,474
|
|
|
|
1,078
|
|
|
|
821
|
|
|
|
(117
|
)
|
|
|
60
|
|
|
|
5,792
|
|
December 31, 2005 (Predecessor)
|
|
|
1,547
|
|
|
|
2,139
|
|
|
|
1,002
|
|
|
|
790
|
|
|
|
(85
|
)
|
|
|
83
|
|
|
|
5,476
|
|
12
The table below shows net sales and total shipments by segments
as a percentage of our consolidated net sales and consolidated
total shipments (all amounts in millions, except shipments,
which are in kt).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
May 15,
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales(A)
|
|
$
|
9,965
|
|
|
|
$
|
1,281
|
|
|
$
|
2,630
|
|
|
$
|
9,849
|
|
|
$
|
8,363
|
|
Total shipments
|
|
|
2,787
|
|
|
|
|
363
|
|
|
|
772
|
|
|
|
3,123
|
|
|
|
3,087
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
36.6
|
%
|
|
|
|
34.8
|
%
|
|
|
35.2
|
%
|
|
|
37.5
|
%
|
|
|
39.0
|
%
|
Total shipments
|
|
|
37.0
|
%
|
|
|
|
36.9
|
%
|
|
|
37.0
|
%
|
|
|
39.4
|
%
|
|
|
38.7
|
%
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
38.4
|
%
|
|
|
|
39.8
|
%
|
|
|
40.2
|
%
|
|
|
36.8
|
%
|
|
|
37.0
|
%
|
Total shipments
|
|
|
34.9
|
%
|
|
|
|
36.4
|
%
|
|
|
37.2
|
%
|
|
|
34.4
|
%
|
|
|
35.0
|
%
|
Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
16.1
|
%
|
|
|
|
16.9
|
%
|
|
|
15.7
|
%
|
|
|
17.2
|
%
|
|
|
16.6
|
%
|
Total shipments
|
|
|
16.9
|
%
|
|
|
|
16.3
|
%
|
|
|
15.2
|
%
|
|
|
16.5
|
%
|
|
|
17.0
|
%
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
8.9
|
%
|
|
|
|
8.5
|
%
|
|
|
8.9
|
%
|
|
|
8.8
|
%
|
|
|
7.5
|
%
|
Total shipments
|
|
|
11.2
|
%
|
|
|
|
10.4
|
%
|
|
|
10.6
|
%
|
|
|
9.8
|
%
|
|
|
9.3
|
%
|
|
|
|
(A) |
|
Consolidated Net sales include the results of our
non-consolidated affiliates on a proportionately consolidated
basis, which is consistent with the way we manage our business
segments. These Net sales were $5 million,
$17 million, and $16 million for the period from
May 16, 2007 through March 31, 2008 and for the years
ended December 31, 2006 and 2005, respectively. There were
less than $1 million of Net sales from our non-consolidated
affiliates in each of the periods from April 1, 2007
through May 15, 2007, and the three months ended
March 31, 2007. |
We have highly automated, flexible and advanced manufacturing
capabilities in operating facilities around the globe. In
addition to the aluminum rolled products plants, our South
America segment operates bauxite mining, alumina refining,
hydro-electric 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
financial information by geographic area, refer to
Note 20 Segment, Geographical Area and Major
Customer Information to our consolidated and combined financial
statements.
North
America
Through 12 aluminum rolled products facilities, including two
fully dedicated recycling facilities as of March 31, 2008,
North America manufactures aluminum sheet and light gauge
products. Important end-use applications for this segment
include beverage cans, containers and packaging, automotive and
other transportation applications, building products and other
industrial applications.
The majority of North Americas efforts are directed
towards the beverage can sheet market. The beverage can end-use
application is technically demanding to supply and pricing is
competitive. We believe we have a competitive advantage in this
market due to our low-cost and technologically advanced
manufacturing facilities and technical support capability.
Recycling is important in the manufacturing process and
North America has three facilities that re-melt
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 North Americas
can sheet production plants (at Logan, Kentucky and Oswego, New
York).
13
On March 28, 2008, we announced that we will cease
production of light gauge converter foil products at our
Louisville, Kentucky plant, and we will close the plant by the
end of June 2008.
Europe
Europe produces value-added sheet and light gauge products
through 14 operating plants as of March 31, 2008, including
one recycling facility.
Europe serves a broad range of aluminum rolled product end-use
applications including: construction and industrial; beverage
and food can; foil and technical products; lithographic;
automotive and other. Construction and industrial represents the
largest end-use market in terms of shipment volume by Europe.
This segment supplies plain and painted sheet for building
products such as roofing, siding, panel walls and shutters, and
supplies lithographic sheet to a worldwide customer base.
Europe also has packaging facilities at four locations, and in
addition to rolled product plants, has distribution centers in
Italy and France together with sales offices in several European
countries.
Asia
Asia operates three manufacturing facilities as of
March 31, 2008 and manufactures a broad range of sheet and
light gauge products.
Asia production is balanced between foil, construction and
industrial, and beverage and food can end-use applications. We
believe that Asia is well-positioned to benefit from further
economic development in China as well as other parts of Asia.
South
America
South America operates two rolling plants, two primary aluminum
smelters, bauxite mines, one alumina refinery, and
hydro-electric power plants as of March 31, 2008, all of
which are located in Brazil. South America manufactures
various aluminum rolled products, including can stock,
automotive and industrial sheet and light gauge for the beverage
and food can, construction and industrial and transportation and
packaging end-use markets.
The primary aluminum produced by South Americas mines,
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. South America
generates a portion of its own power requirements.
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 generally
subject to supply constraints under normal market conditions. We
also consume considerable amounts of energy in the operation of
our facilities.
Aluminum
We obtain aluminum from a number of sources, including the
following:
Primary Aluminum Sourcing. We purchased or
tolled approximately 2,100kt of primary aluminum in fiscal 2008
in the form of sheet ingot, standard ingot and molten metal, as
quoted on the London Metal Exchange (LME), approximately 46% of
which we purchased from Alcan. Following our spin-off from
Alcan, we have continued to purchase aluminum from Alcan
pursuant to the metal supply agreements described under
Item 1. Arrangements Between Novelis and Alcan.
Our primary aluminum contracts with Alcan were renegotiated and
the amended agreements took effect on January 1, 2008. For
more information, see Item 1. Arrangements Between
Novelis and Alcan below.
14
Primary Aluminum Production. We produced
approximately 102kt of our own primary aluminum requirements in
fiscal 2008 through our smelter and related facilities in Brazil.
Recycled Aluminum Products. We operate
facilities in several plants to recycle post-consumer aluminum,
such as UBCs 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 it to 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 or tolled approximately 1,000kt of
recycled material inputs in fiscal 2008.
The majority of recycled material we re-melt is directed back
through can-stock plants. The net effect of these activities in
terms of total shipments of rolled products is that
approximately 34% of our aluminum rolled products production for
fiscal 2008 was made with recycled material.
Energy
We use several sources of energy in the manufacture and delivery
of our aluminum rolled products. In fiscal 2008, natural gas and
electricity represented approximately 72% of our energy
consumption by cost. We also use fuel oil and transport fuel.
The majority of energy usage occurs at our casting centers, at
our smelters in South America 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 higher
natural gas prices in the United States have increased our
energy costs. We have in the past and may continue to seek to
stabilize our future exposure to natural gas prices through the
purchase of derivative instruments. 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.
Our South America segment has its own hydroelectric facilities
that meet approximately 25% of its total electricity
requirements for smelting operations. As a result of supply
constraints, electricity prices in South America have been
volatile, with spot prices increasing dramatically. We have a
mixture of
self-generated
electricity, long term fixed contracts and shorter term
semi-variable contracts. Although spot prices have returned to
normal levels, we may continue to face challenges renewing our
South American energy supply contracts at effective rates to
enable profitable operation of our full smelter capacity.
Others
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 Item 1. 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 fiscal 2008, approximately 45% of our total
net sales 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, Can-Pack S.A., various bottlers
of the
Coca-Cola
system, Crown Cork & Seal Company, Inc., Daching
Holdings Limited, Ford Motor Company, Hyundai, Lotte Aluminum
Co. Ltd., Kodak Polychrome Graphics GmbH, Pactiv Corporation,
Rexam Plc, Ryerson Inc. and Tetra Pak Ltd.
15
In our single 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. Among these umbrella agreements is an
agreement, referred to as the CC agreement, with several North
American bottlers of
Coca-Cola
branded products, including
Coca-Cola
Bottlers Sales and Services. Under the CC agreement, we
shipped approximately 356kt of beverage can sheet (including
tolled metal) during fiscal 2008. 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.
Purchases by Rexam Plc and its affiliates represented
approximately 15.3%, 13.5%, 15.5%, 14.1% and 12.5% of our total
net sales for the period from May 16, 2007 through
March 31, 2008; the period from April 1, 2007 through
May 15, 2007; the three months ended March 31, 2007;
and the years ended December 31, 2006 and 2005,
respectively.
Distribution
and Backlog
We have two principal distribution channels for the end-use
markets in which we operate: direct sales and distributors.
Approximately 90%, 91%, 89%, 87% and 88% of our total net sales
were derived from direct sales to our customers and
approximately 10%, 9%, 11%, 13% and 12% of our total net sales
were derived from distributors for the period from May 16,
2007 through March 31, 2008; the period from April 1,
2007 through May 15, 2007; the three months ended
March 31, 2007; and the years ended December 31, 2006
and 2005, respectively.
Direct
Sales
We supply various end-use markets all over the world through a
direct sales force that operates from individual plants or sales
offices, as well as from regional sales offices in 22 countries.
The direct sales channel typically involves very large,
sophisticated fabricators and original equipment manufacturers.
Longstanding 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 these 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 more frequently than in
other regions.
Distributors
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
in small quantities, 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.
Backlog
We believe that order backlog is not a material aspect of our
business.
16
Research
and Development
The table below summarizes our research and development expense
in our plants and modern research facilities, which included
mini-scale production lines equipped with hot mills, can lines
and continuous casters (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
May 16, 2007
|
|
|
April 1, 2007
|
|
Months
|
|
|
|
|
|
|
Through
|
|
|
Through
|
|
Ended
|
|
|
|
|
|
|
March 31,
|
|
|
May 15,
|
|
March 31,
|
|
Year Ended December 31,
|
|
|
2008
|
|
|
2007
|
|
2007
|
|
2006
|
|
2005
|
|
|
Successor
|
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
Research and development expenses
|
|
$
|
46
|
|
|
|
$
|
6
|
|
|
$
|
8
|
|
|
$
|
40
|
|
|
$
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $12 million increase in our research development costs
from $40 million for the year ended December 31, 2006
to $52 million for the combined period from April 1,
2007 through March 31, 2008, was due in part to the
accounting associated with our acquisition by Hindalco (see
Note 1 Business and Summary of
Significant Accounting Policies and Note 2
Acquisition of Novelis Common Stock in the
accompanying consolidated and combined financial statements).
Subsequent to the Arrangement, we recorded a charge of
$9 million for the estimated value of acquired in-process
research and development projects that had not yet reached
technological feasibility.
In August 2006, we announced the closure of the Neuhausen,
Switzerland site, where we had continued to share research and
development facilities with Alcan. We created three
market-focused innovation centers in Europe. Through December
2006, we incurred restructuring costs of approximately
$4 million. During the year ended March 31, 2008, we
completed the transition from Neuhausen to our market-focused
innovation centers and incurred no additional costs.
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 200 employees dedicated to
research and development, located in many of our plants and
research center.
17
Our
Executive Officers
The following table sets forth information for persons currently
serving as executive officers of our company. Biographical
details for each of our executive officers are also set forth
below.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Martha Finn Brooks
|
|
|
49
|
|
|
President and Chief Operating Officer
|
Steven Fisher
|
|
|
37
|
|
|
Chief Financial Officer
|
Leslie J. Parrette, Jr.
|
|
|
46
|
|
|
General Counsel, Corporate Secretary and Compliance Officer
|
Jean-Marc Germain
|
|
|
42
|
|
|
Senior Vice President and President North America
|
Thomas Walpole
|
|
|
53
|
|
|
Senior Vice President and President Asia
|
Antonio Tadeu Coelho Nardocci
|
|
|
50
|
|
|
Senior Vice President and President South America
|
Arnaud de Weert
|
|
|
44
|
|
|
Senior Vice President and President Europe
|
Robert Virtue
|
|
|
56
|
|
|
Vice President, Human Resources
|
Jeffrey Schwaneke
|
|
|
33
|
|
|
Vice President and Controller
|
Brenda Pulley
|
|
|
50
|
|
|
Vice President, Corporate Affairs and Communication
|
Nick Madden
|
|
|
51
|
|
|
Vice President, Global Procurement Metal Management
|
Martha Finn Brooks is our President and 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 and Sales
at Cummins Inc., a global leader in the manufacture of 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 Manufacturers Alliance, a director of Keep America Beautiful,
a Trustee of the Yale China Association and a
Trustee of the Hathaway Brown School. Ms. Brooks holds a
B.A. in Economics and Political Science and a Masters of Public
and Private Management specializing in international business
from Yale University.
Steven Fisher is our Chief Financial
Officer. Mr. Fisher joined Novelis in February
2006 as Vice President, Strategic Planning and Corporate
Development. He was appointed Chief Financial Officer in
May 2007 following the acquisition of Novelis by Hindalco.
Mr. Fisher served as Vice President and Controller for TXU
Energy, the non-regulated subsidiary of TXU Corp. at its
headquarters in Dallas, Texas from July 2005 to February
2006. Prior to joining TXU Energy, Mr. Fisher served in
various senior finance rolls at Aquila, Inc., including Vice
President, Controller and Strategic Planning, from 2001 to 2005.
Mr. Fisher is a graduate of the University of Iowa in 1993,
where he earned a B.B.A. in Finance and Accounting. He is a
Certified Public Accountant.
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. Mr. Parrette holds an A.B., magna cum
laude in Sociology from Harvard College and received his
J.D. from Harvard Law School.
Jean-Marc Germain was appointed Senior Vice President and
the President of our North American operations following the
retirement of Kevin Greenawalt on May 31, 2008.
Mr. Germain was Vice President Global Can for Novelis Inc.
from January 2007 until May 2008, and he was previously Vice
President and General Manager of Light Gauge Products for
Novelis North America from September 2004 to December
18
2006. Prior to that Mr. Germain held a number of senior
positions with Alcan Inc. and Pechiney S.A. From January 2004 to
August 2004 he served as co-lead of the Integration Leadership
Team for the Alcan and Pechiney merger, which occurred in 2004.
Prior to that, he served as Senior Vice President &
General Manager Foil, Strip and Specialties Division for
Pechiney from September 2001 to December 2003. Before his time
at Alcan and Pechiney, Mr. Germain worked for GE Capital
and Bain & Company. Mr. Germain is a graduate
from École Polytechnique in Paris, France.
Thomas Walpole is a Senior Vice President and the
President of our Asian operations. Mr. Walpole was our Vice
President and General Manager, Can Products Business Unit from
January 2005 until February 2006. 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 within Alcan in
Europe and Asia until 2004. He began as Vice President, Sales,
Marketing & Business Development for Alcan Taihan
Aluminum Ltd. and most recently was President of the Litho/Can
and Painted Products for the European region. Mr. Walpole
graduated from State University of New York at Oswego with a
B.S. in Accounting, and holds a Master of Business from Case
Western Reserve University.
Antonio Tadeu Coelho Nardocci is a Senior Vice President
and the President of our South American operations.
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 the Aluminium Company of Malaysia in
Kuala Lumpur, Malaysia. Mr. Nardocci graduated from
the University of São Paulo in Brazil with a degree in
metallurgy. Mr. Nardocci is a member of the executive board
of the Brazilian Aluminum Association.
Arnaud de Weert joined Novelis in May 2006 as Senior Vice
President and the President of our European operations. Mr. de
Weert was previously chief executive officer of Ontex,
Europes largest manufacturer of private label hygienic
disposables. Prior to joining Ontex in 2004, Mr. de Weert was
President, Europe, Middle East and Africa, for
U.S.-based
tools manufacturer, Stanley Works. From 1993 to 2001, he held
executive roles with GE Power Controls in Europe, reaching the
position of Vice President Sales and Marketing. He attended
Erasmus University Rotterdam and received a doctorate in
business economics.
Robert Virtue is our Vice President, Human
Resources. In this position, he has global
responsibilities for all aspects of our organizations
human resources function. Mr. Virtue has served several
roles in our human resources department from January 2005
through May 2006 and October 2006 to the present, including Vice
President, Compensation and Benefits; Acting Vice President,
Human Resources and Director of Compensation. Prior to Novelis,
he was Vice President, Executive Compensation with Wal-Mart from
May 2006 through October 2006. He was Director Compensation and
Benefits for American Retail Group from 1997 through January
2005. Mr. Virtue also spent 15 years with British
Petroleum PLC in a variety of domestic and international human
resources roles with assignments in chemicals, coal, refining,
transportation, marketing and corporate functions.
Mr. Virtue earned a B.S. in Business from Boston University
and an MBA from Indiana University.
Jeffrey Schwaneke was appointed our Vice President and
Controller on October 22, 2007. Mr. Schwaneke served
as our Assistant Controller from May 2006 until October 2007. He
previously worked for SPX Corporation from November 2002 to May
2006, where he served most recently as Segment Controller in
addition to a number of other senior finance roles. Prior to
that, Mr. Schwaneke worked for PricewaterhouseCoopers.
Mr. Schwaneke is a Certified Public Accountant and earned a
Bachelor of Science degree in Accounting from the University of
Missouri.
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 internal and external
communications and government relations. Prior to our spin-off
from Alcan, Ms. Pulley 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 as Director,
Federal
19
Government Relations for Safety-Kleen Corp. Ms. Pulley
currently serves on the board of directors for the Junior
Achievement of Georgia and is the past Chairperson for America
Recycles Day. Ms. Pulley earned her B.S. majoring in Social
Science, with a minor in Communications from Central Missouri
State University.
Nick Madden is Vice President of Global Procurement and
Metal Management. Prior to this role, which he assumed in
October 2006, Mr. Madden served as President of Novelis
Europes Can, Litho and Recycling business unit from
October 2004. Prior to that he was Vice President of Metal
Management and Procurement for Alcans Rolled Products
division in Europe from December 2000 until September 2004 and
was also responsible for the secondary recycling business.
Mr. Madden holds a B.Sc. (Hons) degree in Economics and
Social Studies from University College in Cardiff, Wales.
Our
Employees
As of March 31, 2008, we had approximately
12,700 employees. Approximately 6,000 are employed in
Europe, approximately 3,200 are employed in North America,
approximately 1,500 are employed in Asia and approximately 2,000
are employed in South America and other areas. Approximately
three-quarters of our employees are represented by labor 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 labor
relations in all our operations and have not experienced a
significant labor stoppage in any of our principal operations
during the last decade.
Intellectual
Property
In connection with our spin-off, 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 actively review intellectual property arising from our
operations and our research and development activities and, when
appropriate, we apply for patents in the appropriate
jurisdictions, including the United States and Canada. We
currently hold patents on approximately 185 different items of
intellectual property. While these patents are important to our
business on an aggregate basis, no single patent is deemed to be
material to our business.
We have applied for or received registrations for the
Novelis word trademark and the Novelis logo
trademark in approximately 50 countries where we have
significant sales or operations.
We have also registered the word Novelis and several
derivations thereof as domain names in numerous top level
domains around the world to protect our presence on the World
Wide Web.
Environment,
Health and Safety
We own and operate numerous manufacturing and other facilities
in various countries around the world. Our operations are
subject to environmental laws and regulations from various
jurisdictions, which govern, among other things, air emissions,
wastewater discharges, the handling, storage and disposal of
hazardous substances and wastes, the remediation of contaminated
sites, natural resource damages, and employee health and safety.
Future environmental regulations may be expected to impose
stricter compliance requirements on the industries in which we
operate. Additional equipment or process changes at some of our
facilities may be needed to meet future requirements. The cost
of meeting these requirements may be significant. Failure to
comply with such laws and regulations could subject us to
administrative, civil or criminal penalties, obligations to pay
damages or other costs, and injunctions and other orders,
including orders to cease operations.
We are involved in proceedings under the U.S. Comprehensive
Environmental Response, Compensation, and Liability Act, also
known as CERCLA or Superfund, or analogous state provisions
regarding our liability
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arising from the usage, storage, treatment or disposal of
hazardous substances and wastes at a number of sites in the
United States, as well as similar proceedings under the laws and
regulations of the other jurisdictions in which we have
operations, including Brazil and certain countries in the
European Union. Many of these jurisdictions have laws that
impose joint and several liability without regard to fault or
the legality of the original conduct, for the costs of
environmental remediation, natural resource damages, third party
claims, and other expenses, on those parties who contributed to
the release of a hazardous substance into the environment. In
addition, we are, from time to time, subject to environmental
reviews and investigations by relevant governmental authorities.
We have established procedures for regularly evaluating
environmental loss contingencies, including those arising from
environmental reviews and investigations and any other
environmental remediation or compliance matters. We believe we
have a reasonable basis for evaluating these environmental loss
contingencies, and we also believe we have made reasonable
estimates for the costs that are likely to be ultimately borne
by us for these environmental loss contingencies. Accordingly,
we have established reserves based on our reasonable estimates
for the currently anticipated costs associated with these
environmental matters. Management has determined that the
currently anticipated costs associated with these environmental
matters will not, individually or in the aggregate, materially
impair our operations or materially adversely affect our
financial condition.
We expect that our total expenditures for capital improvements
regarding environmental control facilities for the years ending
March 31, 2009 and 2010 will be approximately
$16 million and $14 million, respectively.
Arrangements
Between Novelis and Alcan
In connection with our spin-off 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.
Separation
Agreement
The separation agreement sets forth the agreement between us and
Alcan with respect to: the principal corporate transactions
required to affect our spin-off 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 spin-off. Under
the terms of the separation agreement, we assume and agree to
perform and fulfill 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 spin-off, in accordance with
their respective terms.
Releases
and Indemnification
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
spin-off, 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 spin-off, other than the 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 spin-off.
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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 spin-off.
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The separation agreement also specifies procedures with respect
to claims subject to indemnification and related matters.
Further
Assurances
Both we and Alcan agreed to use our commercially reasonable
efforts after the spin-off, 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.
Non-competition
We have agreed not to engage, directly or indirectly, in any
manner whatsoever, until January 6, 2010, 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.
Change of
Control
We have agreed, in the event of a change of control (including a
change of control achieved in an indirect manner) during the
four-year period beginning January 6, 2006 and ending
January 6, 2010, to provide Alcan, within 30 days
thereafter with a written undertaking of the 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 at any time during the
four-year period following the first anniversary of the spin-off
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, 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.
On June 14, 2007, Hindalco, AV Metals Inc., AV Aluminum
(Acquisition Sub) and AV Minerals (Netherlands) B.V., (the
parent company of Acquisition Sub) and directly held
wholly-owned subsidiary of Hindalco, jointly delivered to Alcan
the requisite change in control undertaking described above.
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Ancillary
Agreements
In connection with our spin-off from Alcan, we entered into a
number of ancillary agreements with Alcan governing certain
terms of our spin-off as well as various aspects of our
relationship with Alcan following the spin-off. These ancillary
agreements include:
Transitional Services and Similar
Agreements. Pursuant to a collection of
approximately 130 individual transitional services
agreements, Alcan has provided to us and we have provided 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 allow 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 is
added to the cost of services supplied by external suppliers.
The majority of the individual service agreements, which began
on the spin-off date, terminated on or prior to
December 31, 2005. However, we have a continuing agreement
with Alcan through 2008 to use certain information technology
hosting services to support our financial accounting systems for
the Nachterstedt and Goettingen plants.
Metal Supply Agreements. We and Alcan have
entered into four multi-year metal supply agreements pursuant to
which Alcan supplies us with specified quantities of re-melt
ingot, molten metal and sheet ingot in North America and Europe
on terms and conditions determined primarily by Alcan. We
believe these agreements provide us with the ability to cover
some metal requirements through a pricing formula pursuant to
our spin-off agreement with Alcan. In addition, an ingot supply
agreement in effect between Alcan and Novelis Korea Ltd. prior
to the spin-off remains in effect following the spin-off.
On February 26, 2008, we and Alcan agreed to amend and
restate four existing multi-year metal supply agreements, which
took effect as of January 1, 2008.
The amended and restated metal supply agreement for the supply
of re-melt aluminum ingot amends and restates the supply
agreement dated January 5, 2005 between the parties. This
amended agreement extends the term, establishes an annual
quantity of remelt ingot to be supplied and purchased subject to
adjustment, establishes certain delivery requirements, changes
certain pricing provisions, and revises certain payment terms,
among other standard terms and conditions.
The amended and restated molten metal supply agreement for the
supply of molten metal to the Companys Saguenay Works
Facility amends and restates the supply agreement dated
January 5, 2005 between the parties. This amended agreement
changes certain pricing provisions, and revises certain payment
terms, among other standard terms and conditions.
The amended and restated metal supply agreement for the supply
of sheet ingot in North America amends and restates the supply
agreement dated January 5, 2005 between the parties. This
amended agreement extends the term, establishes an annual
quantity of sheet ingot to be supplied and purchased subject to
adjustment, changes certain pricing provisions, and revises
certain payment terms, among other standard terms and conditions.
The amended and restated metal supply agreement for the supply
of sheet ingot in Europe amends and restates the supply
agreement dated January 5, 2005 between the parties. This
amended agreement extends the term, establishes an annual
quantity of sheet ingot to be supplied and purchased subject to
adjustment, and changes certain pricing provisions, among other
standard terms and conditions.
Foil Supply Agreements. In 2005, we 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, 94% in 2006, 93% in
2007, 92% in 2008 and 90% in 2009, and in
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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
spin-off.
Alumina Supply Agreements. We have entered
into a ten-year alumina supply agreement with Alcan pursuant to
which we purchase from Alcan, and Alcan supplies 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 85kt and 126kt. In addition, an alumina supply
agreement between Alcan and Novelis Deutschland GmbH that was in
effect prior to the spin-off remains in effect following the
spin-off.
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.
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. Pursuant to the terms of the separation and asset
transfer agreements, the transfer price was determined by a
valuation;
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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 then current 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 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 ingots 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 provides 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 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
pre-spin-off 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
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 spin-off date and resulting from
our acts or omissions or our violation of applicable laws,
including environmental laws, (b) all liabilities relating
to the employees who transfer from Alcan to us after the
spin-off date, and (c) an amount equal to 20% of all
environmental legacy costs related to the Neuhausen facility
that occurred on or before December 31, 2004.
In August 2006, we announced the closure of the Neuhausen,
Switzerland site, where we had continued to share research and
development facilities with Alcan. We created market-focused
innovation centers at key plants throughout Europe. For beverage
and food can and lithographic and painted sheet, the
market-focused innovation center is in Goettingen, Germany; for
automotive and other specialties in Sierre,
Switzerland; and for foil and packaging in
Dudelange, Luxembourg. Through December 2006, we incurred costs
of approximately $4 million. During the year ended
March 31, 2008, we completed the transition from Neuhausen
to our market-focused innovation centers and incurred no
additional costs.
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 spin-off. 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 and after the spin-off, as well as
transfer taxes resulting from the spin-off. It also allocates
obligations for filing tax returns and the management of certain
pending or future tax contests and creates mutual collaboration
obligations with respect to tax matters.
Employee Matters Agreement. Pursuant to the
employee matters agreement, assets, liabilities and
responsibilities with respect to certain employee compensation,
pension and benefit plans, programs and arrangements and certain
employment matters were allocated between Novelis and Alcan. The
employee matters agreement also sets out the terms and
conditions pertaining to the transfer to us of certain Alcan
employees. As of the spin-off 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. Employees who
transferred to us from Alcan received credit for their years of
service with Alcan prior to the spin-off. Effective as of the
spin-off date, we generally assumed all employment compensation
and employee benefit liabilities relating to our employees.
Ohle Agreement. We and Alcan have entered into
an agreement pursuant to which we supply pet food containers to
Alcan, which Alcan markets 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 conducts
activities competing with the activities of Alcan Packaging
Zutphen B.V., a subsidiary of Alcan, related to its pet food
containers business.
Foil Supply and Distribution
Agreement. Pursuant to the two year foil supply
and distribution agreement, we (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 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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Available
Information
We are subject to the reporting and information requirements of
the Securities Exchange Act of 1934, as amended (Exchange Act)
and, as a result, we file periodic reports and other information
with the SEC. We make these filings available on our website
free of charge, 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. The SEC maintains
a website
(http://www.sec.gov)
that contains our annual, quarterly and current reports and
other information we file electronically with the SEC. You can
read and copy any materials we file with the SEC at the
SECs Public Reference Room at 100 F Street,
N.E., Room 1850, Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room
by calling the SEC at
1-800-SEC-0330.
Information on our website does not constitute part of this
Annual Report on
Form 10-K.
Risks
Related to our Business and the Market Environment
If we
fail to successfully integrate with Hindalco, our financial
condition and results of operations could be adversely
affected.
On May 15, 2007, we were acquired by Hindalco, Asias
largest integrated primary producer of aluminium based in
Mumbai, India. We face significant administrative and
operational challenges in relation to the acquisition. The
integration of the operations of Novelis and Hindalco involves
alignment of corporate cultures, management philosophies,
strategic plans and policies. Achieving the anticipated benefits
of our business combination will depend in part upon our ability
to address the above issues in an efficient and effective
manner. The integration of the two businesses which have
previously operated separately faces significant challenges such
as, but not limited to:
1. Alignment with Hindalcos management policies
including, but not limited to, internal controls, risk
management policies, management information systems, capital
expenditure policies, corporate governance policies and
reporting procedures
2. The need to coordinate geographically dispersed
organizations and integrate different corporate cultures and
management philosophies.
3. Integration of information technology and financial
control systems
4. Retention, hiring and training of our key personnel.
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 45%, 47%,
and 43% of our total net sales for the period May 16, 2007
through March, 31, 2008; April 1, 2007 to May 15,
2007; and for the three months ended March 31, 2007,
respectively, with Rexam Plc and its affiliates representing
approximately 15.3%, 13.5%, and 15.5% of our total net sales in
the respective periods. 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 Item 1.
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 obtain cost savings and
other benefits.
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Our
profitability could be adversely affected by our inability to
pass through metal price increases due to metal price ceilings
in certain of our sales contracts.
Prices for metal are volatile, have recently been impacted by
structural changes in the market, and may increase from time to
time. Nearly all of our products have a price structure with two
components: (i) a pass-through aluminum price based on the
LME plus local market premiums and (ii) a conversion
premium price based on the conversion cost to produce the
rolled product and the competitive market conditions for that
product. Sales contracts representing approximately 10% of our
total fiscal 2008 shipments provide for a ceiling over which
metal prices cannot contractually be passed through to certain
customers, unless adjusted. This negatively impacts our margins
when the price we pay for metal is above the ceiling price
contained in these contracts. During the twelve months ended
March 31, 2008 and 2007; December 31, 2006 and 2005,
we were unable to pass through approximately $230 million
and $460 million; $475 million and $75 million,
respectively, of metal purchase costs associated with sales
under theses contracts. We calculate and report this difference
to be approximately the difference between the quoted purchase
price on the LME (adjusted for any local premiums and for any
price lag associated with purchasing or processing time) and the
metal price ceiling in our contracts. Cash flows from operations
are negatively impacted by the same amounts, adjusted for any
timing difference between customer receipts and vendor payments,
and offset partially by reduced income taxes.
Our exposure to metal price ceilings approximates 8% of
estimated total shipments for the fiscal year 2009. Based on a
March 31, 2008 aluminum price of $2,935 per tonne, and our
best estimate of a range of shipment volumes, we estimate that
we will be unable to pass through aluminum purchase costs of
approximately $286 $312 million in fiscal 2009
and $215 $233 million in the aggregate
thereafter.
Our
efforts to mitigate risk from our metal price ceiling contracts
may not be effective.
We employ three strategies to mitigate our risk of rising metal
prices that we cannot pass through to certain customers due to
metal price ceilings. First, we maximize the amount of our
internally supplied metal inputs from our smelting, refining and
mining operations in Brazil. Second, we rely on the output from
our recycling operations which utilize used beverage cans
(UBCs). Both of these sources of aluminum supply have
historically provided a benefit as these sources of metal are
typically less expensive than purchasing aluminum from third
party suppliers. We refer to these two sources as our internal
hedges.
Beyond our internal hedges described above, our third strategy
to mitigate the risk of loss or reduced profitability associated
with the metal price ceilings is to purchase derivative
instruments on projected aluminum volume requirements above our
assumed internal hedge position. We currently purchase forward
derivative instruments to hedge our exposure to further metal
price increases.
Our
results can be negatively impacted by timing differences between
the prices we pay under purchase contracts and metal prices we
charge our customers.
In some of our contracts there is a timing difference between
the metal prices we pay under our purchase contracts and the
metal prices we charge our customers. As a result, changes in
metal prices impact our results, since during such periods we
bear the additional cost or benefit of metal price changes,
which could have a material effect on our profitability.
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:
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increases in costs of natural gas;
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significant increases in costs of supplied electricity or fuel
oil related to transportation;
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interruptions in energy supply due to equipment failure or other
causes; and
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the inability to extend energy supply contracts upon expiration
on economical terms.
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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 to repay indebtedness and we 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 repay indebtedness, satisfy working capital
requirements and fund 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 may have
rights and preferences and privileges senior to those 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.
Our
substantial indebtedness could adversely affect our business and
therefore make it more difficult for us to fulfill our
obligations under our New Credit Facilities and our Senior
Notes.
On July 6, 2007, we entered into new senior secured credit
(New Credit Facilities) providing for aggregate borrowings of up
to $1.76 billion. The New Credit Facilities consist of
(1) a $960 million
seven-year
Term Loan facility (Term Loan facility) and (2) an
$800 million five year multi-currency asset-based revolving
credit line and letter of credit facility (ABL facility). As of
March 31, 2008, we had total indebtedness of
$2.7 billion, including our $1.4 billion of senior
unsecured debt securities (Senior Notes) (excluding unamortized
fair value adjustments recorded as a result of the Arrangement).
Our substantial indebtedness and interest expense could have
important consequences to our Company and holders of our Senior
Notes, 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.
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The
covenants in our New Credit Facilities and the indenture
governing our Senior Notes impose significant operating and
financial restrictions on us.
The New Credit Facilities and the indenture governing the Senior
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.
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The New Credit Facilities also contains various affirmative
covenants, with which we are required to comply.
Although we currently expect to comply with these covenants, we
may be unable to comply with these covenants in the future. 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 our Senior 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.
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 with
customers and suppliers. From time to time, we enter into
various forms of hedging activities against currency or metal
price fluctuations and trade metal contracts on the 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 changes to our level of
indebtedness may make it more costly for us to engage in these
activities in the future.
Adverse
changes in currency exchange rates could negatively affect our
financial results and the competitiveness of our aluminum rolled
products relative to other materials.
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. We have implemented a hedging
policy that attempts 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 U.S.
29
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.
Approximately three-quarters of our employees are represented by
labor 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.
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.
We are, and will continue to be, subject to financial,
political, economic and business risks in connection with our
global 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,
the Middle East and emerging markets in South America. 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 labor 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.
We
could be adversely affected by disruptions of our
operations.
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, those 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, 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.
We may
not be able to successfully develop and implement new technology
initiatives in a timely manner.
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
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.
Loss
of our key management and other personnel, or an inability to
attract such management and other personnel, could impact our
business.
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
30
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.
Past
and future acquisitions or divestitures may adversely affect our
financial condition.
Historically, 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.
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.
Most of our pension obligations relate to funded defined benefit
pension plans for our employees in the U.S., the U.K. and
Canada, unfunded pension benefits in Germany, and lump sum
indemnities payable to our employees in France, Italy, Korea and
Malaysia upon retirement or termination. Our pension plan assets
consist primarily of listed stocks and bonds. Our estimates of
liabilities and expenses for pensions and other postretirement
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.
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.
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. Our Malaysian subsidiary is a public
company whose shares are listed for trading on the Bursa
Malaysia Securities Berhad. Under the governing documents or
agreements of, securities laws applicable to or stock exchange
listing rules relative to certain of these joint ventures and
subsidiaries, our ability to fully control certain operational
matters may be limited. With respect to Logan, our joint venture
partner, Arco Aluminum Inc., has filed a complaint seeking to
resolve a perceived dispute over management and control of the
joint venture following Hindalcos acquisition of Novelis.
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 Operating Our Business Following Our Spin-off from
Alcan
Our
agreements with Alcan do not reflect the same terms and
conditions to which two unaffiliated parties might have
agreed.
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 do not
reflect what two unaffiliated parties might have otherwise
agreed. Had these agreements been negotiated with unaffiliated
third parties, their terms may have been more favorable, or less
favorable, to us.
31
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. For the year
ended March 31, 2008, we purchased the majority of our
third party sheet ingot requirements from Alcans primary
metal group. In connection with the spin-off, 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, which were amended
in March 2008. If Alcan is unable to deliver sufficient
quantities of this material on a timely basis or if Alcan
terminates one or more of these agreements, our production may
be disrupted and our net 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. For the fiscal year ended March 31, 2008,
Alcans primary metal group supplied approximately 179kt of
such material to us, representing most of the molten aluminum
used at Saguenay Works. In connection with the spin-off, we
entered into a metal supply agreement on terms determined
primarily by Alcan 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 net 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 during the
five years following the spin-off and if the entity acquiring
control does not refrain from using the Novelis assets to
compete against Alcan in the plate and aerospace products
markets, Alcan may terminate any or all of certain agreements we
currently have with Alcan. Hindalco delivered the requisite
non-compete agreement to Alcan on June 14, 2007, following
its acquisition of our common shares. However, if Hindalco were
to sell its controlling interest in Novelis before
January 6, 2010, a new acquirer would be required to
provide a similar agreement.
The termination of any of these agreements could deprive any
potential acquirer of certain 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, net 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
favorable 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 therefore) 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 three years
of our spin-off from Alcan, Alcan completes a
split-up
(but not spin-off) transaction under Section 55;
(6) Alcan made 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
32
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
liabilities incurred by Alcan 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.
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 spin-off, 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 in
the future or the outcome of any disputes over spin-off matters.
We also cannot be assured 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 spin-off transaction, our spin-off arrangements and
our post-spin-off commercial agreements with Alcan could be the
subject of differing interpretation and disagreement in the
future. 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.
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 spin-off, we agreed not to compete with
Alcan for a period of five years from the spin-off date 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. See Item 1. Business
Arrangements Between Novelis and Alcan Separation
Agreement.
Our
historical financial information may not be representative of
results we would have achieved as an independent company or our
future results.
The historical financial information in our combined financial
statements prior to January 6, 2005 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 and
cash flows will be in the future.
33
Risks
Related to Our Industry
We
face significant price and other forms of competition from other
aluminum rolled products producers, which could hurt our results
of operations.
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 the benefit of
some of our competitors.
Increased competition could cause a reduction in our shipment
volumes and profitability or increase our expenditures, either
of which could have a material adverse effect on our financial
results.
The
end-use markets for certain of our products are highly
competitive and customers are willing to accept substitutes for
our products.
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 beverage and food cans
and automotive end-use applications. In the past, customers have
demonstrated a willingness to substitute other materials for
aluminum. For example, changes in consumer preferences in
beverage containers have increased the use of polyethylene
terephthalate plastic (PET plastic) containers and glass bottles
in recent years. These trends may continue. The willingness of
customers to accept substitutes for aluminum products could have
a material adverse effect on our financial results.
A
downturn in the economy could have a material adverse effect on
our financial results.
Certain end-use applications for aluminum rolled products, such
as construction and industrial and transportation applications,
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.
The
seasonal nature of some of our customers industries could
have a material adverse effect on our financial
results.
The construction industry and the consumption of beer and soda
are sensitive to weather conditions and as a result, demand for
aluminum rolled products in the construction industry and for
can feedstock can be seasonal. Our quarterly financial results
could fluctuate as a result of climatic changes, and a prolonged
series of cold summers in the different regions in which we
conduct our business could have a material adverse effect on our
financial results.
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.
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
34
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. Some environmental
laws, such as Superfund and comparable laws in U.S. states
and other jurisdictions worldwide, impose joint and several
liability for the cost of environmental remediation, natural
resource damages, third party claims, and other expenses,
without regard to the fault or the legality of the original
conduct, on those persons who contributed to the release of a
hazardous substance into the environment.
The costs of complying with these laws and regulations,
including participation in assessments and remediation of
contaminated 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 associated with divested
assets, third party locations 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, 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, including certain activities and proceedings arising
under Superfund and comparable laws in U.S. states and
other jurisdictions worldwide.
We have established reserves for environmental remediation
activities and liabilities where appropriate. However, the cost
of addressing 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. Furthermore, the failure
to comply with our obligations under the environmental laws and
regulations could subject us to administrative, civil or
criminal penalties, obligations to pay damages or other costs,
and injunctions or other orders, including orders to cease
operations. In addition, the presence of environmental
contamination at our properties could adversely affect our
ability to sell property, receive full value for a property or
use a property as collateral for a loan.
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. Environmental laws typically provide for
participation in permitting decisions, site remediation
decisions and other matters. Concern about environmental justice
issues may affect our operations. Should such community
objections be presented to government officials, 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 and may also have an
effect on the cost of our environmental remediation projects.
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. Because of the nature of these
substances or related residues, we may be liable for certain
costs, including, among others, costs for health-related claims
or removal or re-treatment of such substances. Certain of our
current and former facilities incorporate asbestos-containing
materials, a hazardous substance that has been the subject of
health-related claims for occupation exposure. In addition,
although we have developed environmental, health and safety
programs for our employees, including measures to reduce
employee exposure to hazardous substances, 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 or other hazards 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
35
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.
We may
be exposed to significant legal proceedings or
investigations.
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, personal injury, 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
others are discussed below under Item 3. 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 and cash flows.
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.
We are sometimes exposed to warranty and product 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
net 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 any
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 and cash flows.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Our executive offices are located in Atlanta, Georgia. We have
33 operating facilities, one research facility and several
market-focused innovation centers in 11 countries as of
March 31, 2008. 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.
36
The following tables provide information, by operating segment,
about the plant locations, processes and major end-use
markets/applications for the aluminum rolled products, recycling
and primary metal facilities we operated during all or part of
the year ended March 31, 2008.
North
America
|
|
|
|
|
Location
|
|
Plant Processes
|
|
Major End-Use Markets/Applications
|
|
Berea, Kentucky
|
|
Recycling
|
|
Recycled ingot
|
Burnaby, British Columbia
|
|
Finishing
|
|
Foil containers
|
Fairmont, West Virginia
|
|
Cold rolling, finishing
|
|
Foil, HVAC material
|
Greensboro, Georgia
|
|
Recycling
|
|
Recycled ingot
|
Kingston, Ontario
|
|
Cold rolling, finishing
|
|
Automotive, construction/industrial
|
Logan, Kentucky(i)
|
|
Hot rolling, cold rolling, finishing
|
|
Can stock
|
Louisville, Kentucky(ii)
|
|
Cold rolling, finishing
|
|
Foil, converter foil
|
Oswego, New York
|
|
Hot rolling, cold rolling, recycling, finishing
|
|
Can stock, construction/industrial, semi-finished coil
|
Saguenay, Quebec
|
|
Continuous casting
|
|
Semi-finished coil
|
Terre Haute, Indiana
|
|
Cold rolling, finishing
|
|
Foil
|
Toronto, Ontario
|
|
Finishing
|
|
Foil, foil containers
|
Warren, Ohio
|
|
Coating
|
|
Can end stock
|
|
|
|
(i) |
|
We own 40% of the outstanding common shares of Logan Aluminum
Inc., but we have made subsequent equipment investments such
that we now have rights to approximately 64% of Logans
total production capacity. |
|
(ii) |
|
The Louisville, Kentucky plant is scheduled to be closed by
June 30, 2008. |
Our Oswego, New York facility operates modern equipment for used
beverage can recycling, ingot casting, hot rolling, cold rolling
and finishing. In March 2006, we commenced commercial production
using our Novelis
Fusiontm
technology able to produce a high quality ingot with
a core of one aluminum alloy, combined with one or more layers
of different aluminum alloy(s). The ingot can then be rolled
into a sheet product with different properties on the inside and
the outside, allowing previously unattainable performance for
flat rolled products and creating opportunity for new, premium
applications. 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 to our Fairmont, West Virginia facility,
which produces light gauge sheet.
The Logan, Kentucky facility is a processing joint venture
between us and Arco Aluminum (ARCO), a subsidiary of BP plc. Our
equity investment in the joint venture is 40%, while ARCO holds
the remaining 60% interest. Subsequent equipment investments
have resulted in us now having access to approximately 64% 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 the can
stock market with modern equipment, efficient workforce and
product focus. A portion of the can end stock is coated at
North Americas 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
Note 1 Business and Summary of Significant
Accounting Policies in the accompanying consolidated and
combined financial statements, our consolidated balance sheets
include the assets and liabilities of Logan.
37
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 members. Management of Logan is led
jointly by two executive officers who are subject to approval by
at least five members of the board of directors.
Our Saguenay, 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 facility sources molten
metal under long-term supply arrangements we have with Alcan.
In March 2008, management approved the closure of our light
gauge converter products facility in Louisville, Kentucky. The
closure is intended to bring the capacity of our North American
operations in line with local market demand. We expect the
action to be completed by December 2008.
Our Burnaby, British Columbia and Toronto, Ontario facilities
spool and package household foil products and report to our foil
business unit based in Toronto, Ontario.
Along with our recycling center in Oswego, New York, we own two
other fully dedicated recycling facilities in North America,
located 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.
Europe
|
|
|
|
|
Location
|
|
Plant Processes
|
|
Major End-Use Markets/Applications
|
|
Berlin, Germany
|
|
Converting
|
|
Packaging
|
Bresso, Italy
|
|
Finishing
|
|
Painted sheet
|
Bridgnorth, United Kingdom
|
|
Cold rolling, finishing, converting
|
|
Foil, packaging
|
Dudelange, Luxembourg
|
|
Continuous casting, cold rolling, finishing
|
|
Foil
|
Göttingen, Germany
|
|
Cold rolling, finishing
|
|
Can end, lithographic, painted sheet
|
Latchford, United Kingdom
|
|
Recycling
|
|
Sheet ingot from recycled metal
|
Ludenscheid, Germany(i)
|
|
Cold rolling, finishing, converting
|
|
Foil, packaging
|
Nachterstedt, Germany
|
|
Cold rolling, finishing
|
|
Automotive, industrial
|
Norf, Germany(ii)
|
|
Hot rolling, cold rolling
|
|
Can stock, foilstock, reroll
|
Ohle, Germany(i)
|
|
Cold rolling, finishing, converting
|
|
Foil, packaging
|
Pieve, Italy
|
|
Continuous casting, cold rolling
|
|
Paintstock, industrial
|
Rogerstone, United Kingdom
|
|
Hot rolling, cold rolling
|
|
Foilstock, paintstock, reroll, industrial
|
Rugles, France
|
|
Continuous casting, cold rolling, finishing
|
|
Foil
|
Sierre, Switzerland(iii)
|
|
Hot rolling, cold rolling
|
|
Automotive sheet, industrial
|
|
|
|
(i) |
|
We reorganized our plants in Ohle and Ludenscheid, Germany,
including the closure of two non-core business lines located
within those facilities as of May 2006. |
|
(ii) |
|
Operated as a 50/50 joint venture between us and Hydro Aluminium
Deutschland GmbH (Hydro). |
|
(iii) |
|
We have entered into an agreement with Alcan pursuant to which
Alcan retains access to the plate production capacity, which
represents a portion of the total production capacity of the
Sierre hot mill. |
Aluminium Norf GmbH (Norf) in Germany, a 50/50
production-sharing joint venture between us and Hydro, 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
38
Ohle and Ludenscheid in Germany and Rugles in France. Together
with 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 shared 50/50.
We own 50% of the equity interest in Norf and Hydro owns the
other 50%. We share control of the management of Norf with 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 Hydro.
The Rogerstone mill in the United Kingdom supplies Bridgnorth
and other foil plants with foilstock and produces hot coil for
Nachterstedt and Pieve. In addition, Rogerstone produces
standard sheet and coil for the European distributor market. The
Pieve plant, located near Milan, Italy, mainly produces
continuous cast coil that is cold rolled into paintstock and
sent to the Bresso plant for painting, also located near Milan.
The Dudelange and Rugles foil plants in Luxembourg and France
utilize continuous twin roll casting equipment and are two 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, along
with Nachterstedt in Germany, are Europes leading
producers of automotive sheet in terms of shipments. Sierre also
supplies plate stock to Alcan.
Our recycling operations in Latchford, United Kingdom is the
only major recycling plant in Europe dedicated to used beverage
cans.
European operations also include Novelis PAE in Voreppe, France,
which sells casthouse technology, including liquid metal
treatment devices, such as degassers and filters, chill sheet
ingot casters and twin roll continuous casters, in many parts of
the world.
Asia
|
|
|
|
|
Location
|
|
Plant Processes
|
|
Major End-Use Markets/Applications
|
|
Bukit Raja, Malaysia(i)
|
|
Continuous casting, cold rolling
|
|
Construction/industrial, foilstock foil, finstock
|
Ulsan, Korea(ii)
|
|
Hot rolling, cold rolling, recycling
|
|
Can stock, construction/industrial, foilstock, recycled ingot
|
Yeongju, Korea(iii)
|
|
Hot rolling, cold rolling
|
|
Can stock, construction/industrial, foilstock
|
|
|
|
(i) |
|
Ownership of the Bukit Raja plant corresponds to our 58% equity
interest in Aluminium Company of Malaysia Berhad. |
|
(ii) |
|
We hold a 68% equity interest in the Ulsan plant. |
|
(iii) |
|
We hold a 68% equity interest in the Yeongju plant. |
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.
We hold a 58% equity interest in the Aluminium Company of
Malaysia Berhad, a publicly traded company that wholly owns and
controls the Bukit Raja, Selangor light gauge rolling facility.
Unlike our production sharing joint ventures at Norf, Germany
and Logan, Kentucky, our Korean partners are financial partners
and we market 100% of the plants output.
Asia 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 4.2% of Asias total shipments in
fiscal 2008.
39
South
America
|
|
|
|
|
Location
|
|
Plant Processes
|
|
Major End-Use Markets/Applications
|
|
Pindamonhangaba, Brazil
|
|
Hot rolling, cold rolling, recycling
|
|
Construction/industrial, can stock, foilstock, recycled ingot,
foundry ingot, forge stock
|
Utinga, Brazil
|
|
Finishing
|
|
Foil
|
Ouro Preto, Brazil
|
|
Alumina refining, smelting
|
|
Primary aluminum (sheet ingot and billets)
|
Aratu, Brazil
|
|
Smelting
|
|
Primary aluminum (sheet ingot and billets)
|
Our Pindamonhangaba (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 foilstock 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.
Total production capacity at our primary metal facilities in
Ouro Preto and Aratu, Brazil was 102kt in fiscal 2008.
We conduct bauxite mining, alumina refining, primary aluminum
smelting and hydro-electric power generation operations at our
Ouro Preto, Brazil facility. Our owned power generation supplies
approximately 25% of our smelter needs. In the Ouro Preto
region, we own the mining rights to approximately 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 Candeias, Brazil.
|
|
Item 3.
|
Legal
Proceedings
|
In connection with our spin-off 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 various forms of manufacturing taxes and
social security contributions). 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 that we assert against others, such as
environmental, health and safety, product liability, employee,
tax, personal injury and other matters. 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 operations or materially affect our
financial condition or liquidity. The following describes
certain environmental matters relating to our business,
including those for which we assumed liability as a result of
our spin-off from Alcan. None of the environmental matters
include government sanctions of $100,000 or more.
Environmental
Matters
We are involved in proceedings under the U.S. Comprehensive
Environmental Response, Compensation, and Liability Act, also
known as CERCLA or Superfund, or analogous state provisions
regarding liability arising from the usage, storage, treatment
or disposal of hazardous substances and wastes at a number of
sites
40
in the United States, as well as similar proceedings under the
laws and regulations of the other jurisdictions in which we have
operations, including Brazil and certain countries in the
European Union. Many of these jurisdictions have laws that
impose joint and several liability, without regard to fault or
the legality of the original conduct, for the costs of
environmental remediation, natural resource damages, third party
claims, and other expenses, on those persons who contributed to
the release of a hazardous substance into the environment. In
addition, we are, from time to time, subject to environmental
reviews and investigations by relevant governmental authorities.
As described further in the following paragraph, we have
established procedures for regularly evaluating environmental
loss contingencies, including those arising from such
environmental reviews and investigations and any other
environmental remediation or compliance matters. We believe we
have a reasonable basis for evaluating these environmental loss
contingencies, and we believe we have made reasonable estimates
of the costs that are likely to be borne by us for these
environmental loss contingencies. Accordingly, we have
established reserves based on our reasonable estimates for the
currently anticipated costs associated with these environmental
matters. We estimate that the undiscounted remaining
clean-up
costs related to all of our known environmental matters as of
March 31, 2008 will be approximately $50 million. Of
this amount, $34 million is included in Other long-term
liabilities, with the remaining $16 million included in
Accrued expenses and other current liabilities in our
consolidated balance sheet as of March 31, 2008. Management
has reviewed the environmental matters that we have previously
reported for which we assumed liability as a result of our
spin-off from Alcan. As a result of this review, management has
determined that the currently anticipated costs associated with
these environmental matters will not, individually or in the
aggregate, materially impair our operations or materially
adversely affect our financial condition, results of operations
or liquidity.
With respect to environmental loss contingencies, we record a
loss contingency 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 each claim. Management
reviews the status of, and estimated liability related to,
pending claims and civil actions on a quarterly basis. The
estimated costs in respect of such reported liabilities are not
offset by amounts related to cost-sharing between parties,
insurance, indemnification arrangements or contribution from
other potentially responsible parties unless otherwise noted.
Legal
Proceedings
Reynolds Boat Case. As previously disclosed,
we and Alcan were defendants in a case in the United States
District Court for the Western District of Washington, in
Tacoma, Washington, case number
C04-0175RJB.
Plaintiffs were Reynolds Metals Company, Alcoa, Inc. and
National Union Fire Insurance Company of Pittsburgh PA. The case
was tried before a jury beginning on May 1, 2006 under
implied warranty theories, based on allegations that from 1998
to 2001 we and Alcan sold certain aluminum products that were
ultimately used for marine applications and were unsuitable for
such applications. The jury reached a verdict on May 22,
2006 against us and Alcan for approximately $60 million,
and the court later awarded Reynolds and Alcoa approximately
$16 million in prejudgment interest and court costs.
The case was settled during July 2006 as among us, Alcan,
Reynolds, Alcoa and their insurers for $71 million. We
contributed approximately $1 million toward the settlement,
and the remaining $70 million was funded by our insurers.
Although the settlement was substantially funded by our
insurance carriers, certain of them have reserved the right to
request a refund from us, after reviewing details of the
plaintiffs damages to determine if they include costs of a
nature not covered under the insurance contracts. Of the
$70 million funded, $39 million is in dispute with and
under further review by certain of our insurance carriers. In
the quarter ended December 31, 2006, we posted a letter of
credit in the amount of approximately $10 million in favor
of one of those insurance carriers, while we resolve the extent
of coverage of the costs included in the settlement. On
October 8, 2007, we received a letter from these insurers
stating that they have completed their review and they are
requesting a refund of the $39 million plus interest. We
reviewed the
41
insurers position, and on January 7, 2008, we sent a
letter to the insurers rejecting their position that Novelis is
not entitled to insurance coverage for the judgment against
Novelis.
Since our fiscal 2005 Annual Report on
Form 10-K
was not filed until August 25, 2006, we recognized a
liability for the full settlement amount of $71 million on
December 31, 2005, included in Accrued expenses and other
current liabilities on our consolidated balance sheet, with a
corresponding charge against earnings. We also recognized an
insurance receivable included in Prepaid expenses and other
current assets on our consolidated balance sheet of
$31 million, with a corresponding increase to earnings.
Although $70 million of the settlement was funded by our
insurers, we only recognized an insurance receivable to the
extent that coverage was not in dispute. This resulted in a net
charge of $40 million during the quarter ended
December 31, 2005.
In July 2006, we contributed and paid $1 million to our
insurers who subsequently paid the entire settlement amount of
$71 million to the plaintiffs. Accordingly, during the
quarter ended December 31, 2006 we reversed the previously
recorded insurance receivable of $31 million and reduced
our recorded liability by the same amount plus the
$1 million contributed by us. The remaining liability of
$39 million represents the amount of the settlement claim
that was funded by our insurers but is still in dispute with and
under further review by the parties as described above. The
$39 million liability is included in Accrued expenses and
other current liabilities in our consolidated balance sheets as
of March 31, 2008 and 2007.
While the ultimate resolution of the nature and extent of any
costs not covered under our insurance contracts cannot be
determined with certainty or reasonably estimated at this time,
if there is an adverse outcome with respect to insurance
coverage, and we are required to reimburse our insurers, it
could have a material impact on our cash flows in the period of
resolution. Alternatively, the ultimate resolution could be
favorable, such that insurance coverage is in excess of the net
expense that we have recognized to date. This would result in
our recording a non-cash gain in the period of resolution, and
this non-cash gain could have a material impact on our results
of operations during the period in which such a determination is
made.
Coca-Cola
Lawsuits. A lawsuit was commenced against Novelis
Corporation on February 15, 2007 by
Coca-Cola
Bottlers Sales and Services Company LLC (CCBSS) in state
court in Georgia. In addition, a lawsuit was commenced against
Novelis Corporation and Alcan Corporation on April 3, 2007
by Coca-Cola
Enterprises Inc., Enterprises Acquisition Company, Inc., The
Coca-Cola
Company and The
Coca-Cola
Trading Company, Inc. (collectively CCE) in federal court in
Georgia. Novelis intends to defend these claims vigorously.
CCBSS is a consortium of
Coca-Cola
bottlers across the United States, including
Coca-Cola
Enterprises Inc. CCBSS alleges that Novelis Corporation breached
an aluminum can stock supply agreement between the parties, and
seeks monetary damages in an amount to be determined at trial
and a declaration of its rights under the agreement. The
agreement includes a most favored nations provision
regarding certain pricing matters. CCBSS alleges that Novelis
Corporation breached the terms of the most favored nations
provision. The dispute will likely turn on the facts that are
presented to the court by the parties and the courts
finding as to how certain provisions of the agreement ought to
be interpreted. If CCBSS were to prevail in this litigation, the
amount of damages would likely be material. Novelis Corporation
has filed its answer and the parties are proceeding with
discovery.
The claim by CCE seeks monetary damages in an amount to be
determined at trial for breach of a prior aluminum can stock
supply agreement between CCE and Novelis Corporation, successor
to the rights and obligations of Alcan Aluminum Corporation
under the agreement. According to its terms, that agreement with
CCE terminated in 2006. The CCE supply agreement included a
most favored nations provision regarding certain
pricing matters. CCE alleges that Novelis Corporations
entry into a supply agreement with Anheuser-Busch, Inc. breached
the most favored nations provision of the CCE supply
agreement. Novelis Corporation moved to dismiss the complaint
and on March 26, 2008, the U.S. District Court for the
Northern District of Georgia issued an order granting Novelis
Corporations motion to dismiss CCEs claim. On
April 24, 2008, CCE filed a notice of appeal of the
courts order with the United Stated Circuit Court of
Appeal for the 11th Circuit. If CCE were to ultimately
prevail in this appeal and litigation, the amount of damages
would likely be material. We have not recorded any reserves for
these matters.
42
Anheuser-Busch Litigation. On
September 19, 2006, Novelis Corporation filed a lawsuit
against Anheuser-Busch, Inc. in federal court in Ohio.
Anheuser-Busch, Inc. subsequently filed suit against Novelis
Corporation and the Company in federal court in Missouri. On
January 3, 2007, Anheuser-Busch, Inc.s suit was
transferred to the Ohio federal court.
Novelis Corporation alleged that Anheuser-Busch, Inc. breached
the existing multi-year aluminum can stock supply agreement
between the parties, and sought monetary damages and declaratory
relief. Among other claims, we asserted that since entering into
the supply agreement, Anheuser-Busch, Inc. has breached its
confidentiality obligations and there has been a structural
change in market conditions that requires a change to the
pricing provisions under the agreement.
In its complaint, Anheuser-Busch, Inc. asked for a declaratory
judgment that Anheuser-Busch, Inc. is not obligated to modify
the supply agreement as requested by Novelis Corporation, and
that Novelis Corporation must continue to perform under the
existing supply agreement.
On January 18, 2008, Anheuser-Busch, Inc. filed a motion
for summary judgment. On May 22, 2008, the court granted
Anheuser-Busch, Inc.s motion for summary judgment. Novelis
Corporation has 30 days to file a notice of appeal with the
court and is currently reviewing the courts order to
understand the reasoning behind the decision and evaluate its
grounds for appeal. Novelis Corporation has continued to perform
under the supply agreement during the litigation.
ARCO Aluminum Complaint. On May 24, 2007,
Arco Aluminum Inc. (ARCO) filed a complaint against Novelis
Corporation and Novelis Inc. in the United States District Court
for the Western District of Kentucky. ARCO and Novelis are
partners in a joint venture rolling mill located in Logan,
Kentucky. In the complaint, ARCO seeks to resolve a perceived
dispute over management and control of the joint venture
following Hindalcos acquisition of Novelis.
ARCO alleges that its consent was required in connection with
Hindalcos acquisition of Novelis. Failure to obtain
consent, ARCO alleges, has put us in default of the joint
venture agreements, thereby triggering certain provisions in
those agreements. The provisions include a reversion of the
production management at the joint venture to Logan Aluminum
from Novelis, and a reduction of the board of directors of the
entity that manages the joint venture from seven members (four
appointed by Novelis and three appointed by ARCO) to six members
(three appointed by each of Novelis and ARCO).
ARCO seeks a court declaration that (1) Novelis and its
affiliates are prohibited from exercising any managerial
authority or control over the joint venture,
(2) Novelis interest in the joint venture is limited
to an economic interest only and (3) ARCO has authority to
act on behalf of the joint venture. Alternatively, ARCO is
seeking a reversion of the production management function to
Logan Aluminum, and a change in the composition of the board of
directors of the entity that manages the joint venture. Novelis
filed its answer to the complaint on July 16, 2007.
On July 3, 2007, ARCO filed a motion for partial summary
judgment with respect to one of the counts of its complaint
relating to the claim that Novelis breached the joint venture
agreement by not seeking ARCOs consent. On July 30,
2007, Novelis filed a motion to hold ARCOs motion for
summary judgment in abeyance (pending further discovery), along
with a demand for a jury. On February 14, 2008, the judge
issued an order granting our motion to hold ARCOs summary
judgment motion in abeyance. Pursuant to this ruling, the joint
venture continues to conduct management and board activities as
normal.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
43
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities
|
On May 15, 2007, all of our common shares were acquired by
Hindalco through its indirect wholly-owned subsidiary AV Metals
Inc. (Acquisition Sub) pursuant to a plan of arrangement (the
Arrangement). Immediately following the Arrangement, Acquisition
Sub transferred our common shares to its wholly-owned subsidiary
AV Aluminum Inc. (AV Aluminum). As of the date of filing, AV
Aluminum is the sole shareholder of record of our shares.
Subsequent to completion of the Arrangement on May 15,
2007, all of our common shares were indirectly held by Hindalco.
We are a domestic issuer for purposes of the Securities Exchange
Act of 1934, as amended, because our 7.25% senior unsecured
debt securities are publicly traded.
We currently do not pay dividends and do not intend to do so in
the foreseeable future. No dividends have been declared since
October 26, 2006. Future dividends are at the discretion of
the board of directors and will depend on, among other things,
our financial resources, cash flows generated by our business,
our cash requirements, restrictions under the instruments
governing our indebtedness, being in compliance with the
appropriate indentures and covenants under the instruments that
govern our indebtedness that would allow us to legally pay
dividends and other relevant factors.
|
|
Item 6.
|
Selected
Financial Data
|
You should read the following selected financial data in
conjunction with Item 7. Managements Discussion
and Analysis of Financial Condition and Results of
Operations and our consolidated and combined financial
statements included in this Annual Report on
Form 10-K.
Background
On May 15, 2007, the Company was acquired by Hindalco
through its indirect wholly-owned subsidiary AV Metals Inc.
(Acquisition Sub) pursuant to a plan of arrangement
(Arrangement) entered into on February 10, 2007 and
approved by the Ontario Superior Court of Justice on
May 14, 2007 (see Note 2 Acquisition of
Novelis Common Stock in the accompanying consolidated and
combined financial statements). As a result of the Arrangement,
Acquisition Sub acquired all of the Companys outstanding
common shares at a price of $44.93 per share, and all
outstanding stock options and other equity incentives were
terminated in exchange for cash payments. The aggregate purchase
price for the Companys common shares was $3.4 billion
and immediately following the Arrangement, the common shares of
the Company were transferred from Acquisition Sub to its
wholly-owned subsidiary AV Aluminum Inc. (AV Aluminum). Hindalco
also assumed $2.8 billion of Novelis debt for a total
transaction value of $6.2 billion.
On June 22, 2007, we issued 2,044,122 additional common
shares to AV Aluminum for $44.93 per share resulting in an
additional equity contribution of approximately
$92 million. This contribution was equal in amount to
certain payments made by Novelis related to change in control
compensation to certain employees and directors, lender fees and
other transaction costs incurred by the Company. As this
transaction was approved by the Company and executed subsequent
to the Arrangement, the $92 million cash payment is not
included in the determination of total purchase price.
As discussed in Note 1 Business and Summary of
Significant Accounting Policies in the accompanying consolidated
and combined financial statements, the Arrangement was recorded
in accordance with Staff Accounting Bulletin No. 103,
Push Down Basis of Accounting Required in Certain Limited
Circumstances (SAB No. 103). Accordingly, in the
accompanying March 31, 2008 consolidated balance sheet, the
consideration and related costs paid by Hindalco in connection
with the acquisition have been pushed down to us and
have been allocated to the assets acquired and liabilities
assumed in accordance with FASB Statement No. 141,
Business Combinations. Due to the impact of push down
accounting, the Companys consolidated financial statements
and certain note presentations for our fiscal year ended
March 31, 2008 are
44
presented in two distinct periods to indicate the application of
two different bases of accounting between the periods presented:
(1) the period up to, and including, the acquisition date
(April 1, 2007 through May 15, 2007, labeled
Predecessor) and (2) the period after that date
(May 16, 2007 through March 31, 2008, labeled
Successor). All periods including and prior to the
three months ended March 31, 2007 are also labeled
Predecessor. The accompanying consolidated and
combined financial statements shown below include a black line
division which indicates that the Predecessor and Successor
reporting entities shown are not comparable.
Change
in Fiscal Year End
On June 26, 2007, our board of directors approved the
change of our fiscal year end to March 31 from December 31.
On June 28, 2007, we filed a Transition Report on
Form 10-Q
for the three month period ended March 31, 2007 with the
United States Securities and Exchange Commission (SEC) pursuant
to
Rule 13a-10
under the Securities Exchange Act of 1934 for transition period
reporting. Accordingly, the accompanying consolidated and
combined financial statements present our financial position as
of March 31, 2008 and 2007, and the results of our
operations, cash flows and changes in
shareholders/invested equity for the periods from
May 16, 2007 through March 31, 2008 (Successor) and
from April 1, 2007 through May 15, 2007 (Predecessor)
(on a combined basis, our fiscal year ended March 31,
2008), the three months ended March 31, 2007 and the years
ended December 31, 2006 and 2005.
Basis
of Presentation
The data presented below is derived from the following audited
financial statements of the Company which are included elsewhere
in this Annual Report on
Form 10-K:
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our consolidated statements of operations for:
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the periods from May 16, 2007 through March 31, 2008
and from April 1, 2007 through May 15, 2007;
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the three months ended March 31, 2007; and
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the year ended December 31, 2006;
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our consolidated and combined statement of operations for the
year ended December 31, 2005 and
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our consolidated balance sheets as of March 31, 2008 and
2007.
|
The data presented below is also derived from the following
audited financial statements of the Company which are not
included in this Annual Report on
Form 10-K:
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our combined statements of operations for the years ended
December 31, 2004 and 2003;
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our consolidated balance sheets as of December 31, 2006 and
2005; and
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our combined balance sheets as of December 31, 2004 and
2003.
|
The consolidated and combined financial statements for the year
ended December 31, 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 December 31, 2005. The combined financial
results for the period from January 1 to January 5, 2005
present our operations on a carve-out accounting basis. The
consolidated balance sheet as of December 31, 2005 (and
subsequent periods) and the consolidated results for the period
from January 6 (the date of the spin-off from Alcan) to
December 31, 2005 (and subsequent periods) present our
financial position, results of operations and cash flows as a
stand-alone entity.
All income earned and cash flows generated by us 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 consolidated and combined results for the year
ended December 31, 2005, with the exception of losses of
$43 million ($29 million net of tax) arising from the
change in fair market value of derivative contracts, primarily
with Alcan. These mark-to-market losses for the period from
January 1 to January 5, 2005 were recorded in the
45
consolidated and combined statement of operations for the year
ended December 31, 2005 and were recognized as a decrease
in Owners net investment.
Our historical combined financial statements for the years ended
December 31, 2004 and 2003 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.
As of May 15, 2007, all of our common shares were
indirectly held by Hindalco; thus, no earnings per share data is
reported (in millions, except per share amounts).
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May 16,
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April 1,
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Three
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|
|
|
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|
|
|
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2007
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2007
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Months
|
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|
|
|
|
|
|
|
|
|
|
|
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|
Through
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|
Through
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Ended
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|
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|
|
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March 31,
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May 15,
|
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March 31,
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Year Ended December 31,
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|
|
2008
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
Successor
|
|
|
|
Predecessor
|
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|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Net sales
|
|
$
|
9,965
|
|
|
|
$
|
1,281
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|
|
$
|
2,630
|
|
|
$
|
9,849
|
|
|
$
|
8,363
|
|
|
$
|
7,755
|
|
|
$
|
6,221
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|
Net income (loss)
|
|
$
|
28
|
|
|
|
$
|
(97
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)
|
|
$
|
(64
|
)
|
|
$
|
(275
|
)
|
|
$
|
90
|
|
|
$
|
55
|
|
|
$
|
157
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|
Dividends per common share
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.20
|
|
|
$
|
0.36
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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As of
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|
|
As of
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|
|
|
|
|
|
|
|
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|
|
March 31,
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|
March 31,
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|
As of December 31,
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|
|
2008
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Total assets
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|
$
|
10,946
|
|
|
|
$
|
5,970
|
|
|
$
|
5,792
|
|
|
$
|
5,476
|
|
|
$
|
5,954
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|
|
$
|
6,316
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|
Long-term debt (including current portion)
|
|
$
|
2,575
|
|
|
|
$
|
2,300
|
|
|
$
|
2,302
|
|
|
$
|
2,603
|
|
|
$
|
2,737
|
|
|
$
|
1,659
|
|
Short-term borrowings
|
|
$
|
115
|
|
|
|
$
|
245
|
|
|
$
|
133
|
|
|
$
|
27
|
|
|
$
|
541
|
|
|
$
|
964
|
|
Cash and cash equivalents
|
|
$
|
326
|
|
|
|
$
|
128
|
|
|
$
|
73
|
|
|
$
|
100
|
|
|
$
|
31
|
|
|
$
|
27
|
|
Shareholders/invested equity
|
|
$
|
3,538
|
|
|
|
$
|
175
|
|
|
$
|
195
|
|
|
$
|
433
|
|
|
$
|
555
|
|
|
$
|
1,974
|
|
As described more fully in Note 2 Acquisition
of Novelis Common Stock in the accompanying consolidated and
combined financial statements, the consideration paid by
Hindalco to acquire Novelis has been pushed down to us and
allocated to the assets acquired and liabilities assumed based
on our estimates of fair value, using methodologies and
assumptions that we believe are reasonable. This allocation of
fair value results in additional charges or income to our
post-acquisition consolidated statements of operations.
In accordance with FASB Statement No. 141, during our
quarter ended June 30, 2007, we substantially allocated
total consideration ($3.405 billion) to the assets acquired
and liabilities assumed based on our initial estimates of fair
value using methodologies and assumptions that we believed were
reasonable. During the three months ended March 31, 2008,
we finalized the allocation of the total consideration to
identifiable assets and liabilities. This is primarily due to
the finalization of our assessment of the valuation of the
acquired tangible and intangible assets, the allocation of fair
value to our reporting units, remeasurement of postretirement
benefits and the income tax implications of the new basis of
accounting triggered by the Arrangement.
The final purchase price allocation includes a total of
$685 million for the fair value of liabilities associated
with unfavorable sales contracts ($371 million included in
Other long-term liabilities and $314 million included in
Accrued expenses and other current liabilities). Of this amount,
$655 million relates to unfavorable sales contracts in
North America. These contracts include a ceiling over which
metal prices cannot contractually be passed through to certain
customers, unless adjusted. Subsequent to the Arrangement, the
fair values of these liabilities are credited to Net sales over
the remaining lives of the underlying contracts.
46
The reduction of these liabilities does not affect our cash
flows. For the fiscal year ended March 31, 2008 (during the
period from May 16, 2007 through March 31, 2008 only),
we recorded accretion of $270 million.
Intangible assets include (1) $124 million for a
favorable energy supply contract in North America, recorded at
its estimated fair value, (2) $15 million for other
favorable supply contracts in Europe and
(3) $9 million for the estimated value of acquired
in-process research and development projects that had not yet
reached technological feasibility. In accordance with FASB
Statement No. 141, the $9 million of acquired
in-process research and development was expensed upon
acquisition and charged to Research and development expenses in
the period from May 16, 2007 through March 31, 2008.
We incurred a total of $64 million of fees and expenses
related to the Arrangement, of which $32 million was
incurred in each of the periods from April 1, 2007 through
May 15, 2007, and for the three months ended March 31,
2007. These fees and expenses are included in Sale transaction
fees in our condensed consolidated and combined statements of
operations.
We implemented restructuring programs that included certain
businesses we acquired from Alcan in the spin-off transaction.
Restructuring charges related to those programs, to other
actions initiated after the spin-off and impairment charges on
long-lived assets, included in our results of operations for the
periods presented are as follows (in millions).
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|
|
|
|
|
|
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|
May 16,
|
|
|
April 1,
|
|
Three
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2007
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
Through
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
May 15,
|
|
March 31,
|
|
Year Ended December 31,
|
|
|
2008
|
|
|
2007
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
Successor
|
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
Restructuring charges net
|
|
$
|
6
|
|
|
|
$
|
1
|
|
|
$
|
9
|
|
|
$
|
19
|
|
|
$
|
10
|
|
|
$
|
20
|
|
|
$
|
8
|
|
Impairment charges on long-lived assets
|
|
|
1
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
7
|
|
|
|
75
|
|
|
|
4
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
OVERVIEW
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations (MD&A) is
provided as a supplement to, and should be read in conjunction
with, our consolidated and combined financial statements and the
accompanying notes included in this Annual Report on
Form 10-K
for a more complete understanding of our financial condition and
results of operations. The MD&A includes the following
sections:
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|
|
Acquisition of Novelis Common Stock and Predecessor and
Successor Reporting; and
|
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|
Change in Fiscal Year End
|
|
|
|
|
|
Note Regarding Combined Results of Operations and Selected
Financial and Operating Information Due to our Acquisition by
Hindalco;
|
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Highlights;
|
|
|
|
Our Business:
|
|
|
|
|
|
Business Model and Key Concepts;
|
|
|
|
Challenges;
|
|
|
|
Key Trends and Business Outlook; and
|
|
|
|
Spin-off from Alcan, Inc. (Alcan) (in October 2007, the Rio
Tinto Group purchased all of the outstanding shares of Alcan,
our former parent, and was renamed Rio Tinto Alcan).
|
47
|
|
|
|
|
Operations and Segment Review an analysis of our
consolidated and combined results of operations, on both a
consolidated and combined and on a segment basis;
|
|
|
|
Liquidity and Capital Resources an analysis of the
effect of our operating, financing and investing activities on
our liquidity and capital resources;
|
|
|
|
Off-Balance Sheet Arrangements a discussion of such
commitments and arrangements;
|
|
|
|
Contractual Obligations a summary of our aggregate
contractual obligations;
|
|
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|
Dividends our dividend history;
|
|
|
|
Environment, Health and Safety our mission and
commitment to environment, health and safety management;
|
|
|
|
Critical Accounting Policies and Estimates a
discussion of accounting policies that require significant
judgments and estimates; and
|
|
|
|
Recently Issued Accounting Standards a summary and
discussion of our plans for the adoption of new accounting
standards relevant to us.
|
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 Annual Report on
Form 10-K,
particularly in Special Note Regarding Forward-Looking
Statements and Market Data and Risk
Factors.
References herein to Novelis, the
Company, we, our, or
us refer to Novelis Inc. and its subsidiaries unless
the context specifically indicates otherwise. References herein
to Hindalco refer to Hindalco Industries Limited. In
October 2007, the Rio Tinto Group purchased all the outstanding
shares of Alcan, Inc. References herein to Alcan
refer to Rio Tinto Alcan Inc.
GENERAL
Novelis is the worlds leading aluminum rolled products
producer based on shipment volume. We produce aluminum sheet and
light gauge products for the beverage and food can,
transportation, construction and industrial, and foil products
markets. As of March 31, 2008, we had operations on four
continents: North America; South America; Asia; and Europe,
through 33 operating plants and one research facility and
several market-focused innovation centers in 11 countries. In
addition to aluminum rolled products plants, our South American
businesses include bauxite mining, alumina refining, primary
aluminum smelting and power generation facilities that are
integrated with our rolling plants in Brazil. We are the only
company of our size and scope focused solely on aluminum rolled
products markets and capable of local supply of technologically
sophisticated products in all of these geographic regions.
Acquisition
of Novelis Common Stock and Predecessor and Successor
Reporting
On May 15, 2007, the Company was acquired by Hindalco
through its indirect wholly-owned subsidiary AV Metals Inc.
(Acquisition Sub) pursuant to a plan of arrangement
(Arrangement) entered into on February 10, 2007 and
approved by the Ontario Superior Court of Justice on
May 14, 2007 (see Note 2 Acquisition of
Novelis Common Stock in the accompanying consolidated and
combined financial statements). As a result of the Arrangement,
Acquisition Sub acquired all of the Companys outstanding
common shares at a price of $44.93 per share, and all
outstanding stock options and other equity incentives were
terminated in exchange for cash payments. The aggregate purchase
price for the Companys common shares was $3.4 billion
and immediately following the Arrangement, the common shares of
the Company were transferred from Acquisition Sub to its
wholly-owned subsidiary AV Aluminum Inc. (AV Aluminum). Hindalco
also assumed $2.8 billion of Novelis debt for a total
transaction value of $6.2 billion.
On June 22, 2007, we issued 2,044,122 additional common
shares to AV Aluminum for $44.93 per share resulting in an
additional equity contribution of approximately
$92 million. This contribution was equal in
48
amount to certain payments made by Novelis related to change in
control compensation to certain employees and directors, lender
fees and other transaction costs incurred by the Company. As
this transaction was approved by the Company and executed
subsequent to the Arrangement, the $92 million cash payment
is not included in the determination of total purchase price.
As discussed in Note 1 Business and Summary of
Significant Accounting Policies in the accompanying consolidated
and combined financial statements, the Arrangement was recorded
in accordance with Staff Accounting Bulletin No. 103,
Push Down Basis of Accounting Required in Certain Limited
Circumstances (SAB No. 103). Accordingly, in the
accompanying March 31, 2008 consolidated balance sheet, the
consideration and related costs paid by Hindalco in connection
with the acquisition have been pushed down to us and
have been allocated to the assets acquired and liabilities
assumed in accordance with Financial Accounting Standards Board
(FASB) Statement No. 141, Business Combinations. Due
to the impact of push down accounting, the Companys
consolidated financial statements and certain note presentations
for our fiscal year ended March 31, 2008 are presented in
two distinct periods to indicate the application of two
different bases of accounting between the periods presented:
(1) the period up to, and including, the acquisition date
(April 1, 2007 through May 15, 2007, labeled
Predecessor) and (2) the period after that date
(May 16, 2007 through March 31, 2008, labeled
Successor). All periods including and prior to the
three months ended March 31, 2007 are also labeled
Predecessor. The accompanying consolidated and
combined financial statements include a black line division
which indicates that the Predecessor and Successor reporting
entities shown are not comparable.
Change
in Fiscal Year End
On June 26, 2007, our board of directors approved the
change of our fiscal year end to March 31 from December 31.
On June 28, 2007, we filed a Transition Report on
Form 10-Q
for the three month period ended March 31, 2007 with the
United States Securities and Exchange Commission (SEC) pursuant
to
Rule 13a-10
under the Securities Exchange Act of 1934 for transition period
reporting. Accordingly, the accompanying consolidated and
combined financial statements present our financial position as
of March 31, 2008 and 2007; and the results of our
operations, cash flows and changes in
shareholders/invested equity for the following periods:
May 16, 2007 through March 31, 2008 (Successor);
April 1, 2007 through May 15, 2007 (Predecessor) (on a
combined basis, our fiscal year ended March 31, 2008); the
three months ended March 31, 2007; and the years ended
December 31, 2006 and 2005.
Throughout MD&A, data for all periods except as of and for
the year ended March 31, 2007, are derived from our audited
consolidated and combined financial statements included in this
Annual Report on
Form 10-K.
All data as of and for the year ended March 31, 2007 are
derived from our unaudited condensed consolidated financial
statements included in our transition period ended
March 31, 2007 and our Quarterly Report on
Form 10-Q
for the period ended December 31, 2007.
NOTE REGARDING
COMBINED RESULTS OF OPERATIONS AND SELECTED FINANCIAL AND
OPERATING INFORMATION DUE TO OUR ACQUISITION BY
HINDALCO
As discussed above, the Arrangement created a new basis of
accounting. Under accounting principles generally accepted in
the United States of America (GAAP), the consolidated financial
statements for our fiscal year ended March 31, 2008 are
presented in two distinct periods, as Predecessor and Successor
entities, and are not comparable in all material respects.
However, within MD&A, in order to facilitate a discussion
of our results of operations, segment information and liquidity
and capital resources for the year ended March 31, 2008 on
a combined basis, in comparison with a similar period, we
prepared and are presenting financial information for the twelve
months ended March 31, 2007, which includes the three month
transition period ended March 31, 2007 and the nine months
ended December 31, 2006, on a combined basis. Wherever
practicable, the discussion below compares the consolidated
financial statements for the fiscal year ended March 31,
2008 with the combined financial statements for the year ended
March 31, 2007. For purposes of MD&A, we believe that
this comparison provides a more meaningful analysis.
49
In addition, our Predecessor and Successor operating results,
segment information and cash flows for the period from
April 1, 2007 through May 15, 2007, and for the period
from May 16, 2007 through March 31, 2008, are
presented herein on a combined basis.
The combined operating results, segment information and cash
flows are non-GAAP financial measures, do not include any pro
forma assumptions or adjustments and should not be used in
isolation or substitution of the Predecessor and Successor
operating results, segment information or cash flows.
Shown below are combining schedules of (1) shipments and
(2) our results of operations for periods attributable to
the Successor and Predecessor, and the combined presentation for
the year ended March 31, 2008 that we use throughout
MD&A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Year Ended
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2008
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Combined
|
|
Combined Shipments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipments (kt)(A):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products(B)
|
|
|
2,640
|
|
|
|
|
348
|
|
|
|
2,988
|
|
Ingot products(C)
|
|
|
147
|
|
|
|
|
15
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
2,787
|
|
|
|
|
363
|
|
|
|
3,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
One kilotonne (kt) is 1,000 metric tonnes. One metric tonne is
equivalent to 2,204.6 pounds. |
|
(B) |
|
Rolled products include tolling (the conversion of
customer-owned metal). |
|
(C) |
|
Ingot products include primary ingot in Brazil, foundry products
in Korea and Europe, secondary ingot in Europe and other
miscellaneous recyclable aluminum. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Year Ended
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2008
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Combined
|
|
Combined Results of Operations ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
9,965
|
|
|
|
$
|
1,281
|
|
|
$
|
11,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
9,042
|
|
|
|
|
1,205
|
|
|
|
10,247
|
|
Selling, general and administrative expenses
|
|
|
319
|
|
|
|
|
95
|
|
|
|
414
|
|
Depreciation and amortization
|
|
|
367
|
|
|
|
|
28
|
|
|
|
395
|
|
Research and development expenses
|
|
|
46
|
|
|
|
|
6
|
|
|
|
52
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
173
|
|
|
|
|
26
|
|
|
|
199
|
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
(22
|
)
|
|
|
|
(20
|
)
|
|
|
(42
|
)
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
4
|
|
|
|
|
(1
|
)
|
|
|
3
|
|
Sale transaction fees
|
|
|
|
|
|
|
|
32
|
|
|
|
32
|
|
Other (income) expenses net
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,929
|
|
|
|
|
1,375
|
|
|
|
11,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for taxes on income
(loss) and minority interests share
|
|
|
36
|
|
|
|
|
(94
|
)
|
|
|
(58
|
)
|
Provision (benefit) for taxes on income (loss)
|
|
|
3
|
|
|
|
|
4
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests share
|
|
|
33
|
|
|
|
|
(98
|
)
|
|
|
(65
|
)
|
Minority interests share
|
|
|
(5
|
)
|
|
|
|
1
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
28
|
|
|
|
$
|
(97
|
)
|
|
$
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
HIGHLIGHTS
Significant highlights, events and factors impacting our
business during the years ended March 31, 2008 and 2007;
and December 31, 2006 and 2005 are presented briefly below.
Each is discussed in further detail throughout MD&A.
|
|
|
|
|
Shipments and selected financial information are as follows (in
millions, except shipments, which are in kt):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Combined
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Shipments (kt):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products
|
|
|
2,988
|
|
|
|
2,951
|
|
|
|
2,960
|
|
|
|
2,873
|
|
Ingot products
|
|
|
162
|
|
|
|
162
|
|
|
|
163
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
3,150
|
|
|
|
3,113
|
|
|
|
3,123
|
|
|
|
3,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
11,246
|
|
|
$
|
10,160
|
|
|
$
|
9,849
|
|
|
$
|
8,363
|
|
Net income (loss)
|
|
$
|
(69
|
)
|
|
$
|
(265
|
)
|
|
$
|
(275
|
)
|
|
$
|
90
|
|
Net increase (decrease) in total debt(A)
|
|
$
|
82
|
|
|
$
|
18
|
|
|
$
|
(195
|
)
|
|
$
|
(321
|
)
|
|
|
|
(A) |
|
Net increase (decrease) in total debt is measured comparing the
period-end amounts of our total outstanding debt (including
short-term borrowings) as shown in our consolidated balance
sheets. For the year ended March 31, 2008, the net increase
in total debt excludes unamortized fair value adjustments
recorded as part of the Arrangement. For the year ended
December 31, 2005, the net decrease in total debt is
measured as the reduction from our total debt of
$2.951 billion as of January 6, 2005, the date of our
spin-off from Alcan. |
|
|
|
|
|
Rolled products shipments increased in fiscal 2008 primarily due
to increased shipments in the can market in Europe, South
America and Asia. The increase in demand for can products was
partially offset by decreased shipments in the industrial and
automotive markets in North America and Europe.
|
|
|
|
London Metal Exchange (LME) pricing for aluminum (metal) was an
average of 1.5% lower during the year ended March 31, 2008
than the comparable prior year period. Cash prices have trended
up at the end of this fiscal year. As of March 31, 2008 and
2007; December 31, 2007 and 2006, cash prices per metric
tonne were $2,935 and $2,792; $2,850 and $2,285, respectively.
This trend positively impacted our fiscal 2008 fourth quarter
results as described more fully under Metal Price Lag below.
|
|
|
|
Net sales for the year ended March 31, 2008 increased from
the prior year primarily due to (1) increased conversion
premium, (2) strengthening of the euro against the U.S.
dollar, (3) accretion of fair value reserves associated
with the sales contracts subject to metal price ceilings,
(4) metal price lag, (5) increased volume and
(6) a reduction of sales subject to metal price ceilings.
These metal price ceilings prevent us from passing metal price
increases above a specified level through to certain customers.
During the years ended March 31, 2008 and 2007, we were
unable to pass through approximately $230 million and
$460 million, respectively, of metal price increases
associated with sales under these contracts for a net favorable
impact of approximately $230 million.
|
Net sales for the year ended December 31, 2006 increased
from the prior year primarily due to the increase in the LME.
However, the benefit of higher LME prices was limited by metal
price ceilings in sales contracts representing approximately 20%
of our shipments in the year ended December 31, 2006.
During the years ended December 31, 2006 and 2005, we were
unable to pass through approximately $475 million and
$75 million, respectively, of metal price increases
associated with sales under these contracts for a net
unfavorable comparable impact of approximately $400 million.
|
|
|
|
|
During the years ended March 31, 2008 and 2007;
December 31, 2006 and 2005, we recognized pre-tax gains of
$42 million and $39 million; $63 million and
$269 million, respectively, related to the change in fair
value of derivative instruments. For segment reporting purposes,
Segment Income
|
51
|
|
|
|
|
(defined in Operating Segment Review below) includes
approximately $32 million and $228 million;
$249 million and $83 million of cash-settled
derivative gains for the years ended March 31, 2008 and
2007; December 31, 2006 and 2005, respectively.
|
|
|
|
|
|
Compared to the year ended March 31, 2007, our net loss for
the year ended March 31, 2008 was impacted by
$43 million of incremental stock compensation expense
associated with the Arrangement and $21 million of
incremental income associated with push-down accounting and the
allocation of purchase price.
|
|
|
|
As of March 31, 2008, our total debt increased by
$82 million from the prior year (excluding unamortized fair
value adjustments recorded as part of the acquisition by
Hindalco). The increase in debt was driven primarily by costs
associated with or triggered by the Arrangement that were in
excess of the additional $92 million of equity contributed
by Hindalco as well as increased cash and cash equivalents as
compared to the prior year by $198 million.
|
|
|
|
As described more fully in Note 2 Acquisition
of Novelis Common Stock in the accompanying consolidated and
combined financial statements, the consideration paid by
Hindalco to acquire Novelis has been pushed down to us and
allocated to the assets acquired and liabilities assumed based
on our estimates of fair value, using methodologies and
assumptions that we believe are reasonable. This allocation of
fair value results in additional charges or income to our
post-acquisition consolidated statements of operations. A
summary of the impacts of these items on our pre-tax income and
Segment Income for our fiscal year ended March 31, 2008 is
shown below (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) to:
|
|
|
|
Pre-Tax
|
|
|
Segment
|
|
|
|
Income
|
|
|
Income(A)
|
|
|
Depreciation and amortization
|
|
$
|
(162
|
)
|
|
$
|
|
|
Can ceiling contracts
|
|
|
270
|
|
|
|
270
|
|
Other favorable/unfavorable contracts
|
|
|
(8
|
)
|
|
|
(8
|
)
|
In-process research and development
|
|
|
(9
|
)
|
|
|
(9
|
)
|
Inventory
|
|
|
(35
|
)
|
|
|
(35
|
)
|
Equity investments
|
|
|
(38
|
)
|
|
|
|
|
Fair value of debt
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impact
|
|
$
|
21
|
|
|
$
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
We use Segment Income to measure the profitability and financial
performance of our operating segments, as discussed below in
OPERATING SEGMENT REVIEW FOR THE YEAR ENDED MARCH 31, 2008
(TWELVE MONTHS COMBINED NON-GAAP) COMPARED TO THE YEAR ENDED
MARCH 31, 2007 (TWELVE MONTHS COMBINED NON-GAAP) and
FOR THE YEAR ENDED DECEMBER 31, 2006 COMPARED TO THE YEAR
ENDED DECEMBER 31, 2005.
|
OUR
BUSINESS
Business
Model and Key Concepts
Most of our business is conducted under a conversion model,
which allows us to pass through increases or decreases in the
price of aluminum to our customers. Nearly all of our products
have a price structure with two components: (i) a
pass-through aluminum price based on the LME plus local market
premiums and (ii) a conversion premium price on
the conversion cost to produce the rolled product and the
competitive market conditions for that product.
Metal
Price Ceilings
Sales contracts representing approximately 10% of our fiscal
2008 shipments provide for a ceiling over which metal prices
could not contractually be passed through to certain customers,
unless adjusted. This
52
negatively impacts our margins when the price we pay for metal
is above the ceiling price contained in these contracts. During
the years ended March 31, 2008 and 2007; December 31,
2006 and 2005, we were unable to pass through approximately
$230 million and $460 million; $475 million and
$75 million, respectively, of metal purchase costs
associated with sales under theses contracts. We calculate and
report this difference to be approximately the difference
between the quoted purchase price on the LME (adjusted for any
local premiums and for any price lag associated with purchasing
or processing time) and the metal price ceiling in our
contracts. Cash flows from operations are negatively impacted by
the same amounts, adjusted for any timing difference between
customer receipts and vendor payments, and offset partially by
reduced income taxes.
Our exposure to metal price ceilings approximates 8% of
estimated shipments for the fiscal year 2009. Based on a
March 31, 2008 aluminum price of $2,935 per tonne, and our
best estimate of a range of shipment volumes, we estimate that
we will be unable to pass through aluminum purchase costs of
approximately $286 $312 million in fiscal 2009
and $215 $233 million in the aggregate
thereafter.
In connection with the allocation of purchase price (i.e., total
consideration) paid by Hindalco, we established reserves
totaling $655 million as of May 15, 2007 to record
these contracts at fair value. Fair value effectively represents
the discounted cash flows of the forecasted metal purchase costs
in excess of the metal price ceilings contained in these
contracts. These reserves are being accreted into Net sales over
the remaining lives of the underlying contracts, and this
accretion will not impact future cash flows. For the year ended
March 31, 2008 (during the period from May 16, 2007
through March 31, 2008 only), we recorded accretion of
$270 million.
We employ three strategies to mitigate our risk of rising metal
prices that we cannot pass through to certain customers due to
metal price ceilings. First, we maximize the amount of our
internally supplied metal inputs from our smelting, refining and
mining operations in Brazil. Second, we rely on the output from
our recycling operations which utilize used beverage cans
(UBCs). Both of these sources of aluminum supply have
historically provided a benefit as these sources of metal are
typically less expensive than purchasing aluminum from third
party suppliers. We refer to these two sources as our internal
hedges.
Beyond our internal hedges described above, our third strategy
to mitigate the risk of loss or reduced profitability associated
with the metal price ceilings is to purchase derivative
instruments on projected aluminum volume requirements above our
assumed internal hedge position. We currently purchase forward
derivative instruments to hedge our exposure to further metal
price increases.
Metal
Price Lag
On certain sales contracts we experience timing differences on
the pass through of changing aluminum prices based on the
difference between the price we pay for aluminum and the price
we ultimately charge our customers after the aluminum is
processed. Generally, and in the short-term, in periods of
rising prices our earnings benefit from this timing difference
while the opposite is true in periods of declining prices, and
we refer to this timing difference as metal price
lag. During the year ended March 31, 2008, metal
price lag negatively impacted our results by $20 million
and favorably impacted the comparable prior years ended
March 31, 2007, December 31, 2006 and 2005 by
approximately $80 million, $46 million and
$27 million, respectively. These amounts are reported
herein without regard to the effects of any derivative
instruments we purchased to offset this risk as described below.
For general metal price lag exposure we sell short-term LME
forward contracts to help mitigate the exposure, although exact
offset hedging is not achieved.
Certain of our sales contracts, most notably in Europe, contain
fixed metal prices for periods of time such as four to
thirty-six months. In some cases, this can result in a negative
(positive) impact on sales, compared to current prices, as metal
prices increase (decrease) because the prices are fixed at
historical levels. The positive or negative impact on sales
under these contracts has not been included in the metal price
lag effect quantified above, as we enter into forward metal
purchases simultaneous with the sales contracts thereby
mitigating the exposure to changing metal prices on sales under
these contracts.
The impacts of the above mentioned items on Net sales and
Segment Income are described more fully in the Operations and
Segment Review where appropriate.
53
For accounting purposes, we do not treat all derivative
instruments as hedges under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities.
For example, we do not treat the derivative instruments
purchased to mitigate the risks discussed above under metal
price ceilings and metal price lag as hedges under FASB
No. 133. In those cases, changes in fair value are
recognized immediately in earnings, which results in the
recognition of fair value as a gain or loss in advance of the
contract settlement, and we expect further earnings volatility
as a result. In the accompanying consolidated and combined
statements of operations, changes in fair value of derivative
instruments not accounted for as hedges under FASB Statement
No. 133 are recognized in (Gain) loss on change in fair
value of derivative instruments net. These
gains or losses may or may not result from cash settlement. For
Segment Income purposes we only include the impact of the
derivative gains or losses to the extent they are settled in
cash during that period.
Challenges
We face many challenges in our business and industry, but we
believe that the following are the most significant.
External
Economic Factors
First, we have not fully covered our exposure relative to the
metal price ceilings with the three hedging strategies described
above. This is primarily a result of (i) not being able to
purchase derivative instruments with strike prices that directly
coincide with the metal price ceilings, and (ii) our
recycling operations providing less internal hedge benefit than
we previously expected, as the spread between UBC prices and LME
prices has compressed.
Second, we are concerned about further strengthening of the
Brazilian real, which strengthened 15% and 10% against the
U.S. dollar in fiscal 2008 and 2006, respectively. In
Brazil, where we have predominantly U.S. dollar selling
prices and local currency operating costs, we benefit as the
Brazilian real weakens, but are adversely affected as it
strengthens. In 2006, we began hedging this risk with derivative
instruments in the short-term, but we are still exposed to
long-term fluctuations in the Brazilian real.
Third, energy prices have increased substantially in the recent
past and rising energy costs worldwide expose us to reduced
operating profits as changes cannot immediately be recovered
under existing contracts and sales agreements, and may only be
mitigated in future periods under future pricing arrangements.
Energy prices are impacted by several factors, including the
volatility of supply and geopolitical events, both of which have
created uncertainty in the oil, natural gas and electricity
markets, which drive the majority of our manufacturing and
transportation energy costs. The majority of energy usage occurs
at our casting centers, at our smelters in South America and
during the hot rolling of aluminum. Our cold rolling facilities
require relatively less energy.
A portion of our electricity requirements is purchased pursuant
to long-term contracts in the local regions in which we operate,
and a number of our facilities are located in regions with
regulated prices, which affords relatively stable costs. In
South America, we own and operate hydroelectric facilities that
meet approximately 25% of that regions total electricity
requirements, and in North America we have an existing long-term
contract for certain electricity costs at fixed rates. As of
March 31, 2008, we have a nominal amount of forward
purchases outstanding relating to natural gas. While these
arrangements help to minimize the impact of near-term energy
price increases, we have not fully mitigated our exposure to
rising energy prices on a global basis.
Fourth, prices for alloys that we utilized in our manufacturing
process such as magnesium and manganese have increased
substantially in the fiscal year. To offset the increase in
these prices we instated an alloy
up-charge in
the fourth quarter of fiscal year 2008 where contractually
feasible.
Hindalco
Integration
Following the acquisition by Hindalco, we continued to mange our
business as a stand-alone company during fiscal 2008 in much the
same manner as when our common equity was publicly held. More
recently,
54
we have begun to define the scope of our management authority in
the context of our being owned by an integrated primary producer
of aluminum. Specifically, we are working with Hindalco to
define the appropriate level of our management autonomy; align
our corporate cultures, management philosophies, strategic
plans, and policies; integrate our information technology and
financial control systems; and hire and retain key personnel.
While we expect to be successful in this undertaking, we
recognize that the integration process with Hindalco will
require substantial management time and energy.
Key
Trends and Business Outlook
The use of aluminum continues to increase in the markets we
serve. The principal drivers of this increase include, among
others, improving per capita gross domestic product in the
regions where we operate, increases in disposable income, and
increases in the use of aluminum due, in part, to a focus on
lightweight products for better fuel economy, compliance with
regulatory requirements and cost-effective benefits of
recycling. In addition, global demand has been further fueled by
growth in China and emerging markets.
We have observed a structural shift in aluminum prices, which
have risen to unprecedented, sustained levels and reacted
suddenly upward and downward based on market events. Before this
recent rise in prices, the long-term historical average price
for aluminum was approximately $1,500 per tonne. We do not try
to predict aluminum prices, but market consensus indicates that
it is unlikely that they will return to this level in the
short-term. In the long-term, we use the LME forward curve model
as a reasonable approximation of what aluminum prices may be in
the future; however, the LME is a marketplace and there can be
considerable deviation of actual prices from forward prices. As
we migrate away from the metal price ceilings contracts and
toward a pure conversion model, the price of aluminum should not
influence performance in the long-run, other than its effect on
ultimate customer demand and working capital.
As described above in Metal Price Ceilings, we have reduced our
exposure to metal price ceilings to approximately 8% of
estimated shipments in fiscal 2009. However, to the extent that
metal prices stay at current levels we expect that operating
margins and cash flows from operations will be negatively
impacted by the amount of metal purchase price that we are
unable to pass through to our customers. Based on a
March 31, 2008 aluminum price of $2,935 per tonne, and our
best estimate of a range of shipment volumes, we estimate that
we will be unable to pass through aluminum purchase costs of
approximately $286 $310 million in fiscal 2009
and $215 $233 million in the aggregate
thereafter. Under these scenarios, and ignoring working capital
timing, we expect that cash flows from operations will be
impacted negatively by these same amounts, offset partially by
reduced income taxes. For fiscal 2009, we have mitigated this
impact by purchasing derivative instruments priced at $3,025 per
tonne. While we have not entered into any derivative contracts
beyond December 2009, we are partially protected against
further increases in metal prices due to our smelting operations
in South America and our global recycling operations.
As of April 30, 2008, the current LME price is $2,895 per
tonne and the forward curve continues to be relatively flat,
indicating long term prices above $3,000 per tonne. If aluminum
prices continue to be above this level, our free cash flow will
be negatively impacted in the near term due to the metal price
ceilings discussed above, as well as additional working capital
requirements as a result of the increased price. We expect that
this will reduce our available liquidity in the short term
beginning in fiscal year 2009. The impact of sustained aluminum
prices on liquidity is further discussed in the Liquidity and
Capital Resources section of MD&A.
For the year ended March 31, 2008, we incurred a net loss
of $69 million due primarily to the impact of the metal
price ceilings, increased depreciation and amortization as a
result of our acquisition by Hindalco and sale transaction fees,
the last of which caused us to incur higher than normal
corporate costs. We believe that our operating results will
improve in fiscal 2009 primarily because (1) strong demand
in South America and Asia, (2) additional conversion
premium improvements and favorable mix, and (3) reduced
general and administrative costs as compared to the fiscal year
2008 as a result of the transaction.
55
Spin-off
from Alcan, Inc.
On May 18, 2004, Alcan announced its intention to transfer
its rolled products businesses into a separate company and to
pursue a spin-off of that company 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. On
January 6, 2005, Alcan and its subsidiaries contributed and
transferred to Novelis substantially all of the aluminum rolled
products businesses operated by Alcan, 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 rolling facilities in Europe
whose end-use markets and customers were similar to ours.
Post-Transaction
Adjustments
The agreements giving effect to the spin-off provide for various
post-transaction adjustments and the resolution of outstanding
matters. On November 8, 2006, we executed a settlement
agreement with Alcan resolving the working capital and cash
balance adjustments to our opening balance sheet and issues
relating to the transfer of U.S. pension assets and
liabilities from Alcan to Novelis.
For the year ended March 31, 2008, the following occurred
relating to existing Alcan pension plans covering our employees:
a) In October 2007, we completed the transfer of U.K. plan
assets and liabilities from Alcan to Novelis. Plan liabilities
assumed exceeded plan assets received by $4 million. We
made an additional contribution of approximately $2 million
to the plan in February 2008.
b) In April 2008, Alcan transferred $49 million to the
Novelis Pension Plan (Canada) for the first payment. We expect
to receive a second payment of $1 million by the end of
fiscal year 2009. Plan liabilities assumed is expected to equal
plan assets to be received.
OPERATIONS
AND SEGMENT REVIEW
The following discussion and analysis is based on our
consolidated and combined statements of operations, which
reflect our results of operations for the fiscal year ended
March 31, 2008 (as prepared on a combined non-GAAP basis),
and the years ended March 31, 2007 (as prepared on a
combined non-GAAP basis), December 31, 2006 and 2005.
The following tables present our shipments, our results of
operations, prices for aluminum, oil and natural gas and key
currency exchange rates for the periods referred to above, and
the changes from period to period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2006
|
|
|
|
Year Ended
|
|
|
versus
|
|
|
versus
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2005
|
|
|
|
Combined
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
Shipments (kt):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products, including tolling (the conversion of
customer-owned metal)
|
|
|
2,988
|
|
|
|
2,951
|
|
|
|
2,960
|
|
|
|
2,873
|
|
|
|
1.3
|
%
|
|
|
3.0
|
%
|
Ingot products, including primary and secondary ingot and
recyclable aluminum
|
|
|
162
|
|
|
|
162
|
|
|
|
163
|
|
|
|
214
|
|
|
|
|
%
|
|
|
(23.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
3,150
|
|
|
|
3,113
|
|
|
|
3,123
|
|
|
|
3,087
|
|
|
|
1.2
|
%
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2006
|
|
|
|
Year Ended
|
|
|
versus
|
|
|
versus
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2005
|
|
|
|
Combined
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
Results of Operations ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
11,246
|
|
|
$
|
10,160
|
|
|
$
|
9,849
|
|
|
$
|
8,363
|
|
|
|
10.7
|
%
|
|
|
17.8
|
%
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
10,247
|
|
|
|
9,629
|
|
|
|
9,317
|
|
|
|
7,570
|
|
|
|
6.4
|
%
|
|
|
23.1
|
%
|
Selling, general and administrative expenses
|
|
|
414
|
|
|
|
417
|
|
|
|
410
|
|
|
|
352
|
|
|
|
(0.7
|
)%
|
|
|
16.5
|
%
|
Depreciation and amortization
|
|
|
395
|
|
|
|
233
|
|
|
|
233
|
|
|
|
230
|
|
|
|
69.5
|
%
|
|
|
1.3
|
%
|
Research and development expenses
|
|
|
52
|
|
|
|
39
|
|
|
|
40
|
|
|
|
41
|
|
|
|
33.3
|
%
|
|
|
(2.4
|
)%
|
Interest expense and amortization of debt issuance
costs net
|
|
|
199
|
|
|
|
208
|
|
|
|
206
|
|
|
|
194
|
|
|
|
(4.3
|
)%
|
|
|
6.2
|
%
|
Gain (loss) on change in fair value of derivative
instruments net
|
|
|
(42
|
)
|
|
|
(39
|
)
|
|
|
(63
|
)
|
|
|
(269
|
)
|
|
|
7.7
|
%
|
|
|
(76.6
|
)%
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
3
|
|
|
|
(16
|
)
|
|
|
(16
|
)
|
|
|
(6
|
)
|
|
|
(118.8
|
)%
|
|
|
166.7
|
%
|
Sale transaction fees
|
|
|
32
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
%
|
Litigation settlement net of insurance recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
%
|
|
|
n.m.
|
|
Other (income) expenses net
|
|
|
4
|
|
|
|
18
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
(77.8
|
)%
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,304
|
|
|
|
10,521
|
|
|
|
10,127
|
|
|
|
8,139
|
|
|
|
7.4
|
%
|
|
|
24.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for taxes on income
(loss), minority interests share and cumulative effect of
accounting change
|
|
|
(58
|
)
|
|
|
(361
|
)
|
|
|
(278
|
)
|
|
|
224
|
|
|
|
(83.9
|
)%
|
|
|
(224.1
|
)%
|
Provision (benefit) for taxes on income (loss)
|
|
|
7
|
|
|
|
(99
|
)
|
|
|
(4
|
)
|
|
|
107
|
|
|
|
(107.1
|
)%
|
|
|
(103.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests share and
cumulative effect of accounting change
|
|
|
(65
|
)
|
|
|
(262
|
)
|
|
|
(274
|
)
|
|
|
117
|
|
|
|
(75.2
|
)%
|
|
|
(334.2
|
)%
|
Minority interests share
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(21
|
)
|
|
|
33.3
|
%
|
|
|
(95.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before cumulative effect of accounting change
|
|
|
(69
|
)
|
|
|
(265
|
)
|
|
|
(275
|
)
|
|
|
96
|
|
|
|
(74.0
|
)%
|
|
|
(386.5
|
)%
|
Cumulative effect of accounting change net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
%
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(69
|
)
|
|
$
|
(265
|
)
|
|
$
|
(275
|
)
|
|
$
|
90
|
|
|
|
(74.0
|
)%
|
|
|
(405.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n.m. not meaningful
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2006
|
|
|
|
Year Ended
|
|
|
versus
|
|
|
versus
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2005
|
|
|
|
Combined
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
London Metal Exchange Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum (per metric tonne, and presented in U.S. dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing cash price as of end of period
|
|
$
|
2,935
|
|
|
$
|
2,792
|
|
|
$
|
2,850
|
|
|
$
|
2,285
|
|
|
|
5.1
|
%
|
|
|
24.7
|
%
|
Average cash price during period
|
|
$
|
2,624
|
|
|
$
|
2,665
|
|
|
$
|
2,567
|
|
|
$
|
1,897
|
|
|
|
(1.5
|
)%
|
|
|
35.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strengthen/(Weaken)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2006
|
|
|
|
Year Ended
|
|
|
versus
|
|
|
versus
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2005
|
|
|
|
Combined
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
Federal Reserve Bank of New York Exchange Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average of the month end rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollar per euro
|
|
|
1.432
|
|
|
|
1.294
|
|
|
|
1.266
|
|
|
|
1.240
|
|
|
|
(10.7
|
)%
|
|
|
(2.1
|
)%
|
Brazilian real per U.S. dollar
|
|
|
1.837
|
|
|
|
2.148
|
|
|
|
2.164
|
|
|
|
2.407
|
|
|
|
(14.5
|
)%
|
|
|
(10.1
|
)%
|
South Korean won per U.S. dollar
|
|
|
932
|
|
|
|
944
|
|
|
|
950
|
|
|
|
1,023
|
|
|
|
(1.3
|
)%
|
|
|
(7.1
|
)%
|
Canadian dollar per U.S. dollar
|
|
|
1.025
|
|
|
|
1.135
|
|
|
|
1.131
|
|
|
|
1.209
|
|
|
|
(9.7
|
)%
|
|
|
(6.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2006
|
|
|
|
Year Ended
|
|
|
versus
|
|
|
versus
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2005
|
|
|
|
Combined
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
New York Mercantile Exchange Energy Price
Quotations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Sweet Crude Average settlement price (per
barrel)
|
|
$
|
78.80
|
|
|
$
|
64.02
|
|
|
$
|
65.28
|
|
|
$
|
50.03
|
|
|
|
23.1
|
%
|
|
|
30.5
|
%
|
Natural Gas Average Henry Hub contract settlement
price (per MMBTU)(A)
|
|
$
|
7.18
|
|
|
$
|
6.67
|
|
|
$
|
7.23
|
|
|
$
|
8.62
|
|
|
|
7.6
|
%
|
|
|
(16.1
|
)%
|
|
|
|
(A) |
|
One MMBTU is the equivalent of one decatherm, or one million
British Thermal Units (BTUs). |
RESULTS
OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2008 (TWELVE MONTHS
COMBINED NON-GAAP) COMPARED TO THE YEAR ENDED MARCH 31, 2007
(TWELVE MONTHS COMBINED NON-GAAP)
Shipments
Rolled products shipments increased in fiscal 2008 primarily due
to increased shipments in the can market in Europe, South
America and Asia. The increase in demand for can products was
partially offset by decreased shipments in the industrial and
automotive markets in North America and Europe.
58
Net
sales
Net sales for the year ended March 31, 2008 increased from
the prior year due to (1) increased conversion premium of
$250 million, (2) accretion of fair value reserves
associated with the can ceiling contracts of $270 million,
(3) strengthening of the euro against the U.S. dollar
of $150 million, (4) metal price lag of
$100 million, (5) increased volume of $54 million
and (6) reduction of net sales under metal price ceiling
contracts of $230 million. These metal price ceilings
prevent us from passing metal price increases above a specified
level through to certain customers.
Net sales for 2008 were adversely impacted in North America due
to price ceilings on certain sales contracts, which limited our
ability to pass through approximately $230 million of metal
purchase costs. In comparison, we were unable to pass through
approximately $460 million of metal purchase costs in the
comparable prior year period, for a net favorable impact of
approximately $230 million.
Costs
and expenses
The following table presents our costs and expenses for the
years ended March 31, 2008 and 2007, in dollars and
expressed as percentages of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
$ in
|
|
|
% of
|
|
|
$ in
|
|
|
% of
|
|
|
|
millions
|
|
|
net sales
|
|
|
millions
|
|
|
net sales
|
|
|
|
Combined
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
$
|
10,247
|
|
|
|
91.1
|
%
|
|
$
|
9,629
|
|
|
|
94.8
|
%
|
Selling, general and administrative expenses
|
|
|
414
|
|
|
|
3.7
|
%
|
|
|
417
|
|
|
|
4.1
|
%
|
Depreciation and amortization
|
|
|
395
|
|
|
|
3.5
|
%
|
|
|
233
|
|
|
|
2.3
|
%
|
Research and development expenses
|
|
|
52
|
|
|
|
0.5
|
%
|
|
|
39
|
|
|
|
0.4
|
%
|
Interest expense and amortization of debt issuance
costs net
|
|
|
199
|
|
|
|
1.8
|
%
|
|
|
208
|
|
|
|
2.0
|
%
|
Gain (loss) on change in fair value of derivative
instruments net
|
|
|
(42
|
)
|
|
|
(0.4
|
)%
|
|
|
(39
|
)
|
|
|
(0.4
|
)%
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
3
|
|
|
|
|
%
|
|
|
(16
|
)
|
|
|
(0.2
|
)%
|
Sale transaction fees
|
|
|
32
|
|
|
|
0.3
|
%
|
|
|
32
|
|
|
|
0.3
|
%
|
Other (income) expenses net
|
|
|
4
|
|
|
|
|
%
|
|
|
18
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,304
|
|
|
|
100.5
|
%
|
|
$
|
10,521
|
|
|
|
103.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold. Metal represents
approximately 70% 80% of our input costs, and as a
percentage of net sales, cost of goods sold was adversely
impacted in both periods due to price ceilings on certain sales
contracts, as discussed above; however, the current year
benefited from less volume sold under these contracts, as well
as the accretion of the contract fair value reserves. As a
percentage of net sales, cost of goods sold also improved as a
result of pricing improvements across all regions, partially
offset by certain operational cost increases.
Selling, general and administrative expenses
(SG&A). SG&A decreased slightly as a
result of corporate costs which were approximately
$21 million lower, offset by increased stock compensation
costs associated with our acquisition by Hindalco. Corporate
cost reductions were driven primarily by reduced spending on
third party consultants at our corporate headquarters and lower
long-term incentive compensation.
Depreciation and amortization. Depreciation
and amortization increased due to our acquisition by Hindalco.
As a result of the acquisition, the consideration paid by
Hindalco has been pushed down to us and allocated to the assets
acquired and liabilities assumed based on their estimated fair
value. As a result, property, plant and equipment and intangible
assets increased approximately $2.3 billion. The increase
in asset
59
values, all of which is non-cash, is charged to depreciation and
amortization expense in future periods based on the estimated
useful lives of the individual assets.
Research and development expenses. Research
and development expenses increased compared to the prior year
due to the accounting associated with our acquisition by
Hindalco. For the year ended March 31, 2008, we recorded a
charge of $9 million for the estimated value of acquired
in-process research and development projects that had not yet
reached technological feasibility.
Interest expense and amortization of debt issuance
costs net. Interest expense declined
primarily due to the elimination of penalty interest incurred in
the prior year as a result of our delayed filings and lower
interest rates on our variable rate debt in the current year.
Sale transaction fees. We incurred
$32 million of fees and expenses related to the Arrangement
during each of the years ended March 31, 2008 and 2007.
Other (income) expenses net. The
reconciliation of the difference between the years is shown
below (in millions):
|
|
|
|
|
|
|
Other (Income)
|
|
|
|
Expenses Net
|
|
|
Other (income) expenses net for the year ended
March 31, 2007
|
|
$
|
18
|
|
Restructuring charges net of $7 million in 2008
compared to $27 million in 2007
|
|
|
(20
|
)
|
Exchange losses of $2 million in 2008 compared to
$3 million in 2007
|
|
|
(1
|
)
|
Impairment charges on long-lived assets of $1 million in
2008 compared to $8 million in 2007
|
|
|
(7
|
)
|
Gain on sale of equity interest in non-consolidated affiliate in
2007 only
|
|
|
15
|
|
Gain on sale of rights to develop and operate hydroelectric
power plants in 2007 only
|
|
|
11
|
|
Losses on disposals of property, plant and equipment
net in 2007 only
|
|
|
(6
|
)
|
Other net
|
|
|
(6
|
)
|
|
|
|
|
|
Other (income) expenses net for the year ended
March 31, 2008
|
|
$
|
4
|
|
|
|
|
|
|
Provision
(benefit) for taxes on income (loss)
For the year ended March 31, 2008, we recorded a
$7 million provision for taxes on our pre-tax loss of
$55 million, before our equity in net (income) loss of
non-consolidated affiliates and minority interests share,
which represented an effective tax rate of (13)%. Our effective
tax rate is greater than the benefit at the Canadian statutory
rate due primarily to (1) a $78 million benefit from
the effects of enacted tax rate changes on cumulative taxable
temporary differences, partially offset by (2) a
$30 million of exchange remeasurement of deferred income
taxes, (3) a $62 million for (a) pre-tax foreign
currency gains or losses with no tax effect and (b) the tax
effect of U.S. dollar denominated currency gains or losses
with no pre-tax effect and (4) a $7 million decrease
in valuation allowances primarily related to tax losses in
certain jurisdictions where we believe it is more likely than
not that we will not be able to utilize those losses and
(5) $17 million increase in uncertain tax positions
recorded under the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes.
For the year ended March 31, 2007, we recorded a
$99 million benefit for taxes on our pre-tax loss of
$377 million, before our equity in net (income) loss of
non-consolidated affiliates and minority interests share,
which represented an effective tax rate of 26%. Our effective
tax rate is less than the benefit at the Canadian statutory rate
due primarily to a $65 million benefit from differences
between the Canadian statutory and foreign effective tax rates
applied to entities in different jurisdictions, more than offset
by (1) a $61 million increase in valuation allowances
related to tax losses in certain jurisdictions where we believe
it is more likely than not that we will not be able to utilize
those losses, (2) an $11 million expense from expense/
60
income items with no tax effect net and (3) a
$11 million for (a) pre-tax foreign currency gains or
losses with no tax effect and (b) the tax effect of
U.S. dollar denominated currency gains or losses with no
pre-tax effect.
Net
income (loss)
We reported a net loss of $69 million for the year ended
March 31, 2008, compared to a net loss of $265 million
for the year ended March 31, 2007. The reduction in net
loss was primarily driven by the decrease in net sales under
metal price ceiling contracts as discussed above.
RESULTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2006 COMPARED TO
THE YEAR ENDED DECEMBER 31, 2005
Shipments
Rolled products shipments increased in 2006 primarily due to
increased shipments in the can market in North America, South
America and Europe, as well as increased shipments of hot and
cold rolled intermediate products in Europe. Ingot product
shipments declined in fiscal 2006 due to the closure of our
Borgofranco, Italy facility and lower re-melt shipments in
Europe.
Net
sales
Higher net sales for the year ended December 31, 2006
compared to 2005 resulted primarily from the increase in LME
metal conversion premiums, which was 35% higher on average
during 2006 than 2005. Metal represents approximately
60% 70% of the sales value of our products. Net
sales for 2006 was adversely impacted in North America due to
price ceilings on certain can contracts, which limited our
ability to pass through approximately $475 million of metal
price increases. During 2005, we were unable to pass through
approximately $75 million of metal price increases, for a
net unfavorable comparable impact of approximately
$400 million.
Costs
and expenses
The following table presents our costs and expenses for the
years ended December 31, 2006 and 2005, in dollars and
expressed as percentages of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
$ in
|
|
|
% of
|
|
|
$ in
|
|
|
% of
|
|
|
|
millions
|
|
|
net sales
|
|
|
millions
|
|
|
net sales
|
|
|
|
Predecessor
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
$
|
9,317
|
|
|
|
94.6
|
%
|
|
$
|
7,570
|
|
|
|
90.5
|
%
|
Selling, general and administrative expenses
|
|
|
410
|
|
|
|
4.1
|
%
|
|
|
352
|
|
|
|
4.2
|
%
|
Depreciation and amortization
|
|
|
233
|
|
|
|
2.4
|
%
|
|
|
230
|
|
|
|
2.8
|
%
|
Research and development expenses
|
|
|
40
|
|
|
|
0.4
|
%
|
|
|
41
|
|
|
|
0.5
|
%
|
Interest expense and amortization of debt issuance
costs net
|
|
|
206
|
|
|
|
2.1
|
%
|
|
|
194
|
|
|
|
2.3
|
%
|
Gain (loss) on change in fair value of derivative
instruments net
|
|
|
(63
|
)
|
|
|
(0.6
|
)%
|
|
|
(269
|
)
|
|
|
(3.2
|
)%
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
(16
|
)
|
|
|
(0.2
|
)%
|
|
|
(6
|
)
|
|
|
(0.1
|
)%
|
Litigation settlement net of insurance recoveries
|
|
|
|
|
|
|
|
%
|
|
|
40
|
|
|
|
0.5
|
%
|
Other (income) expenses net
|
|
|
|
|
|
|
|
%
|
|
|
(13
|
)
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,127
|
|
|
|
102.8
|
%
|
|
$
|
8,139
|
|
|
|
97.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
Cost of goods sold. Metal represents
approximately 70% 80% of our input costs, and the
increase in cost of goods sold in dollar terms is primarily due
to the impact of higher LME prices. As a percentage of net
sales, cost of goods sold for 2006 was adversely impacted due to
metal price ceilings on certain can contracts, which limited our
ability to pass through approximately $475 million of metal
price increases as described above. During 2005, we were unable
to pass through approximately $75 million of metal price
increases. Further, we experienced adverse impacts from higher
energy and transportation costs in all regions and unfavorable
exchange rate impacts, most notably in South America.
Selling, general and administrative
expenses. SG&A increased in 2006 primarily
because corporate costs increased from $72 million in 2005
to $127 million in 2006. Higher corporate costs were driven
by (1) an incremental $23 million of consulting,
legal, audit and other professional fees incurred in connection
with the restatement and review process, delayed filings and as
a result of our continued reliance on third party consultants to
support our financial reporting requirements,
(2) approximately $10 million of severance associated
with certain corporate executives, (3) $11 million of
incremental stock compensation expense primarily associated with
changes in fair values of previously issued share-based awards
that are settled in cash and the option plan amendment approved
during the fourth quarter, as described in
Note 13 Share-Based Compensation to our
consolidated and combined financial statements and
(4) generally higher employee costs as a result of
additional permanent hires made since our inception.
Interest expense and amortization of debt issuance
costs net. In 2005, we expensed
$11 million in debt issuance fees on undrawn credit
facilities during our first quarter used to back up the Alcan
notes we received in January 2005 as part of the spin-off.
Excluding the debt issuance fees, interest expense increased in
2006 over 2005 primarily as a result of (1) penalty
interest we incurred during 2006 due to the late filing of our
financial statements and (2) higher interest rates on our
remaining variable rate debt, which were partially offset by
lower interest expense as a result of reduced debt levels.
Gain (loss) on change in fair value of derivative
instruments net. The decreased loss
on change in fair value of derivative instruments primarily
reflects the impact of higher LME forward prices.
Litigation settlement net of insurance
recoveries. We recorded a $40 million
pre-tax charge in 2005 in connection with the Reynolds Boat Case
as described in Note 19 Commitments and
Contingencies to our consolidated and combined financial
statements.
Other (income) expenses net. The
reconciliation of the difference between the years is shown
below (in millions).
|
|
|
|
|
|
|
Other (Income)
|
|
|
|
Expenses Net
|
|
|
Other (income) expenses net for the year ended
December 31, 2005
|
|
$
|
(13
|
)
|
Restructuring charges net of $19 million in
2006 compared to $10 million in 2005
|
|
|
9
|
|
Exchange gains of $8 million in 2006 compared to
$6 million in 2005
|
|
|
(2
|
)
|
Impairment charges on long lived assets in 2005 only
|
|
|
(7
|
)
|
Loss on disposal of business in 2006 only
|
|
|
15
|
|
Gain on sale of equity interest in non-consolidated affiliate in
2006 only
|
|
|
(15
|
)
|
Gain on sale of rights to develop and operate hydroelectric
power plants in 2006 only
|
|
|
(11
|
)
|
Losses on disposals of property, plant and equipment
net of $5 million 2006 compared to gains of
$17 million in 2005
|
|
|
22
|
|
Other net
|
|
|
2
|
|
|
|
|
|
|
Other (income) expenses net for the year ended
December 31, 2006
|
|
$
|
|
|
|
|
|
|
|
During 2006, we announced several restructuring programs related
to our central management and administration offices in Zurich,
Switzerland; our Neuhausen research and development center in
Switzerland; our Goettingen facility in Germany; and the
reorganization of our plants in Ohle and Ludenscheid, Germany,
62
including the closing of two non-core business lines located
within those facilities. Additionally, during 2006, we continued
to incur costs relating to the shutdown of our Borgofranco
facility in Italy. We incurred aggregate restructuring charges
of approximately $16 million in 2006 in connection with
these programs. Restructuring charges in 2005 were substantially
attributable to provisions we made in the fourth quarter after
announcing our intent to close our Borgofranco foundry alloys
business. See Note 3 Restructuring Programs to
our accompanying consolidated and combined financial statements.
During 2005 we incurred a $5 million impairment charge on
the value of the property, plant and equipment at the
Borgofranco foundry alloys business. See Note 6
Property, Plant and Equipment to our consolidated and combined
financial statements.
During both 2006 and 2005, we disposed of certain businesses,
equity interests not considered core to our ongoing business,
rights, and fixed assets. See Note 17 Other
(income) expenses net to our consolidated and
combined financial statements.
Provision
(benefit) for taxes on income (loss)
For the year ended December 31, 2006, our income tax
benefit includes $71 million of increases in valuation
allowances primarily related to tax losses in certain
jurisdictions where we believe it is more likely than not that
we will not be able to utilize those losses, and
$15 million of expense due to pre-tax foreign currency
gains or losses with no tax effect and the tax effect of
U.S. dollar denominated currency gains or losses with no
pre-tax effect, collectively referred to as exchange translation
items.
For the year ended December 31, 2005, our provision for
income taxes includes expense of $23 million related to
exchange translation items and a benefit of $10 million
associated with out-of-period adjustments. From an effective tax
rate perspective, these are the primary explanations why our
effective tax provision or benefit differs from that at the
Canadian statutory tax rate of 33%.
Net
income (loss)
We reported a net loss of $275 million for the year ended
December 31, 2006 compared to net income of
$90 million for the year ended December 31, 2005. Net
income for 2005 included our consolidated net income of
$119 million for the period from January 6, 2005 (the
effective date of the spin-off) to December 31, 2005 and a
combined net loss of $29 million on the mark-to-market of
derivative instruments, primarily with Alcan, for the period
from January 1 to January 5, 2005, prior to the spin-off,
as described in Note 1 Business and Summary of
Significant Accounting Policies Basis of
Presentation, Consolidation and Combination: Year Ended
December 31, 2005 to our consolidated and combined
financial statements.
OPERATING
SEGMENT REVIEW FOR THE YEAR ENDED MARCH 31, 2008 (TWELVE MONTHS
COMBINED NON-GAAP) COMPARED TO THE YEAR ENDED MARCH 31, 2007
(TWELVE MONTHS COMBINED NON-GAAP) AND FOR THE YEAR ENDED
DECEMBER 31, 2006 COMPARED TO THE YEAR ENDED DECEMBER 31,
2005
Due in part to the regional nature of supply and demand of
aluminum rolled products and in order to best serve our
customers, we manage our activities on the basis of geographical
areas and are organized under four operating segments: North
America; Europe; Asia and South America.
As a result of the acquisition by Hindalco, and based on the way
our President and Chief Operating Officer (our chief operating
decision-maker) reviews the results of segment operations, we
changed our segment performance measure to Segment Income, as
defined below. As a result, certain prior period amounts have
been reclassified to conform to the new segment performance
measure.
We measure the profitability and financial performance of our
operating segments, based on Segment Income, in accordance with
FASB Statement No. 131, Disclosure About the Segments of
an Enterprise and Related Information. Segment Income
provides a measure of our underlying segment results that is in
line with our portfolio approach to risk management. We define
Segment Income as earnings before (a) interest expense and
amortization of debt issuance costs net;
(b) unrealized gains (losses) on change in fair value of
63
derivative instruments net; (c) realized gains
(losses) on corporate derivative instruments net;
(d) depreciation and amortization; (e) impairment
charges on long-lived assets; (f) minority interests
share; (g) adjustments to reconcile our proportional share
of Segment Income from non-consolidated affiliates to income as
determined on the equity method of accounting;
(h) restructuring charges net; (i) gains
or losses on disposals of property, plant and equipment and
businesses net; (j) corporate selling, general
and administrative expenses; (k) other costs
net; (l) litigation settlement net of insurance
recoveries; (m) sale transaction fees; (n) provision
or benefit for taxes on income (loss) and (o) cumulative
effect of accounting change net of tax.
Net sales and expenses are measured in accordance with the
policies and procedures described in Note 1
Business and Summary of Significant Accounting Policies in the
accompanying consolidated and combined financial statements
included in this Annual Report on
Form 10-K.
We do not treat all derivative instruments as hedges under FASB
Statement No. 133. Accordingly, changes in fair value are
recognized immediately in earnings, which results in the
recognition of fair value as a gain or loss in advance of the
contract settlement. In the accompanying consolidated and
combined statements of operations, changes in fair value of
derivative instruments not accounted for as hedges under FASB
Statement No. 133 are recognized in (Gain) loss on change
in fair value of derivative instruments net. These
gains or losses may or may not result from cash settlement. For
Segment Income purposes we only include the impact of the
derivative gains or losses to the extent they are settled in
cash (i.e., realized) during that period.
As discussed above, the Arrangement created a new basis of
accounting. Under GAAP, the consolidated financial statements
for our fiscal year ended March 31, 2008 are presented in
two distinct periods, as Predecessor and Successor entities are
not comparable in all material respects. However, in order to
facilitate a discussion of our segment information for the year
ended March 31, 2008 in comparison with the year ended
March 31, 2007, our Predecessor and Successor segment
information is presented herein on a combined basis. The
combined segment information are non-GAAP financial measures and
should not be used in isolation or substitution of the
Predecessor and Successor segment information.
Net
sales
Shown below is the schedule of Net sales by operating segment
for periods attributable to the Successor, Predecessor and the
combined presentation for the year ended March 31, 2008
that we use throughout MD&A (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Year Ended
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2008
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Combined
|
|
Combined Net sales by Operating Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
3,655
|
|
|
|
$
|
446
|
|
|
$
|
4,101
|
|
Europe
|
|
|
3,828
|
|
|
|
|
510
|
|
|
|
4,338
|
|
Asia
|
|
|
1,602
|
|
|
|
|
216
|
|
|
|
1,818
|
|
South America
|
|
|
885
|
|
|
|
|
109
|
|
|
|
994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Combined Net sales(A)
|
|
$
|
9,970
|
|
|
|
$
|
1,281
|
|
|
$
|
11,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Combined Net sales do not include the elimination of results
from our non-consolidated affiliates on a proportionately
consolidated basis. The Net sales attributable to our
non-consolidated affiliates were $5 million for the period
from May 16, 2007 through March 31, 2008 and less than
$1 million for the period from April 1, 2007 through
May 15, 2007. |
64
Segment
Income
Shown below is the schedule of our reconciliation from Total
Segment Income (Loss) to Net income (loss) by operating segment
for periods attributable to the Successor, Predecessor and the
combined presentation for the year ended March 31, 2008
that we use throughout MD&A (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Year Ended
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2008
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Combined
|
|
Combined Results by Operating Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
266
|
|
|
|
$
|
(24
|
)
|
|
$
|
242
|
|
Europe
|
|
|
241
|
|
|
|
|
32
|
|
|
|
273
|
|
Asia
|
|
|
46
|
|
|
|
|
6
|
|
|
|
52
|
|
South America
|
|
|
143
|
|
|
|
|
18
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Income (Loss)
|
|
|
696
|
|
|
|
|
32
|
|
|
|
728
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
(173
|
)
|
|
|
|
(26
|
)
|
|
|
(199
|
)
|
Unrealized gains (losses) on change in fair value of derivative
instruments net(A)
|
|
|
(8
|
)
|
|
|
|
5
|
|
|
|
(3
|
)
|
Realized gains (losses) on corporate derivative
instruments net
|
|
|
16
|
|
|
|
|
(3
|
)
|
|
|
13
|
|
Depreciation and amortization
|
|
|
(367
|
)
|
|
|
|
(28
|
)
|
|
|
(395
|
)
|
Impairment charges on long-lived assets
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
(1
|
)
|
Minority interests share
|
|
|
(5
|
)
|
|
|
|
1
|
|
|
|
(4
|
)
|
Adjustment to eliminate proportional consolidation(B)
|
|
|
(65
|
)
|
|
|
|
(7
|
)
|
|
|
(72
|
)
|
Restructuring charges net
|
|
|
(6
|
)
|
|
|
|
(1
|
)
|
|
|
(7
|
)
|
Corporate selling, general and administrative expenses
|
|
|
(55
|
)
|
|
|
|
(35
|
)
|
|
|
(90
|
)
|
Other costs net
|
|
|
(1
|
)
|
|
|
|
1
|
|
|
|
|
|
Sale transaction fees
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
(32
|
)
|
Benefit (provision) for taxes on income (loss)
|
|
|
(3
|
)
|
|
|
|
(4
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
28
|
|
|
|
$
|
(97
|
)
|
|
$
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Unrealized gains (losses) on change in fair value of derivative
instruments net represents the portion of gains
(losses) that were not settled in cash during the period. |
|
|
|
(B) |
|
Our financial information for our segments (including Segment
Income) includes the results of our non-consolidated affiliates
on a proportionately consolidated basis, which is consistent
with the way we manage our business segments. However, under
GAAP, these non-consolidated affiliates are accounted for using
the equity method of accounting. Therefore, in order to
reconcile Total Segment Income to Net income (loss), the
proportional Segment Income of these non-consolidated affiliates
is removed from Total Segment Income, net of our share of their
net after-tax results, which is reported as Equity in net
(income) loss of non-consolidated affiliates on our consolidated
and combined statements of operations. See
Note 8 Investment in and Advances to
Non-Consolidated Affiliates and Related Party Transactions in
the accompanying consolidated and combined financial statements
for further information about these non-consolidated affiliates. |
65
Reconciliation
The following table presents Segment Income (Loss) by operating
segment and reconciles Total Segment Income to Net income (loss)
(in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Combined
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Segment Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
242
|
|
|
$
|
(54
|
)
|
|
$
|
20
|
|
|
$
|
193
|
|
Europe
|
|
|
273
|
|
|
|
276
|
|
|
|
245
|
|
|
|
195
|
|
Asia
|
|
|
52
|
|
|
|
72
|
|
|
|
82
|
|
|
|
106
|
|
South America
|
|
|
161
|
|
|
|
182
|
|
|
|
165
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Income (Loss)
|
|
|
728
|
|
|
|
476
|
|
|
|
512
|
|
|
|
606
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
(199
|
)
|
|
|
(208
|
)
|
|
|
(206
|
)
|
|
|
(194
|
)
|
Unrealized gains (losses) on change in fair value of derivative
instruments net
|
|
|
(3
|
)
|
|
|
(152
|
)
|
|
|
(151
|
)
|
|
|
141
|
|
Realized gains (losses) on corporate derivative
instruments net
|
|
|
13
|
|
|
|
(37
|
)
|
|
|
(35
|
)
|
|
|
45
|
|
Depreciation and amortization
|
|
|
(395
|
)
|
|
|
(233
|
)
|
|
|
(233
|
)
|
|
|
(230
|
)
|
Impairment charges on long-lived assets
|
|
|
(1
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
(7
|
)
|
Minority interests share
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(21
|
)
|
Adjustment to eliminate proportional consolidation
|
|
|
(72
|
)
|
|
|
(36
|
)
|
|
|
(35
|
)
|
|
|
(36
|
)
|
Restructuring charges net
|
|
|
(7
|
)
|
|
|
(27
|
)
|
|
|
(19
|
)
|
|
|
(10
|
)
|
Gain (loss) on disposals of property, plant and equipment and
businesses net
|
|
|
|
|
|
|
(6
|
)
|
|
|
(20
|
)
|
|
|
17
|
|
Corporate selling, general and administrative expenses
|
|
|
(90
|
)
|
|
|
(127
|
)
|
|
|
(128
|
)
|
|
|
(78
|
)
|
Other costs net
|
|
|
|
|
|
|
29
|
|
|
|
37
|
|
|
|
10
|
|
Litigation settlement net of insurance recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
Sale transaction fees
|
|
|
(32
|
)
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
Benefit (provision) for taxes on income (loss)
|
|
|
(7
|
)
|
|
|
99
|
|
|
|
4
|
|
|
|
(107
|
)
|
Cumulative effect of accounting change net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(69
|
)
|
|
$
|
(265
|
)
|
|
$
|
(275
|
)
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Segment Results
North
America
As of March 31, 2008, North America manufactured aluminum
sheet and light gauge products through 10 aluminum rolled
products facilities and two dedicated recycling facilities.
Important end-use applications include beverage cans, containers
and packaging, automotive and other transportation applications,
building products and other industrial applications.
66
The following table presents key financial and operating
information for North America (in millions, except for
shipments, which are in kt).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
Year Ended
|
|
|
2008
|
|
|
2006
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
versus
|
|
|
versus
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2005
|
|
|
|
Combined
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
Shipments (kt):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products
|
|
|
1,102
|
|
|
|
1,135
|
|
|
|
1,156
|
|
|
|
1,119
|
|
|
|
(2.9
|
)%
|
|
|
3.3
|
%
|
Ingot products
|
|
|
64
|
|
|
|
74
|
|
|
|
73
|
|
|
|
75
|
|
|
|
(13.5
|
)%
|
|
|
(2.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
1,166
|
|
|
|
1,209
|
|
|
|
1,229
|
|
|
|
1,194
|
|
|
|
(3.6
|
)%
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
4,101
|
|
|
$
|
3,721
|
|
|
$
|
3,691
|
|
|
$
|
3,265
|
|
|
|
10.2
|
%
|
|
|
13.0
|
%
|
Segment Income (Loss)
|
|
$
|
242
|
|
|
$
|
(54
|
)
|
|
$
|
20
|
|
|
$
|
193
|
|
|
|
548.1
|
%
|
|
|
(89.6
|
)%
|
Total assets
|
|
$
|
3,892
|
|
|
$
|
1,566
|
|
|
$
|
1,476
|
|
|
$
|
1,547
|
|
|
|
148.5
|
%
|
|
|
(4.6
|
)%
|
2008
versus 2007
Shipments
Rolled products shipments declined due to reduced industrial
products, light gauge and lower can volumes. Industrial products
and light gauge demand has declined primarily due to a slowdown
in the housing and transportation markets. Ingot product
shipments declined during the year ended March 31, 2008 due
to lower scrap sales and improved internal use of primary ingot,
excess amounts of which were sold to third parties in the year
ended March 31, 2007.
Net
sales
Net sales increased primarily as a result of reduced exposure to
contracts with price ceilings and contract fair value accretion
as discussed above in Metal Price Ceilings. During the fiscal
year ended March 31, 2008, we were unable to pass through
approximately $230 million of metal purchase costs. During
the comparable prior year period, we were unable to pass through
approximately $460 million of metal purchase costs, for a
net favorable comparable impact of approximately
$230 million. Sales during the fiscal year 2008 were also
favorably impacted by (1) increase in conversion premium of
$59 million, (2) contracts priced in prior periods of
$59 million and (3) $270 million related to the
accretion of the contract fair value reserves, as discussed in
Metal Price Ceilings. These factors were partially offset by
unfavorable volume of $165 million and lower average LME of
approximately $90 million.
Segment
Income
As compared to the year ended March 31, 2007, Segment
Income for the year ended March 31, 2008 was favorably
impacted by $500 million as a result of the impact of the
price ceilings (including the accretion of the contract fair
value reserves), described above. Segment Income was also
positively impacted by approximately $53 million due to
higher selling prices. These positive factors were partially
offset by (1) the negative impact of metal price lag which
unfavorably impacted Segment Income by $30 million as
compared to 2007, (2) lower realized gains related to the
cash settlement of derivatives of approximately
$115 million, (3) lower volume which negatively
impacted Segment Income by approximately $29 million,
(4) higher operating expense of approximately
$41 million, (5) incremental stock compensation
expense of $11 million as a result of the Arrangement and
(6) $29 million of additional expenses associated with
other fair value adjustments recorded as a result of the
Arrangement.
Total
assets
The consideration and related costs paid by Hindalco in
connection with the Arrangement have been pushed down to us and,
in turn, to each of our reporting units, and have been allocated
to the assets acquired
67
and liabilities assumed based on their relative fair values.
This increased North America assets by approximately
$2.5 billion as fair value exceeded historical cost. See
Note 2 Acquisition of Novelis Common Stock in
the accompanying consolidated and combined financial statements.
2006
versus 2005
Shipments
Rolled products shipments increased due to a 35kt increase in
orders in the can market. Small increases in foil shipments due
to increased market share and shipments in the OEM/distributor
market were offset by lower shipments into the light gauge
automotive finstock and automotive sheet markets.
Net
sales
Net sales increases in the year ended December 31, 2006
compared to 2005 were driven primarily by metal prices, which
were 35% higher on average in 2006 compared to 2005. Increases
in metal prices are largely passed through to customers.
However, the pass through of metal price increases to our
customers was limited in cases where metal price ceilings were
exceeded. This factor unfavorably impacted North America net
sales in the year ended December 31, 2006 by approximately
$475 million. During 2005, we were unable to pass through
approximately $75 million of metal price increases, for a
net unfavorable comparable impact of approximately
$400 million.
Segment
Income
As described above, the net unfavorable impact of metal price
ceilings was approximately $400 million, which reduced
Segment Income in 2006 as compared to 2005. This was partially
offset by $128 million of gains from the cash settlement of
derivative instruments and $72 million from the benefit of
metal price lag in 2006. Price increases added approximately
$37 million to Segment Income in 2006, partially offset by
$7 million related to the unfavorable impact of changes in
mix. Additionally, increased volume and higher UBC spreads
favorably impacted Segment Income in 2006 by $21 million
and $19 million, respectively, as compared to 2005. These
benefits were partially offset by higher operating costs of
$43 million, $23 million of which was higher energy
and transportation costs.
Europe
As of March 31, 2008, Europe provided European markets with
value-added sheet and light gauge products through its 13
aluminum rolled products facilities and one dedicated recycling
facility. Europe serves a broad range of aluminum rolled product
end-use markets in various applications including can,
automotive, lithographic and painted products.
The following table presents key financial and operating data
for Europe (in millions, except for shipments, which are in kt).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
Year Ended
|
|
|
2008
|
|
|
2006
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
versus
|
|
|
versus
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2005
|
|
|
|
Combined
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
Shipments (kt):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products
|
|
|
1,071
|
|
|
|
1,071
|
|
|
|
1,055
|
|
|
|
1,009
|
|
|
|
|
%
|
|
|
4.6
|
%
|
Ingot products
|
|
|
35
|
|
|
|
15
|
|
|
|
18
|
|
|
|
72
|
|
|
|
133.3
|
%
|
|
|
(75.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
1,106
|
|
|
|
1,086
|
|
|
|
1,073
|
|
|
|
1,081
|
|
|
|
1.8
|
%
|
|
|
(0.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
4,338
|
|
|
$
|
3,851
|
|
|
$
|
3,620
|
|
|
$
|
3,093
|
|
|
|
12.6
|
%
|
|
|
17.0
|
%
|
Segment Income
|
|
$
|
273
|
|
|
$
|
276
|
|
|
$
|
245
|
|
|
$
|
195
|
|
|
|
(1.1
|
)%
|
|
|
25.6
|
%
|
Total assets
|
|
$
|
4,430
|
|
|
$
|
2,543
|
|
|
$
|
2,474
|
|
|
$
|
2,139
|
|
|
|
74.2
|
%
|
|
|
15.7
|
%
|
68
2008
versus 2007
Shipments
Rolled products shipments were flat year over year driven by
increased can volume that was offset by lower volumes in painted
and general purpose products. Demand decreased due to lower
construction activity in the European market. Ingot product
shipments have increased as a result of higher scrap sales.
Net
sales
Net sales increased primarily as a result of
(1) incremental volume of ingot products, (2) a
strengthening euro against the U.S. dollar and
(3) higher conversion premiums. These factors contributed
approximately (1) $59 million,
(2) $150 million and (3) $115 million,
respectively. While average LME was lower year over year, net
sales increased from contracts priced in prior periods. This
contributed approximately $100 million to net sales as
compared to the prior year; however it did not deliver any
Segment Income increase as the metal costs were hedged at prior
period prices (which were comparably higher).
Segment
Income
Segment Income was favorably impacted in 2008 primarily by
higher conversion premiums, increased ingot sales volume and
currency benefits. These factors improved Segment Income during
the year ended March 31, 2008 by approximately
$53 million, $5 million and $16 million,
respectively, versus the comparable prior year period. However,
these positive factors were offset by unfavorable metal price
lag, share-based compensation expense and expenses associated
with fair value adjustments recorded as a result of the
Arrangement. These factors reduced Segment Income during the
year ended March 31, 2008 by approximately
$60 million, $6 million and $8 million,
respectively, on a comparable basis.
Total
assets
The consideration and related costs paid by Hindalco in
connection with the Arrangement have been pushed down to us and,
in turn, to each of our reporting units, and have been allocated
to the assets acquired and liabilities assumed based on their
relative fair values. This increased Europe assets by
approximately $1.8 billion as fair value exceeded
historical cost. See Note 2 Acquisition of
Novelis Common Stock in the accompanying consolidated and
combined financial statements.
2006
versus 2005
Shipments
Rolled products shipments increased primarily due to a 38kt
increase in hot rolled and cold rolled coil shipments (an
intermediate product) and an 18kt increase in can shipments.
Other market increases include 7kt in automotive and 6kt in each
of the painted and plain markets, driven by strong market
demand. These increases were partially offset by the sale of our
Annecy operation in March 2006, which reduced shipments in 2006
by 21kt. Ingot products shipments declined due to lower re-melt
shipments of 23kt and lower casting alloys shipments of 31kt due
to the closing of our Borgofranco, Italy facility.
Net
sales
Net sales increased primarily as a result of the 35% increase in
average LME metal prices, improved mix of rolled products
shipments versus ingot products, offset partially by unfavorable
metal price lag.
Segment
Income
Compared to 2005, Segment Income was impacted in 2006 by a
number of factors. Higher volume in 2006 favorably impacted
Segment Income by $41 million. Segment Income was
unfavorably impacted by $44 million due to sales to certain
customers at previously fixed forward prices. This negative
impact was directly offset by $44 million of cash-settled
derivative gains related to forward LME purchases entered into
69
back-to-back with the customer contracts. Metal price lag
related to inventory processing time favorably impacted 2006 by
approximately $4 million. Price, mix and other operational
improvements added $23 million to Segment Income in 2006
over 2005. The strengthening of the euro added $10 million
due to the translation of euro profits into U.S. dollars
and the effect of exchange gains and losses. Europe incurred
approximately $5 million of Novelis
start-up
costs in 2005 that did not recur in 2006. Finally, these
benefits were partially offset by a $33 million increase in
energy costs in 2006.
Total
assets
Total assets increased primarily due to the increase in metal
prices, which impacted both inventories and accounts receivable.
Asia
As of March 31, 2008, Asia operated three manufacturing
facilities, with production focused on foil, construction and
industrial, and beverage and food can end-use applications.
The following table presents key financial and operating data
for Asia (in millions, except for shipments, which are in kt).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
Year Ended
|
|
|
2008
|
|
|
2006
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
versus
|
|
|
versus
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2005
|
|
|
|
Combined
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
Shipments (kt):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products
|
|
|
491
|
|
|
|
460
|
|
|
|
471
|
|
|
|
483
|
|
|
|
6.7
|
%
|
|
|
(2.5
|
)%
|
Ingot products
|
|
|
39
|
|
|
|
45
|
|
|
|
45
|
|
|
|
41
|
|
|
|
(13.3
|
)%
|
|
|
9.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
530
|
|
|
|
505
|
|
|
|
516
|
|
|
|
524
|
|
|
|
5.0
|
%
|
|
|
(1.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,818
|
|
|
$
|
1,711
|
|
|
$
|
1,692
|
|
|
$
|
1,391
|
|
|
|
6.3
|
%
|
|
|
21.6
|
%
|
Segment Income
|
|
$
|
52
|
|
|
$
|
72
|
|
|
$
|
82
|
|
|
$
|
106
|
|
|
|
(27.8
|
)%
|
|
|
(22.6
|
)%
|
Total assets
|
|
$
|
1,082
|
|
|
$
|
1,110
|
|
|
$
|
1,078
|
|
|
$
|
1,002
|
|
|
|
(2.5
|
)%
|
|
|
7.6
|
%
|
2008
versus 2007
Shipments
Rolled products shipments increased 31kt, primarily due to
increased demand in the can market. This increase was partially
offset by a decline of shipments in the industrial and foil
stock markets as a result of continued price pressure from
Chinese exports, driven by the difference in aluminum metal
prices on the Shanghai Futures Exchange and the LME.
Net
sales
Net sales increased approximately $132 million as a result
of higher conversion premiums and increased volume, and
contracts priced in prior periods. The contracts priced in prior
periods did not deliver any net sales increase as the metal
costs were hedged at prior period prices (which were comparably
higher). This was partially offset by lower average LME during
the fiscal year, which reduced net sales by $25 million.
Segment
Income
Segment Income was unfavorably impacted by (1) operational
cost increases of approximately $16 million primarily
related to energy and freight, (2) loss on realized
derivative instruments of $14 million, (3) incremental
stock compensation expense of $4 million as a result of the
Arrangement and (4) $6 million of additional expenses
associated with other fair value adjustments recorded as a
result of the Arrangement. However, these factors were partially
offset by a benefit of approximately $24 million from
increased volume and price.
70
Total
assets
The consideration and related costs paid by Hindalco in
connection with the Arrangement have been pushed down to us and,
in turn, to each of our reporting units, and have been allocated
to the assets acquired and liabilities assumed based on their
relative fair values. This increased Asia assets by
approximately $21 million as fair value exceeded historical
cost. See Note 2 Acquisition of Novelis Common
Stock in the accompanying consolidated and combined financial
statements.
2006
versus 2005
Shipments
Rolled products shipments for the year ended December 31,
2006 declined compared to 2005 due to reduced demand for certain
of our industrial and light gauge products resulting from the
higher LME prices and increasing price competition. Ingot
products shipments were higher due to increased regional
automotive demand.
Net
sales
Net sales increased primarily as a result of the 35% increase in
average LME metal prices, which was largely passed through to
customers, offset partially by lower shipments.
Segment
Income
Segment Income declined by approximately $15 million due to
higher operating and energy costs and by approximately
$9 million due to lower volume and an unfavorable mix.
South
America
As of March 31, 2008, South America operated two rolling
plants in Brazil along with two smelters, an alumina refinery,
bauxite mines and power generation facilities. South America
manufactures various aluminum rolled products, including can
stock, automotive and industrial sheet and light gauge for the
beverage and food can, construction and industrial and
transportation end-use markets.
The following table presents key financial and operating data
for South America (in millions, except for shipments, which are
in kt).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
Year Ended
|
|
|
2008
|
|
|
2006
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
versus
|
|
|
versus
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2005
|
|
|
|
Combined
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
Shipments (kt):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products
|
|
|
324
|
|
|
|
285
|
|
|
|
278
|
|
|
|
261
|
|
|
|
13.7
|
%
|
|
|
6.5
|
%
|
Ingot products
|
|
|
24
|
|
|
|
28
|
|
|
|
27
|
|
|
|
27
|
|
|
|
(14.3
|
)%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
348
|
|
|
|
313
|
|
|
|
305
|
|
|
|
288
|
|
|
|
11.2
|
%
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
994
|
|
|
$
|
889
|
|
|
$
|
863
|
|
|
$
|
630
|
|
|
|
11.8
|
%
|
|
|
37.0
|
%
|
Segment Income
|
|
$
|
161
|
|
|
$
|
182
|
|
|
$
|
165
|
|
|
$
|
112
|
|
|
|
(11.5
|
)%
|
|
|
47.3
|
%
|
Total assets
|
|
$
|
1,478
|
|
|
$
|
821
|
|
|
$
|
821
|
|
|
$
|
790
|
|
|
|
80.0
|
%
|
|
|
3.9
|
%
|
2008
versus 2007
Shipments
Rolled products shipments increased during the year ended
March 31, 2008 over the comparable prior year period
primarily due to an increase in can shipments driven by strong
market demand. This was slightly offset by reductions in
shipments in the industrial products markets.
71
Net
sales
Net sales increased primarily as a result of increased price and
volume of approximately $120 million offset by an
unfavorable change in mix of approximately $25 million.
Segment
Income
Segment Income during the year ended March 31, 2008 was
favorably impacted primarily by (1) higher selling prices,
(2) higher realized gains on the cash settlement of
derivatives primarily related to currency hedging, and
(3) favorable social tax reserve adjustments. These factors
improved Segment Income for the year ended March 31, 2008
by approximately (1) $60 million,
(2) $33 million and (3) $6 million,
respectively. These positive factors were more than offset by
(1) metal price lag, (2) the strengthening of the
Brazilian real, (3) lower average LME during the fiscal
year, (4) higher operating costs and (5) incremental
expenses associated with fair value adjustments recorded as a
result of the Arrangement. These factors reduced Segment Income
by (1) $17 million, (2) $68 million,
(3) $13 million, (4) $13 million and
(5) $9 million, respectively, as compared to the prior
year.
Total
assets
The consideration and related costs paid by Hindalco in
connection with the Arrangement have been pushed down to us and,
in turn, to each of our reporting units, and have been allocated
to the assets acquired and liabilities assumed based on their
relative fair values. This increased South America assets by
approximately $584 million as fair value exceeded
historical cost. See Note 2 Acquisition of
Novelis Common Stock in the accompanying consolidated and
combined financial statements.
2006
versus 2005
Shipments
The increase in shipments in 2006 is explained by a 28kt
increase in can shipments driven by local market growth. This
was slightly offset by reductions in shipments in the foil and
industrial products markets.
Net
sales
The main drivers for the rise in net sales for 2006 over 2005
were the increase in LME prices, which added approximately
$115 million, while increased volume and reduced tolling
sales added approximately $125 million of additional net
sales.
Segment
Income
For the year ended December 31, 2006, we benefited from
rising LME metal prices in two ways. First, the output from our
smelters, representing approximately 85% of our raw material
input cost, has little or no correlation with LME metal price
movements. Second, we experienced favorable metal price lag
resulting from price increases. These two factors favorably
impacted Segment Income by approximately $41 million.
Segment Income for 2006 also benefited from a number of other
items as compared to 2005. These include approximately
$6 million of expenses incurred in 2005 associated with
certain labor claims which did not recur in 2006,
$10 million of gains from the cash settlement of derivative
instruments and other net cost reductions of approximately
$27 million. These benefits were partially offset by the
impact of a stronger Brazilian real, which was on average 10%
higher in 2006 as compared to 2005. This unfavorably impacted
Segment Income by $28 million as the majority of sales are
in U.S. dollars while local manufacturing costs are
incurred in Brazilian real.
LIQUIDITY
AND CAPITAL RESOURCES
As discussed above, the Arrangement created a new basis of
accounting. Under GAAP, the consolidated financial statements
for our fiscal year ended March 31, 2008 are presented in
two distinct periods, as Predecessor and Successor entities are
not comparable in all material respects. However, in order to
facilitate a
72
discussion of our liquidity and capital resources for the year
ended March 31, 2008 in comparison with the year ended
March 31, 2007, our Predecessor and Successor cash flows
are presented herein on a combined basis. The combined cash
flows are non-GAAP financial measures and should not be used in
isolation or substitution of the Predecessor and Successor cash
flows.
Cash
Flows
Shown below is a condensed combining schedule of cash flows for
periods attributable to the Successor, Predecessor and the
combined presentation for the year ended March 31, 2008
that we use throughout our discussion of liquidity and capital
resources (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Year Ended
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2008
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Combined
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
405
|
|
|
|
$
|
(230
|
)
|
|
$
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(185
|
)
|
|
|
|
(17
|
)
|
|
|
(202
|
)
|
Proceeds from sales of assets
|
|
|
8
|
|
|
|
|
|
|
|
|
8
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
24
|
|
|
|
|
1
|
|
|
|
25
|
|
Proceeds from loans receivable net
related parties
|
|
|
18
|
|
|
|
|
|
|
|
|
18
|
|
Net proceeds from settlement of derivative instruments
|
|
|
37
|
|
|
|
|
18
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(98
|
)
|
|
|
|
2
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
92
|
|
|
|
|
|
|
|
|
92
|
|
Proceeds from issuance of debt
|
|
|
1,100
|
|
|
|
|
150
|
|
|
|
1,250
|
|
Principal repayments
|
|
|
(1,009
|
)
|
|
|
|
(1
|
)
|
|
|
(1,010
|
)
|
Short-term borrowings net
|
|
|
(241
|
)
|
|
|
|
60
|
|
|
|
(181
|
)
|
Dividends minority interests
|
|
|
(1
|
)
|
|
|
|
(7
|
)
|
|
|
(8
|
)
|
Debt issuance costs
|
|
|
(37
|
)
|
|
|
|
(2
|
)
|
|
|
(39
|
)
|
Proceeds from the exercise of stock options
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(96
|
)
|
|
|
|
201
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
211
|
|
|
|
|
(27
|
)
|
|
|
184
|
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
13
|
|
|
|
|
1
|
|
|
|
14
|
|
Cash and cash equivalents beginning of period
|
|
|
102
|
|
|
|
|
128
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
326
|
|
|
|
$
|
102
|
|
|
$
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Free cash flow (which is a non-GAAP measure) consists of:
(a) Net cash provided by (used in) operating activities;
(b) less dividends and capital expenditures and
(c) plus net proceeds from settlement of derivative
instruments (which is net of premiums paid to purchase
derivative instruments). Dividends include those paid
73
by our less than wholly-owned subsidiaries to their minority
shareholders and dividends paid by us to our common shareholder.
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. We believe the line on our consolidated and combined
statements of cash flows entitled Net cash provided by
(used in) operating activities is the most directly
comparable measure to Free cash flow. Our method of calculating
Free cash flow may not be consistent with that of other
companies.
In our discussion of Metal Price Ceilings, we have disclosed
that certain customer contracts contain a fixed aluminum (metal)
price ceiling beyond which the cost of aluminum cannot be passed
through to the customer, unless adjusted. During the years ended
March 31, 2008 and 2007; December 31, 2006 and 2005,
we were unable to pass through approximately $230 million
and $460 million; $475 million and $75 million,
respectively, of metal purchase costs associated with sales
under theses contracts. Net cash provided by operating
activities is negatively impacted by the same amounts, adjusted
for any timing difference between customer receipts and vendor
payments and offset partially by reduced income taxes. Based on
a March 31, 2008 aluminum price of $2,935 per tonne, and
our estimate of a range of shipment volumes, we estimate that we
will be unable to pass through aluminum purchase costs of
approximately $286 $312 million during fiscal
2009 and $215 $233 million in the aggregate
thereafter.
As a result of our acquisition by Hindalco, we established
reserves totaling $655 million as of May 15, 2007 to
record these contracts at fair value. Fair value effectively
represents the discounted cash flows of the forecasted metal
purchases in excess of the metal price ceilings contained in
these contracts. These reserves are being accreted into revenue
over the remaining lives of the underlying contracts, and this
accretion will not impact future cash flows.
The following table shows the reconciliation from Net cash
provided by (used in) operating activities to Free cash flow,
the ending balances of cash and cash equivalents and the change
between periods (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change Year
|
|
|
|
Year Ended
|
|
|
2008
|
|
|
2006
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
versus
|
|
|
versus
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2005
|
|
|
|
Combined
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
175
|
|
|
$
|
(166
|
)
|
|
$
|
16
|
|
|
$
|
449
|
|
|
$
|
341
|
|
|
$
|
(433
|
)
|
Dividends
|
|
|
(8
|
)
|
|
|
(10
|
)
|
|
|
(30
|
)
|
|
|
(34
|
)
|
|
|
2
|
|
|
|
4
|
|
Capital expenditures
|
|
|
(202
|
)
|
|
|
(119
|
)
|
|
|
(116
|
)
|
|
|
(178
|
)
|
|
|
(83
|
)
|
|
|
62
|
|
Net proceeds from settlement of derivative instruments
|
|
|
55
|
|
|
|
191
|
|
|
|
238
|
|
|
|
91
|
|
|
|
(136
|
)
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
20
|
|
|
$
|
(104
|
)
|
|
$
|
108
|
|
|
$
|
328
|
|
|
$
|
124
|
|
|
$
|
(220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
326
|
|
|
$
|
128
|
|
|
$
|
73
|
|
|
$
|
100
|
|
|
$
|
198
|
|
|
$
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
versus 2007
In 2008, net cash provided by operating activities increased as
a result of our reduced exposure to metal price ceiling
contracts as discussed above. For the year ended March 31,
2008 our exposure to metal price ceilings decreased by
approximately $230 million providing additional operating
cash flow as compared to the prior year.
In 2008, capital expenditures were higher due, in part, to the
construction of
Fusiontm ingot
casting lines in our European and Asian Segments as well as
additional planned maintenance activities, improvements to our
Yeongju hot mill and other ancillary upgrades. Net proceeds from
the settlement of derivative instruments contributed
$55 million to Free cash flow in 2008 as compared to
$191 million in 2007. Much of the proceeds received in 2007
related to aluminum call options purchased in the prior year to
hedge against the risk of rising aluminum prices.
74
In 2008, Free cash flow was used primarily to increase our
overall liquidity and pay for costs associated with the Hindalco
transaction. Although our total debt increased from
March 31, 2007 by $82 million, this was more than
offset by an increase in our cash and cash equivalents of
$198 million.
2006
versus 2005
In 2006, net cash provided by operating activities was
influenced primarily by two offsetting factors. First, we
incurred a net loss of $275 million, driven by the impact
of the metal price ceilings and higher corporate costs as a
result of the restatement and review process and continued
reliance on third party consultants. Second, these amounts were
offset by reductions in working capital primarily associated
with improvements in accounts payable management.
In 2006, capital expenditures were lower as a result of our
focus on reducing debt in 2006. Net proceeds from the settlement
of derivative instruments contributed $242 million to Free
cash flow in 2006 as compared to $148 million in 2005. Much
of the proceeds received in 2006 related to aluminum call
options purchased in 2005 to hedge against the risk of rising
aluminum prices in 2006.
In 2006, Free cash flow was used primarily to reduce debt, and
we were able to reduce total debt by an amount that exceeded
Free cash flow by reducing cash and cash equivalents on the
balance sheet by $27 million, as well as utilizing the
proceeds from certain asset sales and the collection of a loan
receivable.
In 2005, net cash provided by operating activities resulted
primarily from improvements in working capital evidenced by
inventory reductions and improved payables management. The
proceeds from the settlement of derivative instruments also
added significantly to Free cash flow although this was offset
slightly by the purchase of the aluminum call options described
above. In 2005, Free cash flow was also used primarily to reduce
debt.
Financing
Activities
Overview
As a result of our acquisition by Hindalco, we were required to
refinance our existing credit facility during the current year.
The details of the new credit facility are discussed below.
Additionally, we refinanced debt in Asia due to its scheduled
maturity, and we continue to maintain forfaiting and factoring
arrangements in Asia and South America that provide additional
liquidity in those segments. See Note 10 Debt
to our consolidated and combined financial statements for
additional information regarding our financing activities.
Senior
Secured Credit Facilities
In connection with our spin-off from Alcan, we entered into
senior secured credit facilities (Old Credit Facilities)
providing for aggregate borrowings of up to $1.8 billion.
The Old Credit Facilities consisted of (1) a
$1.3 billion seven-year senior secured Term Loan B
facility, bearing interest at London Interbank Offered Rate
(LIBOR) plus 1.75% (which was subject to change based on certain
leverage ratios), all of which was borrowed on January 10,
2005, and (2) a $500 million five-year multi-currency
revolving credit and letters of credit facility.
On April 27, 2007, our lenders consented to the sixth
amendment of our Old Credit Facilities. The amendment included
increasing the Term Loan B facility by $150 million. We
utilized the additional funds available under the Term Loan B
facility to reduce the outstanding balance of our
$500 million revolving credit facility. The additional
borrowing capacity under the revolving credit facility was used
to fund working capital requirements and certain costs
associated with the Arrangement, including the cash settlement
of share-based compensation arrangements and lender fees.
Additionally, the amendment included a limited waiver of the
change of control Event of Default (as defined) which
effectively extended the requirement to repay the Old Credit
Facilities to July 11, 2007.
On May 25, 2007, we entered into a Bank and Bridge
Facilities Commitment with affiliates of UBS and ABN AMRO, to
provide backstop assurance for the refinancing of our existing
indebtedness following the
75
Arrangement. The commitments from UBS and ABN AMRO, provided by
the banks on a 50%-50% basis, consisted of the following:
(1) a senior secured term loan of up to $1.06 billion;
(2) a senior secured asset-based revolving credit facility
of up to $900 million and (3) a commitment to issue up
to $1.2 billion of unsecured senior notes, if necessary.
The commitment contained terms and conditions customary for
facilities of this nature.
On July 6, 2007, we entered into new senior secured credit
facilities with a syndicate of lenders led by affiliates of UBS
and ABN AMRO (New Credit Facilities) providing for aggregate
borrowings of up to $1.76 billion. The New Credit
Facilities consist of (1) a $960 million seven-year
Term Loan facility (Term Loan facility) and (2) an
$800 million five year multi-currency asset-based revolving
credit line and letter of credit facility (ABL facility).
The proceeds from the Term Loan facility of $960 million,
drawn in full at the time of closing, and an initial draw of
$324 million under the ABL facility were used to pay off
our old credit facility, pay for debt issuance costs of the New
Credit Facilities and provide for additional working capital.
Mandatory minimum principal amortization payments under the Term
Loan facility are $2.4 million per calendar quarter. The
first minimum principal amortization payment was made on
September 30, 2007. Additional mandatory prepayments are
required to be made for certain collateral liquidations, asset
sales, debt and preferred stock issuances, equity issuances,
casualty events and excess cash flow (as defined in the New
Credit Facilities). Any unpaid principal is due in full on
July 6, 2014.
Under the Term Loan facility, loans characterized as alternate
base rate (ABR) borrowings bear interest annually at a rate
equal to the alternate base rate (which is the greater of
(a) the base rate in effect on a given day and (b) the
federal funds effective rate in effect on a given day, plus
0.50%) plus the applicable margin. Loans characterized as
Eurocurrency borrowings bear interest at an annual rate equal to
the adjusted LIBOR rate for the interest period in effect, plus
the applicable margin. Generally, for both the Term Loan
facility and ABL facility, interest rates reset every three
months and interest is payable on a monthly, quarterly, or other
periodic basis depending on the type of loan.
Borrowings under the ABL facility are generally based on 85% of
eligible accounts receivable and 75% to 85% of eligible
inventories. Commitment fees ranging from 0.25% to 0.375% are
based on average daily amounts outstanding under the ABL
facility during a fiscal quarter and are payable quarterly.
The New Credit Facilities include customary affirmative and
negative covenants. Under the ABL facility, if our excess
availability, as defined under the borrowing, is less than 10%
of the borrowing base, we are required to maintain a minimum
fixed charge coverage ratio of 1 to 1. Substantially all of our
assets are pledged as collateral under the New Credit Facilities.
We incurred debt issuance costs on our New Credit Facilities
totaling $32 million, including $8 million in fees
previously paid in conjunction with Bank and Bridge Facilities
Commitment. The unamortized amount of these costs was
$27 million as of March 31, 2008.
7.25% Senior
Notes
On February 3, 2005, we issued $1.4 billion aggregate
principal amount of senior unsecured debt securities (Senior
Notes). The Senior Notes were priced at par, bear interest at
7.25% and mature on February 15, 2015.
Under the indenture that governs the Senior Notes, we are
subject to certain restrictive covenants applicable to incurring
additional debt and providing additional guarantees, paying
dividends beyond certain amounts and making other restricted
payments, sales and transfers of assets, certain consolidations
or mergers, and certain transactions with affiliates.
Pursuant to the terms of the indenture governing our Senior
Notes, we were obligated, within 30 days of closing of the
Arrangement, to make an offer to purchase the Senior Notes at a
price equal to 101% of their principal amount, plus accrued and
unpaid interest to the date the Senior Notes were purchased.
Consequently, we commenced a tender offer on May 16, 2007
to repurchase all of the outstanding Senior Notes at the
76
prescribed price. This offer expired on July 3, 2007 with
holders of approximately $1 million of principal presenting
their Senior Notes pursuant to the tender offer.
Korean
Bank Loans
In August 2007, we refinanced our Korean won (KRW)
40 billion ($40 million) floating rate long-term loan
due November 2007 with a floating rate short-term borrowing in
the amount of $40 million due by August 2008. We recognized
a loss on extinguishment of debt of less than $1 million in
connection with this refinancing. Additionally, we immediately
entered into an interest rate swap and cross currency swap for
the new loan through a 3.94% fixed rate KRW 38 billion
($38 million) loan.
On October 25, 2007, we entered into a $100 million
floating rate loan due October 2010 and immediately repaid our
$70 million floating rate loan. In December 2007, we repaid
our KRW 25 billion ($25 million) loan from the balance
of the proceeds of the $100 million floating rate loan.
Additionally, we immediately entered into an interest rate swap
and cross currency swap for the $100 million floating rate
loan through a 5.44% fixed rate KRW 92 billion
($92 million) loan.
Interest
Rate Swaps
During the quarter ended December 31, 2007, we entered into
interest rate swaps to fix the variable LIBOR interest rate for
up to $600 million of our floating rate Term Loan facility
at effective weighted average interest rates and amounts
expiring as follows: (i) 4.1% on $600 million through
September 30, 2008, (ii) 4.0% on $500 million
through March 31, 2009 and (iii) 4.0% on
$400 million through March 31, 2010. We are still
obligated to pay any applicable margin, as defined in our New
Credit Facilities, in addition to these interest rates.
On July 3, 2007, we terminated an interest rate swap to fix
the 3-month
LIBOR interest rate at an effective weighted average interest
rate of 3.9% on $100 million of the floating rate Term Loan
B debt, which was originally scheduled to expire on
February 3, 2008. The termination resulted in a gain of
less than $1 million.
As of March 31, 2008 approximately 84% of our debt was
fixed rate and approximately 16% was variable rate.
Short-Term
Borrowings and Letters of Credit
As of March 31, 2008, our short-term borrowings were
$115 million consisting of (1) $70 million of
short-term loans under our ABL facility, (2) a
$40 million in short-term loan in Korea and
(3) $5 million in bank overdrafts. As of
March 31, 2008, $28 million of our ABL facility was
utilized for letters of credit and an additional
$120 million under letters of credit in Korea not included
in our revolving credit facility. The weighted average interest
rate on our total short-term borrowings was 4.12% as of
March 31, 2008.
Issuance
of Additional Common Stock
On June 22, 2007, we issued 2,044,122 additional shares to
AV Aluminum for $44.93 per share resulting in an additional
equity contribution of $92 million. This contribution was
equal in amount to certain payments made by Novelis related to
change in control compensation to certain employees and
directors, lender fees and other transaction costs incurred by
the Company.
77
Investing
Activities
The following table presents information regarding our Net cash
provided by (used in) investing activities (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change Year
|
|
|
|
Year Ended
|
|
|
2008
|
|
|
2006
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
versus
|
|
|
versus
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2005
|
|
|
|
Combined
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
Net proceeds from settlement of derivative instruments
|
|
$
|
55
|
|
|
$
|
191
|
|
|
$
|
238
|
|
|
$
|
91
|
|
|
$
|
(136
|
)
|
|
$
|
147
|
|
Capital expenditures
|
|
|
(202
|
)
|
|
|
(119
|
)
|
|
|
(116
|
)
|
|
|
(178
|
)
|
|
|
(83
|
)
|
|
|
62
|
|
Proceeds from loans receivable net
|
|
|
18
|
|
|
|
31
|
|
|
|
37
|
|
|
|
393
|
|
|
|
(13
|
)
|
|
|
(356
|
)
|
Proceeds from sales of assets
|
|
|
8
|
|
|
|
36
|
|
|
|
38
|
|
|
|
19
|
|
|
|
(28
|
)
|
|
|
19
|
|
Payments related to disposal of business
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
25
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
23
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
$
|
(96
|
)
|
|
$
|
141
|
|
|
$
|
193
|
|
|
$
|
325
|
|
|
$
|
(237
|
)
|
|
$
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from settlement of derivative instruments and the
magnitude of capital expenditures were discussed above in
Operating Activities as both are included in our definition of
Free cash flow. We estimate that our annual capital expenditure
requirements for items necessary to maintain comparable
production, quality and market position levels (maintenance
capital) will be between $100 million and
$120 million, and that total annual capital expenditures
will increase to between $200 million and $220 million
in fiscal year 2009.
2008
versus 2007
Proceeds from loans receivable net during 2008 and
2007 are primarily comprised of payments we received related to
a loan due from our non-consolidated affiliate, Aluminium Norf
GmbH.
Proceeds from sales of assets in 2007 include approximately
$34 million received from the sale of certain upstream
assets in South America. The majority of proceeds from asset
sales in 2008 are from the sale of land in Kingston, Ontario.
The majority of our capital expenditures for the years ended
March 31, 2008 and 2007 were for projects devoted to
product quality, technology, productivity enhancement and
increased capacity. During 2008 our largest capital expenditures
were for the installation of
Fusiontm
casting centers in Europe and Asia.
2006
versus 2005
Proceeds from loans receivable net during 2006 are
primarily comprised of payments we received related to a loan
due from our non-consolidated affiliate, Aluminium Norf GmbH.
Proceeds from loans receivable net during 2005 were
mainly related to non-equity and non-operating interplant loans
to support various requirements among and between the entities
transferred to us in the spin-off and the entities Alcan
retained. For 2005, $360 million represents proceeds
received from Alcan in the settlement of the spin-off to retire
loans due to Novelis entities.
Proceeds from sales of assets in 2006 include approximately
$34 million received from the sale of certain upstream
assets in South America. In 2005, proceeds from sales of assets
primarily include approximately $7 million from the sale of
land and a building in Malaysia and approximately
$7 million from the sale of assets in Falkirk, Scotland.
The majority of our capital expenditures for the years ended
December 31, 2006 and 2005 were for projects devoted to
product quality, technology, productivity enhancement and
increased capacity. During the years ended December 31,
2006 and 2005, significant capital expenditures included three
larger projects: a
78
casting expansion project in our Oswego, New York facility; a
tandem mill project in our Rogerstone, Wales facility, and a
build-out of the Atlanta corporate offices and related
information technology infrastructure.
Liquidity
As of April 30, 2008, the current LME price was $2,895 per
tonne and the forward curve continues to be relatively flat
indicating long term prices above $3,000 per tonne. If aluminum
prices continue to be above this level, our free cash flow will
be negatively impacted in the near term due to the contracts we
have with metal price ceilings discussed above as well as
additional working capital as a result of the increase price. We
expect that this will reduce our available liquidity in the
short term beginning in fiscal year 2009.
Our estimated liquidity as of March 31, 2008 and 2007 is as
follows (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Cash and cash equivalents
|
|
$
|
326
|
|
|
|
$
|
128
|
|
Amount available under senior secured credit facilities
|
|
|
582
|
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated liquidity
|
|
$
|
908
|
|
|
|
$
|
362
|
|
|
|
|
|
|
|
|
|
|
|
Our liquidity increased during fiscal 2008 primarily as a result
of refinancing our credit facilities to provide for additional
capacity. As discussed in more detail below, we continue to
maintain forfaiting and factoring arrangements in Asia and South
America that provide additional liquidity in those segments.
Additionally, in our Asian Segment, our ability to access
available liquidity is limited by various factors, including
restrictions on granting dividends from Korea. As a result,
included in cash and cash equivalents above is approximately
$122 million that would not be immediately available to us
due to these restrictions.
The New Credit Facilities include customary affirmative and
negative covenants. Under the ABL facility, if our excess
availability, as defined under the borrowing, is less than 10%
of the borrowing base, we are required to maintain a minimum
fixed charge coverage ratio of 1 to 1. Our liquidity shown above
does not take into account this financial covenant. As of
March 31, 2008, our fixed charge coverage ratio is less
than 1 to 1. As a result, our available liquidity
would be limited to 90% of the borrowing base to avoid potential
default of our financial covenants.
Additionally, as our available liquidity under the ABL is based
on our eligible accounts receivable and inventory, as defined
under the New Credit Facility, as LME prices increase, our
available liquidity would also increase up to a maximum of
$800 million assuming consistent sales volumes and
inventory levels.
OFF-BALANCE
SHEET ARRANGEMENTS
In accordance with SEC rules, the following qualify as
off-balance sheet arrangements:
|
|
|
|
|
any obligation under certain derivative instruments;
|
|
|
|
any obligation under certain guarantees or contracts;
|
|
|
|
a retained or contingent interest in assets transferred to an
unconsolidated entity or similar entity or similar arrangement
that serves as credit, liquidity or market risk support to that
entity for such assets and
|
|
|
|
any obligation under a material variable interest held by the
registrant in an unconsolidated entity that provides financing,
liquidity, market risk or credit risk support to the registrant,
or engages in leasing, hedging or research and development
services with the registrant.
|
The following discussion addresses the applicable off-balance
sheet items for our Company.
79
Derivative
Instruments
As of March 31, 2008, we have derivative financial
instruments, as defined by FASB Statement No. 133. See
Note 16 Financial Instruments and Commodity
Contracts to our accompanying consolidated and combined
financial statements.
In conducting our business, we use various derivative and
non-derivative instruments to manage the risks arising from
fluctuations in exchange rates, interest rates, aluminum prices
and energy prices. Such instruments are used for risk management
purposes only. We may be exposed to losses in the future if the
counterparties to the contracts fail to perform. We are
satisfied that the risk of such non-performance is remote, due
to our monitoring of credit exposures.
Certain contracts are designated as hedges of either net
investment or cash flows. For these contracts we recognize the
change in fair value of the ineffective portion of the hedge as
a gain or loss in our current period results of operations. We
include the change in fair value of the effective and interest
portions of these hedges in Accumulated other comprehensive
income (loss) within Shareholders equity in the
accompanying consolidated balance sheets.
Prior to
Completion of the Arrangement
During the period from April 1, 2007 through May 15,
2007 and the three months ended March 31, 2007, we applied
hedge accounting to certain of our cross-currency interest swaps
with respect to intercompany loans to several European
subsidiaries and forward exchange contracts. Our euro and
British pound (GBP) cross-currency interest swaps were
designated as net investment hedges, while our Swiss franc (CHF)
cross-currency interest rate swaps and our Brazilian real (BRL)
forward foreign exchange contracts were designated as cash flow
hedges. As of May 15, 2007, we had $712 million of
cross-currency swaps (euro 475 million, GBP 62 million
and CHF 35 million) and $99 million of forward foreign
exchange contracts (BRL 229 million). During the period
from April 1, 2007 through May 15, 2007, we
implemented cash flow hedge accounting for an electricity swap,
which was embedded in a supply contract.
During the period from April 1, 2007 through May 15,
2007, the change in fair value of the effective and interest
portions of our net investment hedges was a loss of
$8 million and the change in fair value of the effective
portion of our cash flow hedges was a gain of $7 million.
Impact of
the Arrangement and Purchase Accounting
Concurrent with completion of the Arrangement on May 15,
2007, we dedesignated all hedging relationships. The cumulative
change in fair value of effective and interest portions of these
hedges, previously presented in Accumulated other comprehensive
income (loss) within Shareholders equity on May 15,
2007, was incorporated in the new basis of accounting. As a
result of purchase accounting, the fair value of all embedded
derivative instruments was allocated to the fair value of their
respective host contracts, reducing the fair value of embedded
derivative instruments to zero.
Subsequent
to Completion of the Arrangement
With the exception of the electricity swap, noted above, which
was redesignated as a cash flow hedge on June 1, 2007,
hedge accounting was not applied to any of our financial
instruments or commodity contracts between May 16, 2007 and
August 31, 2007. During this period, changes in fair value
have been recognized in (Gain) loss on change in fair value of
derivative instruments net in our consolidated
statement of operations.
On September 1, 2007, we redesignated our euro, GBP and CHF
cross-currency swaps, noted above, as net investment hedges.
Also, from September 1, 2007 through March 31, 2008,
we entered into a series of interest rate swaps which we
designated as cash flow hedges (see Note 10
Debt in the accompanying consolidated and combined financial
statements). As of March 31, 2008, we had $712 million
of cross-currency swaps (euro 475 million, GBP
62 million and CHF 35 million) and $600 million
of interest rate swaps.
80
Our consolidated statement of operations for the period from
May 16, 2007 through March 31, 2008 includes a pre-tax
gain of less than $1 million for the change in fair value
of the effective portion of our cash flow hedges. As of
March 31, 2008, the amount of effective net losses to be
realized during the next twelve months is $4 million. The
maximum period over which we have hedged our exposure to cash
flow variability is through November 2016.
From May 16, 2007 through March 31, 2008, we
recognized pre-tax losses of $82 million for the change in
fair value of the effective portion of our net investment
hedges. As of March 31, 2008, we expect to realize
$11 million of effective net losses during the next twelve
months. The maximum period over which we have hedged our
exposure to net investment variability is through February 2015.
The fair values of our financial instruments and commodity
contracts as of March 31, 2008 and 2007 were as follows (in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
March 31, 2008
|
|
|
|
Dates
|
|
|
|
|
|
|
|
|
Net Fair
|
|
|
|
(Fiscal Year)
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Value
|
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
2009 through 2012
|
|
|
$
|
47
|
|
|
$
|
(116
|
)
|
|
$
|
(69
|
)
|
Cross-currency swaps
|
|
|
2009 through 2015
|
|
|
|
19
|
|
|
|
(189
|
)
|
|
|
(170
|
)
|
Interest rate currency swaps
|
|
|
2009 through 2011
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Interest rate swaps
|
|
|
2009 through 2010
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
(15
|
)
|
Aluminum forward contracts
|
|
|
2009 through 2011
|
|
|
|
134
|
|
|
|
(9
|
)
|
|
|
125
|
|
Aluminum options
|
|
|
2009 through 2011
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Electricity swap
|
|
|
2017
|
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
Embedded derivative instruments
|
|
|
2009
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
Natural gas swaps
|
|
|
2009 through 2010
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value
|
|
|
|
|
|
|
224
|
|
|
|
(349
|
)
|
|
|
(125
|
)
|
Less: current portion
|
|
|
|
|
|
|
203
|
|
|
|
(148
|
)
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent portion
|
|
|
|
|
|
$
|
21
|
|
|
$
|
(201
|
)
|
|
$
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
March 31, 2007
|
|
|
|
Dates
|
|
|
|
|
|
|
|
|
Net Fair
|
|
|
|
(Fiscal Year)
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Value
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
2008 through 2012
|
|
|
$
|
16
|
|
|
$
|
(20
|
)
|
|
$
|
(4
|
)
|
Interest rate swaps
|
|
|
2008
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Cross-currency swaps
|
|
|
2008 through 2015
|
|
|
|
6
|
|
|
|
(90
|
)
|
|
|
(84
|
)
|
Aluminum forward contracts
|
|
|
2008 through 2010
|
|
|
|
60
|
|
|
|
(8
|
)
|
|
|
52
|
|
Aluminum options
|
|
|
2008
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Electricity swap
|
|
|
2017
|
|
|
|
60
|
|
|
|
|
|
|
|
60
|
|
Embedded derivative instruments
|
|
|
2008
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Natural gas swaps
|
|
|
2008
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value
|
|
|
|
|
|
|
147
|
|
|
|
(118
|
)
|
|
|
29
|
|
Less: current portion
|
|
|
|
|
|
|
92
|
|
|
|
(33
|
)
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent portion
|
|
|
|
|
|
$
|
55
|
|
|
$
|
(85
|
)
|
|
$
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
Guarantees
of Indebtedness
We have issued guarantees on behalf of certain of our
subsidiaries and non-consolidated affiliates, including:
|
|
|
|
|
certain of our wholly-owned and majority-owned
subsidiaries; and
|
|
|
|
Aluminium Norf GmbH, which is a fifty percent (50%) owned joint
venture that does not meet the requirements for consolidation
under FASB Interpretation No. 46 (Revised),
Consolidation of Variable Interest Entities.
|
In the case of our wholly-owned subsidiaries, the indebtedness
guaranteed is for trade accounts payable to third parties. Some
have annual terms subject to renewal while others have no
expiration and have termination notice requirements. For our
majority-owned subsidiaries, the indebtedness guaranteed is for
short-term loan, overdraft and other debt facilities with
financial institutions, which are currently scheduled to expire
during the first half of fiscal 2009. Neither Novelis Inc. nor
any of our subsidiaries or non-consolidated affiliates holds any
assets of any third parties as collateral to offset the
potential settlement of these guarantees.
Since we consolidate wholly-owned and majority-owned
subsidiaries in our financial statements, all liabilities
associated with trade payables and short-term debt facilities
for these entities are already included in our consolidated
balance sheets.
The following table discloses information about our obligations
under guarantees of indebtedness of others as of March 31,
2008 (in millions). We did not have any obligations under
guarantees of indebtedness related to our majority-owned
subsidiaries as of March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
Liability
|
|
|
|
Potential Future
|
|
|
Carrying
|
|
|
|
Payment
|
|
|
Value
|
|
|
Wholly-owned Subsidiaries
|
|
$
|
98
|
|
|
$
|
67
|
|
Aluminium Norf GmbH
|
|
|
16
|
|
|
|
|
|
In May 2007, we terminated a loan and a corresponding
deposit-and-guarantee
agreement for $80 million. We did not include the loan or
deposit amounts in our consolidated balance sheet as of
March 31, 2007 as the agreement included a legal right of
setoff and we had the intent and ability to setoff.
We have no retained or contingent interest in assets transferred
to an unconsolidated entity or similar entity or similar
arrangement that serves as credit, liquidity or market risk
support to that entity for such assets.
Other
Arrangements
Forfaiting
of Trade Receivables
Novelis Korea Limited forfaits trade receivables in the ordinary
course of business. These trade receivables are typically
outstanding for 60 to 120 days. Forfaiting is a
non-recourse method to manage credit and interest rate risks.
Under this method, customers contract to pay a financial
institution. The institution assumes the risk of non-payment and
remits the invoice value (net of a fee) to us after presentation
of a proof of delivery of goods to the customer. We do not
retain a financial or legal interest in these receivables, and
they are not included in our consolidated balance sheets.
Factoring
of Trade Receivables
Our Brazilian operations factor, without recourse, certain trade
receivables that are unencumbered by pledge restrictions. Under
this method, customers are directed to make payments on invoices
to a financial institution, but are not contractually required
to do so. The financial institution pays us any invoices it has
approved for payment (net of a fee). We do not retain financial
or legal interest in these receivables, and they are not
included in our consolidated balance sheets.
82
Summary
Disclosures of Forfaited and Factored Financial
Amounts
The following tables summarize our forfaiting and factoring
amounts (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
May 15,
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Receivables forfaited
|
|
$
|
507
|
|
|
|
$
|
51
|
|
|
$
|
68
|
|
|
$
|
424
|
|
|
$
|
285
|
|
Receivables factored
|
|
$
|
75
|
|
|
|
$
|
|
|
|
$
|
18
|
|
|
$
|
71
|
|
|
$
|
94
|
|
Forfaiting expense
|
|
$
|
6
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
2
|
|
Factoring expense
|
|
$
|
1
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Forfaited receivables outstanding
|
|
$
|
149
|
|
|
|
$
|
75
|
|
Factored receivables outstanding
|
|
$
|
|
|
|
|
$
|
|
|
Other
As part of our ongoing business, we do not participate in
transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities
(SPEs), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. As of March 31,
2008 and 2007, we are not involved in any unconsolidated SPE
transactions.
CONTRACTUAL
OBLIGATIONS
We have future obligations under various contracts relating to
debt and interest payments, capital and operating leases,
long-term purchase obligations, and postretirement benefit
plans. The following table presents our estimated future
payments under contractual obligations that exist as of
March 31, 2008, based on undiscounted amounts (in
millions). The future cash flow commitments that we may have
related to derivative contracts are not estimable and are
therefore not included. Furthermore, due to the difficulty in
determining the timing of settlements, the table excludes
$59 million of uncertain tax positions. See
Note 18 Income Taxes to our accompanying
consolidated and combined financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Debt(A)
|
|
$
|
2,570
|
|
|
$
|
126
|
|
|
$
|
120
|
|
|
$
|
20
|
|
|
$
|
2,304
|
|
Interest on long-term debt(B)
|
|
|
995
|
|
|
|
151
|
|
|
|
299
|
|
|
|
289
|
|
|
|
256
|
|
Capital leases(C)
|
|
|
85
|
|
|
|
8
|
|
|
|
16
|
|
|
|
14
|
|
|
|
47
|
|
Operating leases(D)
|
|
|
119
|
|
|
|
23
|
|
|
|
34
|
|
|
|
26
|
|
|
|
36
|
|
Purchase obligations(E)
|
|
|
16,447
|
|
|
|
4,231
|
|
|
|
6,242
|
|
|
|
3,781
|
|
|
|
2,193
|
|
Unfunded pension plan benefits(F)
|
|
|
215
|
|
|
|
17
|
|
|
|
35
|
|
|
|
39
|
|
|
|
124
|
|
Other post-employment benefits(F)
|
|
|
117
|
|
|
|
8
|
|
|
|
17
|
|
|
|
21
|
|
|
|
71
|
|
Funded pension plans(F)
|
|
|
35
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,583
|
|
|
$
|
4,599
|
|
|
$
|
6,763
|
|
|
$
|
4,190
|
|
|
$
|
5,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Includes only principal payments on our Senior Notes, term
loans, revolving credit facilities and notes payable to banks
and others. These amounts exclude payments under capital lease
obligations. |
|
(B) |
|
Interest on our fixed rate debt is estimated using the stated
interest rate. Interest on our variable rate debt is estimated
using the rate in effect as of March 31, 2008 and includes
the effect of current interest rate |
83
|
|
|
|
|
swap agreements. Actual future interest payments may differ from
these amounts based on changes in floating interest rates or
other factors or events. These amounts include an estimate for
unused commitment fees. Excluded from these amounts are interest
related to capital lease obligations, the amortization of debt
issuance and other costs related to indebtedness. |
|
(C) |
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Includes both principal and interest components of future
minimum capital lease payments. Excluded from these amounts are
insurance, taxes and maintenance associated with the property. |
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(D) |
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Includes the minimum lease payments for non-cancelable leases
for property and equipment used in our operations. We do not
have any operating leases with contingent rents. Excluded from
these amounts are insurance, taxes and maintenance associated
with the properties and equipment. |
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(E) |
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Includes agreements to purchase goods (including raw materials
and capital expenditures) and services that are enforceable and
legally binding on us, and that specify all significant terms.
Some of our raw material purchase contracts have minimum annual
volume requirements. In these cases, we estimate our future
purchase obligations using annual minimum volumes and costs per
unit that are in effect as of March 31, 2008. Due to
volatility in the cost of our raw materials, actual amounts paid
in the future may differ from these amounts. Excluded from these
amounts are the impact of any derivative instruments and any
early contract termination fees, such as those typically present
in energy contracts. |
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(F) |
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Obligations for postretirement benefit plans are estimated based
on actuarial estimates using benefit assumptions for, among
other factors, discount rates, expected long-term rates of
return on assets, rates of compensation increases, and
healthcare cost trends. Payments for unfunded pension plan
benefits and other post-employment benefits are estimated
through 2016. For funded pension plans, estimating the
requirements beyond fiscal 2008 is not practical, as it depends
on the performance of the plans investments, among other
factors. |
DIVIDENDS
On March 1, 2005, our board of directors approved the
adoption of a quarterly dividend on our common shares. The
following table shows information regarding dividends declared
on our common shares since our inception.
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Declaration Date
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Record Date
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Dividend/Share
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Payment Date
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March 1, 2005
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March 11, 2005
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$
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0.09
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March 24, 2005
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April 22, 2005
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May 20, 2005
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$
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0.09
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June 20, 2005
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July 27, 2005
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August 22, 2005
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$
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0.09
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September 20, 2005
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October 28, 2005
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November 21, 2005
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$
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0.09
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December 20, 2005
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February 23, 2006
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March 8, 2006
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$
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0.09
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March 23, 2006
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April 27, 2006
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May 20, 2006
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$
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0.09
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June 20, 2006
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August 28, 2006
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September 7, 2006
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$
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0.01
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September 25, 2006
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October 26, 2006
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November 20, 2006
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$
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0.01
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December 20, 2006
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No dividends have been declared since October 26, 2006.
Future dividends are at the discretion of the board of directors
and will depend on, among other things, our financial resources,
cash flows generated by our business, our cash requirements,
restrictions under the instruments governing our indebtedness,
being in compliance with the appropriate indentures and
covenants under the instruments that govern our indebtedness
that would allow us to legally pay dividends and other relevant
factors.
ENVIRONMENT,
HEALTH AND SAFETY
We strive to be a leader in environment, health and safety
(EHS). 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 of our facilities are expected to
implement the necessary management systems to support ISO 14001
and OHSAS 18001 certifications. As of March 31, 2008, all
of our manufacturing facilities worldwide were ISO 14001
certified, 31 facilities were OHSAS 18001 certified and 29 have
dedicated quality improvement management systems.
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Our capital expenditures for environmental protection and the
betterment of working conditions in our facilities were
$9 million in fiscal 2008. We expect these capital
expenditures will be approximately $16 million and
$14 million in fiscal 2009 and 2010, respectively. In
addition, expenses for environmental protection (including
estimated and probable environmental remediation costs as well
as general environmental protection costs at our facilities)
were $32 million in fiscal 2008, and are expected to be
$31 million in 2009. Generally, expenses for environmental
protection are recorded in Cost of goods sold. However,
significant remediation costs that are not associated with
on-going operations are recorded in Other (income)
expenses net.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our results of operations and
liquidity and capital resources are based on our consolidated
and combined financial statements which have been prepared in
accordance with GAAP. In connection with the preparation of our
consolidated and combined financial statements, we are required
to make assumptions and estimates about future events, and apply
judgments that affect the reported amounts of assets,
liabilities, revenue, expenses, and the related disclosures. We
base our assumptions, estimates and judgments on historical
experience, current trends and other factors we believe to be
relevant at the time we prepared our consolidated and combined
financial statements. On a regular basis, we review the
accounting policies, assumptions, estimates and judgments to
ensure that our consolidated and combined financial statements
are presented fairly and in accordance with GAAP. However,
because future events and their effects cannot be determined
with certainty, actual results could differ from our assumptions
and estimates, and such differences could be material.
The preparation of our consolidated and combined financial
statements in conformity with GAAP requires us to make estimates
and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and the disclosures
of contingent assets and liabilities as of the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Significant estimates and
assumptions are used for, but are not limited to: (1) fair
value of derivative financial instruments; (2) asset
impairments, including goodwill; (3) depreciable lives of
assets; (4) useful lives of intangible assets;
(5) economic lives and fair value of leased assets;
(6) income tax reserves and valuation allowances;
(7) fair value of stock options; (8) actuarial
assumptions related to pension and other postretirement benefit
plans; (9) environmental cost reserves; (10) the
determination and allocation of the fair value of assets
acquired and liabilities assumed in connection with our
acquisition by Hindalco and (11) litigation reserves.
Future events and their effects cannot be predicted with
certainty, and accordingly, our accounting estimates require the
exercise of judgment. The accounting estimates used in the
preparation of our consolidated and combined financial
statements will change as new events occur, as more experience
is acquired, as additional information is obtained and as our
operating environment changes. We evaluate and update our
assumptions and estimates on an ongoing basis and may employ
outside experts to assist in our evaluations. Actual results
could differ from the estimates we have used.
Our significant accounting policies are discussed in
Note 1 Business and Summary of Significant
Accounting Policies to our accompanying consolidated and
combined financial statements. We believe the following
accounting policies are the most critical to aid in fully
understanding and evaluating our reported financial results, as
they require management to make difficult, subjective or complex
judgments, and to make estimates about the effect of matters
that are inherently uncertain. We have reviewed these critical
accounting policies and related disclosures with the Audit
Committee of our board of directors.
85
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Effect if Actual Results
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Description
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Judgments and Uncertainties
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Differ from Assumptions
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Derivative Financial Instruments
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Our operations and cash flows are subject to fluctuations due to
changes in commodity prices, foreign currency exchange rates,
energy prices and interest rates. We use derivative financial
instruments to manage commodity prices, foreign currency
exchange rates and interest rate exposures, though not for
speculative purposes. Derivative instruments we use are
primarily commodity forward and option contracts, foreign
currency forward contracts and interest swaps.
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We are exposed to changes in aluminum prices through
arrangements where the customer has received a fixed price
commitment from us. We attempt to manage this risk by hedging
future purchases of metal required for these firm commitments.
In addition, we hedge a portion of our future production.
Short-term exposures to changing foreign currency exchange
rates occur due to operating cash flows denominated in foreign
currencies. We manage this risk with forward currency swap
contracts and currency exchange options. Our most significant
foreign currency exposures relate to the euro, Brazilian real
and the Korean won. We assess market conditions and determine an
appropriate amount to hedge based on pre-determined policies.
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To the extent that these exposures are not fully hedged, we are
exposed to gains and losses when changes occur in the market
price of aluminum. Hedges of specific arrangements and future
production increase or decrease the fair value by approximately
$91 million for a 10% change in the market value of aluminum as
of March 31, 2008.
To the extent that operating cash flows are not fully hedged,
we are exposed to foreign exchange gains and losses. In the
event that we choose not to hedge a cash flow, an adverse
movement in rates could impact our earnings and cash flows. The
change in the fair value of the foreign currency hedge portfolio
as of March 31, 2008 that would result from a 10% instantaneous
appreciation or depreciation in foreign exchange rates would
result in an increase or decrease of approximately $70 million.
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We are exposed to changes in interest rates due to our
financing, investing and cash management activities. We may
enter into interest rate swap contracts to protect against our
exposure to changes in future interest rate, which requires
deciding how much of the exposure to hedge based on our
sensitivity to variable rate fluctuations.
The majority of our derivative financial instruments are valued
using quoted market prices. The remaining derivative instruments
are valued using industry standard pricing models. These pricing
models require us to make a variety of assumptions including,
but not limited to, market data of similar financial
instruments, interest rates, forward curves, volatilities and
financial instruments cash flows.
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To the extent that we choose to hedge our interest costs, we are
able to avoid the impacts of changing interest rates on our
interest costs. In the event that we do not hedge a floating
rate debt an adverse movement in market interest rates could
impact our interest cost. As of March 31, 2008, a 10% change in
the market interest rate would increase or decrease the fair
value of our interest rate hedges by $2 million. A
12.5 basis point change in market interest rates as of
March 31, 2008 would increase or decrease our unhedged interest
cost on floating rate debt by approximately $1 million.
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Effect if Actual Results
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Description
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Judgments and Uncertainties
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Differ from Assumptions
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Impairment of long-lived assets
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Long-lived assets, such as property and equipment, are reviewed
for impairment when events or changes in circumstances indicate
that the carrying value of the assets contained in our financial
statements may not be recoverable. When evaluating long-lived
assets for potential impairment, we first compare the carrying
value of the asset to the assets estimated, future net
cash flows (undiscounted and without interest charges). If the
estimated future cash flows are less than the carrying value of
the asset, we calculate and recognize an impairment loss. If we
recognize an impairment loss, the adjusted carrying amount of
the asset will be its new cost basis. For a depreciable
long-lived asset, the new cost basis will be depreciated over
the remaining useful life of that asset. Restoration of a
previously recognized impairment loss is prohibited.
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Our impairment loss calculations require management to apply
judgments in estimating future cash flows and asset fair values,
including forecasting useful lives of the assets and selecting
the discount rate that represents the risk inherent in future
cash flows.
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Using the impairment review methodology described herein, we
recorded impairment charges on long-lived assets of $1 million,
$8 million, and $7 million during the year ended March 31,
2008, the three months ended March 31, 2007 and the year ended
December 31, 2005, respectively. We had no impairment charges
on long-lived assets during the year ended December 31, 2006.
If actual results are not consistent with our assumptions and
judgments used in estimating future cash flows and asset fair
values, we may be exposed to additional impairment losses that
could be material to our results of operations.
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Goodwill and Intangible Assets
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Goodwill represents the excess of the purchase price over the
fair value of the net assets of acquired companies. We follow
the guidance in FASB Statement No. 142, Goodwill and
Intangible Assets, and test goodwill for impairment using a
fair value approach, at the reporting unit level. We are
required to test for impairment at least annually, absent some
triggering event that would accelerate an impairment assessment.
On an ongoing basis, absent any impairment indicators, we
perform our goodwill impairment testing as of the last day of
February of each year.
As a result of the Arrangement, our intangible assets consist
of tradenames, technology, customer relationships and favorable
energy
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We have recognized goodwill in our North American, European and
South American operating segments, which are also reporting
units for purposes of performing our goodwill impairment
testing. We determine the fair value of our reporting units
using the discounted cash flow valuation technique, which
requires us to make assumptions and estimates regarding industry
economic factors and the profitability of future business
strategies.
As a result of the Arrangement, we estimated fair value of
goodwill and intangible assets using a number of factors,
including the application of multiples and discounted cash flow
estimates.
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We performed our annual testing for goodwill impairment as of
the last day of February 2008, using the methodology described
herein, and determined that no goodwill impairment existed.
If actual results are not consistent with our assumptions and
estimates, we may be exposed to additional goodwill impairment
charges.
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Effect if Actual Results
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Description
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Judgments and Uncertainties
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Differ from Assumptions
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and supply contracts and are amortized over 3 to 20 years.
As of March 31, 2008, we do not have any intangible assets
with indefinite useful lives.
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We continue to review the carrying values of amortizable
intangible assets whenever facts and circumstances change in a
manner that indicates their carrying values may not be
recoverable.
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Pension and Other Postretirement Plans
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We account for our defined benefit pension plans and non-pension
postretirement benefit plans in accordance with FASB Statements
No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, No. 87,
Employers Accounting for Pensions, and
No. 106, Employers Accounting for Postretirement
Benefits Other Than Pensions.
The actuarial models use an attribution approach that generally
spreads the financial impact of changes to the plan and
actuarial assumptions over the average remaining service lives
of the employees in the plan. Changes in liability due to
changes in actuarial assumptions such as discount rate, rate of
compensation increases and mortality, as well as annual
deviations between what was assumed and what was experienced by
the plan are treated as gains or losses. Additionally, gains and
losses are amortized over the groups average future
service. The average future service for pension plans and other
postretirement benefit plans is 12.7 and 13.9 years
respectively. The principle underlying the required attribution
approach is that employees render service over their average
remaining service lives on a relatively smooth basis and,
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All net actuarial gains and losses are amortized over the
expected average remaining service life of the employees. The
costs and obligations of pension and other postretirement
benefits are calculated based on assumptions including the
long-term rate of return on pension assets, discount rates for
pension and other postretirement benefit obligations, expected
service period, salary increases, retirement ages of employees
and healthcare cost trend rates. These assumptions bear the risk
of change as they require significant judgment and they have
inherent uncertainties that management may not be able to
control. The two most significant assumptions used to calculate
the obligations in respect of the net employee benefit plans are
the discount rates for pension and other postretirement
benefits, and the expected return on assets. The discount rate
for pension and other postretirement benefits is the interest
rate used to determine the present value of benefits. It is
based on spot rate yield curves and individual bond matching
models for pension plans in Canada and the United States, and on
published long-term high quality corporate bond indices for
pension plans in other countries, at the end of each fiscal
year. In
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As of March 31, 2008, an increase in the discount rate of 0.5%,
assuming inflation remains unchanged, would result in a decrease
of $86 million in the pension and other postretirement
obligations and in a decrease of $11 million in the net
periodic benefit cost. A decrease in the discount rate of 0.5%
as of March 31, 2008, assuming inflation remains unchanged,
would result in an increase of $86 million in the pension and
other postretirement obligations and in an increase of $11
million in the net periodic benefit cost. The calculation of the
estimate of the expected return on assets is described in
Note 14 Postretirement Benefit Plans to our
accompanying consolidated and combined financial statements. The
weighted average expected return on assets was 7.3% for 2008,
7.3% for 2006 and 7.4% for 2005. The expected return on assets
is a long-term assumption whose accuracy can only be measured
over a long period based on past experience. A variation in the
expected return on assets by 0.5% as of March 31, 2008 would
result in a variation of approximately $4 million in the net
periodic benefit cost.
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88
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Effect if Actual Results
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Description
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Judgments and Uncertainties
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Differ from Assumptions
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therefore, the accounting for benefits earned under the pension
or non-pension postretirement benefits plans should follow the
same relatively smooth pattern.
Our pension obligations relate to funded defined benefit
pension plans we have established in the United States, Canada,
Switzerland and the United Kingdom, unfunded pension benefits
primarily in Germany, and lump sum indemnities payable upon
retirement to employees of businesses in France, Korea, Malaysia
and Italy. 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.
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light of the average long duration of pension plans in other
countries, no adjustments were made to the index rates. The
weighted average discount rate used to determine the pension
benefit obligation was 5.8% as of March 31, 2008, compared to
5.4% and 5.1% for December 31, 2006 and 2005, respectively. The
weighted average discount rate used to determine the other
postretirement benefit obligation was 6.1% as of March 31, 2008,
compared to 5.7% and 5.7% for December 31, 2006 and 2005,
respectively. The weighted average discount rate used to
determine the net periodic benefit cost is the rate used to
determine the benefit obligation in the previous year.
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Income Taxes
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We account for income taxes using the asset and liability
method. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. In addition,
deferred tax assets are also recorded with respect to net
operating losses and other tax attribute carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are
expected to be recovered or settled. Valuation allowances are
established when realization of the benefit of deferred tax
assets is not deemed to be more likely than not. 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.
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The ultimate recovery of certain of our deferred tax assets is
dependent on the amount and timing of taxable income that we
will ultimately generate in the future and other factors such as
the interpretation of tax laws. This means that significant
estimates and judgments are required to determine the extent
that valuation allowances should be provided against deferred
tax assets. We have provided valuation allowances as of March
31, 2008 aggregating $161 million against such assets based on
our current assessment of future operating results and these
other factors.
By their nature, tax laws are often subject to interpretation.
Further complicating matters is that in those cases where a tax
position is open to interpretation, differences of opinion can
result in differing conclusions as to the amount of tax benefits
to be recognized under FIN 48. Consequently, the level of
evidence and documentation necessary to
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Although management believes that the estimates and judgments
discussed herein are reasonable, actual results could differ,
which could result in gains or losses that could be material.
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89
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Effect if Actual Results
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Description
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Judgments and Uncertainties
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Differ from Assumptions
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FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes (FIN 48) clarifies the accounting
for uncertainty of income taxes by prescribing a minimum
recognition threshold a tax position is required to meet before
being recognized in the financial statements. FIN 48
utilizes a two-step approach for evaluating tax positions.
Recognition (Step 1) occurs when an enterprise
concludes that a tax position, based solely on its technical
merits, is more likely than not to be sustained upon
examination. Measurement (Step 2) is only addressed if Step
1 has been satisfied. Under Step 2, the tax benefit is measured
as the largest amount of benefit, determined on a cumulative
probability basis that is more likely than not to be realized
upon ultimate settlement.
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support a position prior to being given recognition and
measurement within the financial statements is a matter of
judgment that depends on all available evidence.
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For fiscal years prior to and ending on December 31, 2006,
contingent tax liabilities must be accounted for separately from
deferred tax assets and liabilities. FASB Statement No. 5,
Accounting for Contingencies is the governing standard
for contingent liabilities. It must be probable that a
contingent tax benefit will be sustained before the contingent
benefit is recognized for financial reporting purposes.
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Assessment of Loss Contingencies
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We have legal and other contingencies, including environmental
liabilities, which could result in significant losses upon the
ultimate resolution of such contingencies.
Environmental liabilities that are not legal asset retirement
obligations are accrued on an undiscounted basis when it is
probable that a liability exists for past events.
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We have provided for losses in situations where we have
concluded that it is probable that a loss has been or will be
incurred and the amount of the loss is reasonably estimable. A
significant amount of judgment is involved in determining
whether a loss is probable and reasonably estimable due to the
uncertainty involved in determining the likelihood of future
events and estimating the financial statement impact of such
events.
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If further developments or resolution of a contingent matter are
not consistent with our assumptions and judgments, we may need
to recognize a significant charge in a future period related to
an existing contingency.
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90
RECENTLY
ISSUED ACCOUNTING STANDARDS
In May 2008, the FASB issued Statement No. 162, The
Hierarchy of Generally Accepted Accounting Principles. FASB
Statement No. 162 defines the order in which accounting
principles that are generally accepted should be followed. FASB
Statement No. 162 is effective 60 days following the
SECs approval of the Public Company Accounting Oversight
Board (PCAOB) amendments to AU Section 411,
The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. We have not yet commenced
evaluating the potential impact, if any, of the adoption of FASB
Statement No. 162 on our consolidated financial position,
results of operations and cash flows.
In March 2008, the FASB issued Statement No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging
Activities. FASB Statement No. 161 changes the
disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced
disclosures about (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related
hedged items are accounted for under FASB Statement
No. 133, Accounting for Derivative Instruments and
Hedging Activities, and its related interpretations and
(iii) how derivative instruments and related hedged items
affect an entitys financial position, results of
operations, and cash flows. FASB Statement No. 161 is
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with
early application permitted. FASB Statement No. 161
permits, but does not require, comparative disclosures for
earlier periods at initial adoption. We have not yet commenced
evaluating the potential impact, if any, of the adoption of FASB
Statement No. 161 on our consolidated financial position,
results of operations, cash flows or disclosures related to
derivative instruments and hedging activities.
In January 2008, the FASB issued Statement No. 133
Implementation Issue No. E23, Hedging
General: Issues Involving the Application of the Shortcut Method
under Paragraph 68 (Issue No. E23). Issue
No. E23 provides guidance on certain practice issues
related to the application of the shortcut method by amending
paragraph 68 of FASB Statement No. 133 with respect to
the conditions that must be met in order to apply the shortcut
method for assessing hedge effectiveness of interest rate swaps.
The provisions of Issue No. E23 became effective for us for
our hedging arrangements designated on or after January 1,
2008. Additionally, pre-existing hedging arrangements must be
assessed on January 1, 2008 to determine whether the
provisions of Issue No. E23 were met as of the inception of
the hedging arrangement. We have evaluated the effects of the
adoption of Issue No. E23 and have determined it to have no
material impact on our consolidated financial position, results
of operations and cash flows.
In December 2007, the FASB issued Statement No. 141
(Revised), Business Combinations, (FASB Statement
No. 141(R)) which establishes principles and requirements
for how the acquirer in a business combination
(i) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree, (ii) recognizes
and measures the goodwill acquired in the business combination
or a gain from a bargain purchase, and (iii) determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. FASB Statement No. 141(R) also
requires acquirers to estimate the acquisition-date fair value
of any contingent consideration and to recognize any subsequent
changes in the fair value of contingent consideration in
earnings. We will be required to apply this new standard
prospectively to business combinations for which the acquisition
date is on or after the beginning of the annual reporting period
beginning on or after December 15, 2008, with the exception
of the accounting for valuation allowances on deferred taxes and
acquired tax contingencies. FASB Statement No. 141(R)
amends certain provisions of FASB Statement No. 109 such
that adjustments made to valuation allowances on deferred taxes
and acquired tax contingencies associated with acquisitions that
closed prior to the effective date of FASB Statement
No. 141(R) would also apply the provisions of FASB
Statement No. 141(R). Early adoption is prohibited. We are
currently evaluating the effects that FASB Statement
No. 141(R) may have on our consolidated financial position,
results of operations and cash flows.
In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, which establishes accounting and reporting
standards that require (i) the ownership
91
interest in subsidiaries held by parties other than the parent
to be clearly identified and presented in the consolidated
balance sheet within shareholders equity, but separate
from the parents equity, (ii) the amount of
consolidated net income attributable to the parent and the
noncontrolling interest to be clearly identified and presented
on the face of the consolidated statement of operations, and
(iii) changes in a parents ownership interest while
the parent retains its controlling financial interest in its
subsidiary to be accounted for consistently. FASB Statement
No. 160 applies to fiscal years beginning after
December 15, 2008. Earlier adoption is prohibited. We have
not yet commenced evaluating the potential impact, if any, of
the adoption of FASB Statement No. 160 on our consolidated
financial position, results of operations and cash flows.
In April 2007, the FASB issued Staff Position (FSP)
No. FIN 39-1,
Amendment of FASB Interpretation No. 39, (FSP
FIN 39-1).
FSP
FIN 39-1
amends FASB Statement No. 39, Offsetting of Amounts
Related to Certain Contracts, by permitting entities that
enter into master netting arrangements as part of their
derivative transactions to offset in their financial statements
net derivative positions against the fair value of amounts (or
amounts that approximate fair value) recognized for the right to
reclaim cash collateral or the obligation to return cash
collateral under those arrangements. FSP
FIN 39-1
is effective for fiscal years beginning after November 15,
2007, with early adoption permitted. We have evaluated the
effects of adoption of FSP
FIN 39-1
and have determined the standard will have no material impact on
our consolidated financial position, results of operations and
cash flows.
In February 2007, the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, which provides companies with an option to
report selected financial assets and liabilities at fair value.
The new standard also establishes presentation and disclosure
requirements designed to facilitate comparisons between
companies that choose different measurement attributes for
similar types of assets and liabilities. It also requires
companies to provide additional information that will help
investors and other users of financial statements to more easily
understand the effect of a companys choice to use fair
value on its earnings. The new standard also requires entities
to display the fair value of those assets and liabilities for
which the company has chosen to use fair value on the face of
the balance sheet. FASB Statement No. 159 does not
eliminate disclosure requirements included in other accounting
standards, including requirements for disclosures about fair
value measurements included in FASB Statements No. 157,
Fair Value Measurements, and No. 107, Disclosures
about Fair Value of Financial Instruments. FASB Statement
No. 159 is effective as of the beginning of an
entitys first fiscal year beginning after
November 15, 2007. Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity
makes that choice in the first 120 days of that fiscal year
and also elects to apply the provisions of FASB Statement
No. 157. We have evaluated the effects of adoption of FASB
Statement No. 159 and have determined the standard will
have no material impact on our consolidated financial position,
results of operations and cash flows.
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements, which defines fair value,
establishes a framework for measuring fair value under GAAP, and
expands disclosures about fair value measurements. FASB
Statement No. 157 applies to other accounting
pronouncements that require or permit fair value measurements.
The new guidance is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and for
interim periods within those fiscal years. We are assessing the
potential impact of adoption of FASB Statement No. 157 on
our consolidated financial position, results of operations and
cash flows.
We have determined that all other recently issued accounting
pronouncements will not have a material impact on our
consolidated financial position, results of operations or cash
flows, or do not apply to our operations.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We are exposed to certain market risks as part of our ongoing
business operations, including risks from changes in commodity
prices (aluminum, electricity and natural gas), foreign currency
exchange rates and interest rates that could impact our results
of operations and financial condition.
We manage our exposure to these and other market risks through
regular operating and financing activities and derivative
financial instruments. We use derivative financial instruments
as risk management
92
tools only, and not for speculative purposes. Except where
noted, the derivative contracts are marked-to-market and the
related gains and losses are included in earnings in the current
accounting period.
By their nature, all derivative financial instruments involve
risk, including the credit risk of non-performance by
counterparties. All derivative contracts are executed with
counterparties that, in our judgment, are creditworthy. Our
maximum potential loss may exceed the amount recognized in the
accompanying March 31, 2008 consolidated balance sheet.
The decision of whether and when to execute derivative
instruments, along with the duration of the instrument, can vary
from period to period depending on market conditions and the
relative costs of the instruments. The duration is always linked
to the timing of the underlying exposure, with the connection
between the two being regularly monitored.
Commodity
Price Risks
We have commodity price risk with respect to purchases of
certain raw materials including aluminum, electricity and
natural gas.
Aluminum
Most of our business is conducted under a conversion model,
which allows us to pass through increases or decreases in the
price of aluminum to our customers. Nearly all of our products
have a price structure with two components: (i) a pass
through aluminum price based on the LME plus local market
premiums and (ii) a conversion premium based on
the conversion cost to produce the rolled product and the
competitive market conditions for that product.
In situations where we offer customers fixed prices for future
delivery of our products, we may enter into derivative
instruments for the metal inputs in order to protect the profit
on the conversion of the product. Consequently, the gain or loss
resulting from movements in the price of aluminum on these
contracts would generally be offset by an equal and opposite
impact on the net sales and purchases being hedged.
In addition, sales contracts representing approximately 10% of
our total shipments for the year ended March 31, 2008
provide for a ceiling over which metal prices could not
contractually be passed through to certain customers, unless
adjusted. As a result, we are unable to pass through the
complete increase in metal prices for sales under these
contracts and this negatively impacts our margins when the metal
price is above the ceiling price. Our exposure to metal price
ceilings approximates 8% of estimated shipments for the fiscal
year 2009.
We employ three strategies to mitigate our risk of rising metal
prices that we cannot pass through to certain customers due to
metal price ceilings. First, we maximize the amount of our
internally supplied metal inputs from our smelting, refining and
mining operations in Brazil. Second, we rely on the output from
our recycling operations which utilize used beverage cans
(UBCs). Both of these sources of aluminum supply have
historically provided a benefit as these sources of metal are
typically less expensive than purchasing aluminum from third
party suppliers. We refer to these two sources as our internal
hedges.
Beyond our internal hedges described above, our third strategy
to mitigate the risk of loss or reduced profitability associated
with the metal price ceilings is to purchase derivative
instruments on projected aluminum volume requirements above our
assumed internal hedge position. We currently purchase forward
derivative instruments to hedge our exposure to further metal
price increases.
During the fiscal year 2008, we sold short-term LME futures
contracts to reduce the cash flow volatility of fluctuating
metal prices associated with metal price lag. We enter into
forward metal purchases simultaneous with the contracts that
contain fixed metal prices. These forward metal purchases
directly hedge the economic risk of future metal price
fluctuation associated with these contracts. The positive or
negative impact on sales under these contracts has been included
in the metal price lag effect described above, without regard to
the fixed forward instruments we purchased to offset this risk.
93
Sensitivities
The following table presents the estimated potential pre-tax
gain (loss) in the fair values of these derivative instruments
as of March 31, 2008 given a 10% change in the three-month
LME price ($ in millions).
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
Change in
|
|
|
|
Rate/Price
|
|
|
Fair Value
|
|
|
Aluminum Forward Contracts
|
|
|
10
|
%
|
|
$
|
91
|
|
Aluminum Options
|
|
|
10
|
%
|
|
|
(1
|
)
|
Electricity
and Natural Gas
We use several sources of energy in the manufacture and delivery
of our aluminum rolled products. In the year ended
March 31, 2008, natural gas and electricity represented
approximately 70% of our energy consumption by cost. We also use
fuel oil and transport fuel. The majority of energy usage occurs
at our casting centers, at our smelters in South America 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 changes in the United
States have 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. As of March 31, 2008, we have a nominal amount of
forward purchases outstanding related to natural gas.
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. In South America,
we own and operate hydroelectric facilities that meet
approximately 25% of our total electricity requirements in that
region. Additionally, we have entered into an electricity swap
in North America to fix a portion of the cost of our electricity
requirements.
Rising energy costs worldwide, due to the volatility of supply
and international and geopolitical events, expose us to reduced
profits as such changes in such costs cannot immediately be
recovered under existing contracts and sales agreements, and may
only be mitigated in future periods under future pricing
arrangements.
Sensitivities
The following table presents the estimated potential effect on
the fair values of these derivative instruments as of
March 31, 2008 given a 10% change in spot prices for energy
contracts ($ in millions).
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
Change in
|
|
|
|
Rate/Price
|
|
|
Fair Value
|
|
|
Electricity
|
|
|
10
|
%
|
|
$
|
7
|
|
Natural Gas
|
|
|
10
|
%
|
|
|
2
|
|
Foreign
Currency Exchange Risks
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 operating results. In
Europe, where we have predominantly local currency selling
prices and operating costs, we benefit as the euro strengthens,
but are adversely affected as the euro weakens. In Korea, where
we have local currency selling prices for local sales and
U.S. dollar denominated selling prices for exports, we
benefit slightly as the won weakens, but are adversely affected
as the won strengthens, due to a slightly higher percentage of
exports compared to local sales. In Canada and Brazil, where we
have predominately U.S. dollar selling prices and local
currency operating costs, we benefit as the local currencies
weaken, but are adversely affected as the local currencies
strengthen. Foreign currency contracts may be used to hedge the
economic exposures at our foreign operations.
It is our policy to minimize functional currency exposures
within each of our key regional operating segments. As such, the
majority of our foreign currency exposures are from either
forecasted net sales or
94
forecasted purchase commitments in non-functional currencies.
Our most significant
non-U.S. dollar
functional currency operating segments are Europe and Asia,
which have the euro and the Korean won as their functional
currencies, respectively. South America is U.S. dollar
functional with Brazilian real transactional exposure.
We face translation risks related to the changes in foreign
currency exchange rates. Amounts invested in our foreign
operations are translated into U.S. dollars at the exchange
rates in effect at the balance sheet date. The resulting
translation adjustments are recorded as a component of
Accumulated other comprehensive income (loss) in the
Shareholders equity section of the accompanying
consolidated balance sheets. Net sales and expenses in our
foreign operations foreign currencies are translated into
varying amounts of U.S. dollars depending upon whether the
U.S. dollar weakens or strengthens against other
currencies. Therefore, changes in exchange rates may either
positively or negatively affect our net sales and expenses from
foreign operations as expressed in U.S. dollars.
Any negative impact of currency movements on the currency
contracts that we have entered into to hedge 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 and other information relating to currency contracts,
see Note 1 Business and Summary of Significant
Accounting Policies and Note 16 Financial
Instruments and Commodity Contracts to our accompanying
consolidated and combined financial statements.
Sensitivities
The following table presents the estimated potential effect on
the fair values of these derivative instruments as of
March 31, 2008 given a 10% change in rates ($ in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
|
Increase (Decrease)
|
|
|
Loss in
|
|
|
|
in Exchange Rate
|
|
|
Fair Value
|
|
|
Currency measured against the U.S. dollar
|
|
|
|
|
|
|
|
|
Euro
|
|
|
(10
|
)%
|
|
$
|
(26
|
)
|
Korean won
|
|
|
(10
|
)%
|
|
|
(3
|
)
|
Brazilian real
|
|
|
(10
|
)%
|
|
|
(25
|
)
|
British pound
|
|
|
(10
|
)%
|
|
|
(2
|
)
|
Swiss franc
|
|
|
(10
|
)%
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
|
Increase (Decrease)
|
|
|
Loss in
|
|
|
|
in Exchange Rate
|
|
|
Fair Value
|
|
|
Other cross-currency exchange rates
|
|
|
|
|
|
|
|
|
Swiss franc measured against the euro
|
|
|
(10
|
)%
|
|
$
|
(21
|
)
|
British pound measured against the euro
|
|
|
(10
|
)%
|
|
|
(13
|
)
|
Loans to and investments in European operations have been hedged
by cross-currency swaps (euro 475 million, GBP
62 million, CHF 35 million). Loans from European
operations have been hedged by cross-currency principal only
swaps (euro 111 million). Principal only swaps totaling
euro 91 million were accounted for as cash flow hedges
through May 15, 2007. Concurrent with the completion of the
Arrangement on May 15, 2007, we dedesignated these hedging
relationships. On September 1, 2007, we redesignated our
cross-currency swaps as net investment hedges. While this has no
impact on our cash flows, subsequent changes in the value of
currency related derivative instruments that are not designated
as hedges are recognized in Gain (loss) on change in fair value
of derivative instruments net in our condensed
consolidated statement of operations.
95
The following table presents the estimated potential pre-tax
loss in the fair values of these derivative instruments as of
March 31, 2008, assuming a 10% increase in rates ($ in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
|
Increase in
|
|
|
Loss in
|
|
|
|
Rate
|
|
|
Fair Value
|
|
|
Currency measured against the U.S. dollar
|
|
|
|
|
|
|
|
|
Euro
|
|
|
10
|
%
|
|
$
|
(91
|
)
|
British pound
|
|
|
10
|
%
|
|
|
(15
|
)
|
Swiss franc
|
|
|
10
|
%
|
|
|
(5
|
)
|
Interest
Rate Risks
We are subject to interest rate risk related to our floating
rate debt. For every 12.5 basis point increase in the
interest rates on our outstanding variable rate debt as of
March 31, 2008, which includes $353 million of term
loan debt and other variable rate debt of $75 million, our
annual pre-tax income would be reduced by approximately
$1 million.
As of March 31, 2008, approximately 84% of our debt
obligations were at fixed rates. Due to the nature of fixed-rate
debt, there would be no significant impact on our interest
expense or cash flows from either a 10% increase or decrease in
market rates of interest.
From time to time, we have used interest rate swaps to manage
our debt cost. In Korea, we entered into interest rate swaps to
fix the interest rate on various floating rate debt. See
Note 10 Debt to our accompanying condensed
consolidated financial statements for further information.
Sensitivities
The following table presents the estimated potential effect on
the fair values of these derivative instruments as of
March 31, 2008 given a 10% change in rates ($ in millions).
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
Change in
|
|
|
|
Rate
|
|
|
Fair Value
|
|
|
Interest Rate Swap Contracts
|
|
|
|
|
|
|
|
|
North America
|
|
|
10
|
%
|
|
$
|
(2
|
)
|
Asia
|
|
|
10
|
%
|
|
|
|
|
96
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
98
|
|
|
|
|
99
|
|
|
|
|
101
|
|
|
|
|
102
|
|
|
|
|
103
|
|
|
|
|
105
|
|
|
|
|
107
|
|
97
Managements
Responsibility Report
Novelis management is responsible for the preparation,
integrity and fair presentation of the financial statements and
other information used in this Annual Report. The financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
and include, where appropriate, estimates based on the best
judgment of management. Financial and operating data elsewhere
in the Annual Report are consistent with that contained in the
accompanying financial statements.
Novelis policy is to maintain systems of controls over
financial reporting and disclosure controls and procedures. Such
systems are designed to provide reasonable assurance that the
financial information is accurate and reliable and that Company
assets are adequately accounted for and safeguarded. The Board
of Directors oversees the Companys systems of controls
over financial reporting and disclosure controls and procedures
through its Audit Committee, which is comprised of directors who
are not employees. The Audit Committee meets regularly with
representatives of the Companys independent registered
public accounting firm and management, including internal audit
staff, to satisfy themselves that Novelis policy is being
followed. The Audit Committee has engaged PricewaterhouseCoopers
LLP as the independent registered public accounting firm.
The financial statements have been reviewed by the Audit
Committee and, together with the other required information in
this Annual Report, approved by the Board of Directors. In
addition, the financial statements have been audited by
PricewaterhouseCoopers LLP whose reports are provided below.
|
|
|
|
|
/s/ Steven
Fisher
|
|
|
|
MARTHA FINN BROOKS
President and Chief Operating Officer
|
|
STEVEN FISHER
Chief Financial Officer
|
June 19, 2008
98
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of Novelis Inc.:
In our opinion, the accompanying consolidated balance sheet as
of March 31, 2008 and the related consolidated statements
of operations and comprehensive income (loss),
shareholders equity and of cash flows for the period from
May 16, 2007 to March 31, 2008 present fairly, in all
material respects, the financial position of Novelis Inc. and
its subsidiaries (Successor) as of March 31, 2008, and the
results of their operations and their cash flows for the period
from May 16, 2007 to March 31, 2008 in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of March 31, 2008, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Companys management is
responsible for these financial statements, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Managements Report on
Internal Control Over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these
financial statements and on the Companys internal control
over financial reporting based on our integrated audit. We
conducted our audit 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 and whether effective internal
control over financial reporting was maintained in all material
respects. Our audit of the financial statements included
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. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Atlanta, GA
June 19, 2008
99
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of Novelis Inc.:
In our opinion, the accompanying consolidated balance sheet as
of March 31, 2007 and the related consolidated and combined
statements of operations and comprehensive income (loss),
shareholders/invested equity and of cash flows for the
periods from April 1, 2007 to May 15, 2007, and
January 1, 2007 to March 31, 2007, and the years ended
December 31, 2006 and 2005 present fairly, in all material
respects, the financial position of Novelis Inc. and its
subsidiaries (Predecessor) at March 31, 2007 and, the
results of their operations and their cash flows for the periods
from April 1, 2007 to May 15, 2007, and
January 1, 2007 to March 31, 2007, and for the years
ended December 31, 2006 and 2005 in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Companys 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.
As discussed in Note 1 to the consolidated and combined
financial statements, the Company changed the manner in which it
accounts for defined benefit pension and other postretirement
plans effective December 31, 2006.
PricewaterhouseCoopers LLP
Atlanta, GA
June 19, 2008
100
Novelis
Inc.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16,
|
|
|
|
April 1,
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
2007
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
|
May 15,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Net sales
|
|
$
|
9,965
|
|
|
|
$
|
1,281
|
|
|
$
|
2,630
|
|
|
$
|
9,849
|
|
|
$
|
8,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
9,042
|
|
|
|
|
1,205
|
|
|
|
2,447
|
|
|
|
9,317
|
|
|
|
7,570
|
|
Selling, general and administrative expenses
|
|
|
319
|
|
|
|
|
95
|
|
|
|
99
|
|
|
|
410
|
|
|
|
352
|
|
Depreciation and amortization
|
|
|
367
|
|
|
|
|
28
|
|
|
|
58
|
|
|
|
233
|
|
|
|
230
|
|
Research and development expenses
|
|
|
46
|
|
|
|
|
6
|
|
|
|
8
|
|
|
|
40
|
|
|
|
41
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
173
|
|
|
|
|
26
|
|
|
|
50
|
|
|
|
206
|
|
|
|
194
|
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
(22
|
)
|
|
|
|
(20
|
)
|
|
|
(30
|
)
|
|
|
(63
|
)
|
|
|
(269
|
)
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
4
|
|
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(16
|
)
|
|
|
(6
|
)
|
Sale transaction fees
|
|
|
|
|
|
|
|
32
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
Litigation settlement net of insurance recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Other (income) expenses net
|
|
|
|
|
|
|
|
4
|
|
|
|
24
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,929
|
|
|
|
|
1,375
|
|
|
|
2,685
|
|
|
|
10,127
|
|
|
|
8,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for taxes on income
(loss), minority interests share and cumulative effect of
accounting change
|
|
|
36
|
|
|
|
|
(94
|
)
|
|
|
(55
|
)
|
|
|
(278
|
)
|
|
|
224
|
|
Provision (benefit) for taxes on income (loss)
|
|
|
3
|
|
|
|
|
4
|
|
|
|
7
|
|
|
|
(4
|
)
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests share and
cumulative effect of accounting change
|
|
|
33
|
|
|
|
|
(98
|
)
|
|
|
(62
|
)
|
|
|
(274
|
)
|
|
|
117
|
|
Minority interests share
|
|
|
(5
|
)
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before cumulative effect of accounting change
|
|
|
28
|
|
|
|
|
(97
|
)
|
|
|
(64
|
)
|
|
|
(275
|
)
|
|
|
96
|
|
Cumulative effect of accounting change net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
28
|
|
|
|
|
(97
|
)
|
|
|
(64
|
)
|
|
|
(275
|
)
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) net of tax
Currency translation adjustment
|
|
|
26
|
|
|
|
|
35
|
|
|
|
11
|
|
|
|
168
|
|
|
|
(155
|
)
|
Change in fair value of effective portion of hedges
net
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
(46
|
)
|
|
|
|
|
Postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Change in pension and other benefits
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) net of tax
|
|
|
13
|
|
|
|
|
33
|
|
|
|
15
|
|
|
|
134
|
|
|
|
(172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
41
|
|
|
|
$
|
(64
|
)
|
|
$
|
(49
|
)
|
|
$
|
(141
|
)
|
|
$
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$
|
0.00
|
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.20
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information for 2005 only:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the consolidated and combined results
of Novelis from January 6 to December 31, 2005
increase to Retained earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
119
|
|
Net loss attributable to the combined results of Novelis from
January 1 to January 5, 2005 decrease to
Owners net investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to the consolidated and combined
financial statements
are an integral part of these statements.
101
Novelis
Inc.
CONSOLIDATED
BALANCE SHEETS
(In
millions, except number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
ASSETS
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
326
|
|
|
|
$
|
128
|
|
Accounts receivable (net of allowances of $1 and $29 as of
March 31, 2008 and 2007, respectively)
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1,248
|
|
|
|
|
1,350
|
|
related parties
|
|
|
31
|
|
|
|
|
25
|
|
Inventories
|
|
|
1,455
|
|
|
|
|
1,483
|
|
Prepaid expenses and other current assets
|
|
|
58
|
|
|
|
|
39
|
|
Current portion of fair value of derivative instruments
|
|
|
203
|
|
|
|
|
92
|
|
Deferred income tax assets
|
|
|
125
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,446
|
|
|
|
|
3,136
|
|
Property, plant and equipment net
|
|
|
3,365
|
|
|
|
|
2,106
|
|
Goodwill
|
|
|
2,157
|
|
|
|
|
239
|
|
Intangible assets net
|
|
|
888
|
|
|
|
|
20
|
|
Investment in and advances to non-consolidated affiliates
|
|
|
917
|
|
|
|
|
153
|
|
Fair value of derivative instruments net of current
portion
|
|
|
21
|
|
|
|
|
55
|
|
Deferred income tax assets
|
|
|
9
|
|
|
|
|
102
|
|
Other long-term assets
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
102
|
|
|
|
|
105
|
|
related parties
|
|
|
41
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,946
|
|
|
|
$
|
5,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
15
|
|
|
|
$
|
143
|
|
Short-term borrowings
|
|
|
115
|
|
|
|
|
245
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1,582
|
|
|
|
|
1,614
|
|
related parties
|
|
|
55
|
|
|
|
|
49
|
|
Accrued expenses and other current liabilities
|
|
|
850
|
|
|
|
|
480
|
|
Deferred income tax liabilities
|
|
|
39
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,656
|
|
|
|
|
2,604
|
|
Long-term debt net of current portion
|
|
|
2,560
|
|
|
|
|
2,157
|
|
Deferred income tax liabilities
|
|
|
952
|
|
|
|
|
103
|
|
Accrued postretirement benefits
|
|
|
421
|
|
|
|
|
427
|
|
Other long-term liabilities
|
|
|
670
|
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,259
|
|
|
|
|
5,643
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests in equity of consolidated affiliates
|
|
|
149
|
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, no par value; unlimited number of shares
authorized; 77,459,658 and 75,357,660 shares issued and
outstanding as of March 31, 2008 and 2007, respectively
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
3,497
|
|
|
|
|
428
|
|
Retained earnings (Accumulated deficit)
|
|
|
28
|
|
|
|
|
(263
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
13
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
3,538
|
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
10,946
|
|
|
|
$
|
5,970
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to the consolidated and combined
financial statements
are an integral part of these statements.
102
Novelis
Inc.
CONSOLIDATED
AND COMBINED STATEMENTS OF CASH FLOWS
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16,
|
|
|
|
April 1,
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
2007
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
|
May 15,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
28
|
|
|
|
$
|
(97
|
)
|
|
$
|
(64
|
)
|
|
$
|
(275
|
)
|
|
$
|
90
|
|
Adjustments to determine net cash provided by (used in)
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting change net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Depreciation and amortization
|
|
|
367
|
|
|
|
|
28
|
|
|
|
58
|
|
|
|
233
|
|
|
|
230
|
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
(22
|
)
|
|
|
|
(20
|
)
|
|
|
(30
|
)
|
|
|
(63
|
)
|
|
|
(269
|
)
|
Litigation settlement net of insurance recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Deferred income taxes
|
|
|
(74
|
)
|
|
|
|
(18
|
)
|
|
|
(9
|
)
|
|
|
(77
|
)
|
|
|
30
|
|
Amortization of debt issuance costs
|
|
|
10
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
13
|
|
|
|
17
|
|
Write-off and amortization of fair value adjustments
net
|
|
|
(221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for uncollectible accounts receivable
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
3
|
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
4
|
|
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(16
|
)
|
|
|
(6
|
)
|
Dividends from non-consolidated affiliates
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
Minority interests share
|
|
|
5
|
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
1
|
|
|
|
21
|
|
Impairment charges on long-lived assets
|
|
|
1
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
7
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
9
|
|
|
|
3
|
|
(Gain) loss on sales of businesses, investments, and
assets net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(17
|
)
|
Changes in assets and liabilities (net of effects from
acquisitions and divestitures):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
182
|
|
|
|
|
(21
|
)
|
|
|
(25
|
)
|
|
|
(142
|
)
|
|
|
(91
|
)
|
related parties
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
Inventories
|
|
|
208
|
|
|
|
|
(76
|
)
|
|
|
(95
|
)
|
|
|
(206
|
)
|
|
|
52
|
|
Prepaid expenses and other current assets
|
|
|
(8
|
)
|
|
|
|
(7
|
)
|
|
|
3
|
|
|
|
25
|
|
|
|
18
|
|
Other long-term assets
|
|
|
(30
|
)
|
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
6
|
|
|
|
(13
|
)
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(11
|
)
|
|
|
|
(62
|
)
|
|
|
73
|
|
|
|
519
|
|
|
|
181
|
|
related parties
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
5
|
|
|
|
4
|
|
|
|
2
|
|
Accrued expenses and other current liabilities
|
|
|
(68
|
)
|
|
|
|
42
|
|
|
|
(22
|
)
|
|
|
(64
|
)
|
|
|
134
|
|
Accrued postretirement benefits
|
|
|
23
|
|
|
|
|
1
|
|
|
|
4
|
|
|
|
(24
|
)
|
|
|
13
|
|
Other long-term liabilities
|
|
|
18
|
|
|
|
|
(2
|
)
|
|
|
9
|
|
|
|
69
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
405
|
|
|
|
|
(230
|
)
|
|
|
(87
|
)
|
|
|
16
|
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(185
|
)
|
|
|
|
(17
|
)
|
|
|
(24
|
)
|
|
|
(116
|
)
|
|
|
(178
|
)
|
Disposal of business net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
Proceeds from sales of assets
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
19
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
24
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
Proceeds from loans receivable net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
related parties
|
|
|
18
|
|
|
|
|
|
|
|
|
1
|
|
|
|
37
|
|
|
|
374
|
|
Net proceeds from settlement of derivative instruments
|
|
|
37
|
|
|
|
|
18
|
|
|
|
24
|
|
|
|
238
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(98
|
)
|
|
|
|
2
|
|
|
|
2
|
|
|
|
193
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
103
Novelis
Inc.
CONSOLIDATED
AND COMBINED STATEMENTS OF CASH
FLOWS (Continued)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16,
|
|
|
|
April 1,
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
2007
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
|
May 15,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
1,100
|
|
|
|
|
150
|
|
|
|
|
|
|
|
41
|
|
|
|
2,779
|
|
Principal repayments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(1,009
|
)
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(353
|
)
|
|
|
(1,822
|
)
|
related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,180
|
)
|
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(241
|
)
|
|
|
|
60
|
|
|
|
113
|
|
|
|
103
|
|
|
|
(145
|
)
|
related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(302
|
)
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
(27
|
)
|
minority interests
|
|
|
(1
|
)
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(15
|
)
|
|
|
(7
|
)
|
Net receipts from Alcan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
72
|
|
Debt issuance costs
|
|
|
(37
|
)
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
(71
|
)
|
Proceeds from the exercise of stock options
|
|
|
|
|
|
|
|
1
|
|
|
|
27
|
|
|
|
2
|
|
|
|
|
|
Windfall tax benefit on share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(96
|
)
|
|
|
|
201
|
|
|
|
140
|
|
|
|
(243
|
)
|
|
|
(703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
211
|
|
|
|
|
(27
|
)
|
|
|
55
|
|
|
|
(34
|
)
|
|
|
71
|
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
13
|
|
|
|
|
1
|
|
|
|
|
|
|
|
7
|
|
|
|
(2
|
)
|
Cash and cash equivalents beginning of period
|
|
|
102
|
|
|
|
|
128
|
|
|
|
73
|
|
|
|
100
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
326
|
|
|
|
$
|
102
|
|
|
$
|
128
|
|
|
$
|
73
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
200
|
|
|
|
$
|
13
|
|
|
$
|
84
|
|
|
$
|
201
|
|
|
$
|
153
|
|
Income taxes paid
|
|
|
64
|
|
|
|
|
9
|
|
|
|
18
|
|
|
|
68
|
|
|
|
39
|
|
Supplemental schedule of non-cash investing and financing
activities related to the Acquisition of Novelis Common Stock
(Note 2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$
|
(1,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(1,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in and advances to non-consolidated affiliates
|
|
|
(776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing
activities related to the 2005 spin-off transaction from Alcan
and post-closing adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
433
|
|
Short-term borrowings related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
Debt related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Capital lease obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(43
|
)
|
|
|
(109
|
)
|
Supplemental schedule of non-cash transaction
final purchase price allocation adjustment from Alcan related to
the 2004 Pechiney acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to net assets allocated to us from Alcan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to the consolidated and combined
financial statements
are an integral part of these statements.
104
Novelis
Inc.
CONSOLIDATED
AND COMBINED STATEMENTS OF SHAREHOLDERS/INVESTED EQUITY
(In
millions, except number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings/
|
|
|
Other
|
|
|
Owners
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
Net
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Income (Loss)
|
|
|
Investment
|
|
|
Total
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2004
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
88
|
|
|
$
|
467
|
|
|
$
|
555
|
|
2005 Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1 to January 5, 2005 Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Invested equity at spin-off date
January 6, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
438
|
|
|
|
526
|
|
Issuance of common stock in connection with the spin-off
|
|
|
73,988,933
|
|
|
|
|
|
|
|
438
|
|
|
|
|
|
|
|
|
|
|
|
(438
|
)
|
|
|
|
|
Spin-off settlement and post-closing adjustments
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Issuance of common stock in connection with stock plans
|
|
|
16,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 6 to December 31, 2005 Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155
|
)
|
|
|
|
|
|
|
(155
|
)
|
Postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
(17
|
)
|
Dividends on common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
Dividends on preferred shares of consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2005
|
|
|
74,005,649
|
|
|
|
|
|
|
|
425
|
|
|
|
92
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
433
|
|
2006 Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(275
|
)
|
|
|
|
|
|
|
|
|
|
|
(275
|
)
|
Issuance of common stock in connection with stock plans
|
|
|
134,686
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Spin-off settlement and post-closing adjustments
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
|
|
|
|
|
|
|
|
168
|
|
Change in fair value of effective portion of hedges
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
(46
|
)
|
Postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
Initial impact of adopting Financial Accounting Standards Board
Statement No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
(55
|
)
|
Dividends on common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
|
74,140,335
|
|
|
|
|
|
|
|
398
|
|
|
|
(198
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
195
|
|
Activity for Three Months Ended March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for uncertain tax positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
(64
|
)
|
Issuance of common stock from the exercise of stock options
|
|
|
1,217,325
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Windfall tax benefit on share-based compensation
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
Change in fair value of effective portion of hedges
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2007
|
|
|
75,357,660
|
|
|
|
|
|
|
|
428
|
|
|
|
(263
|
)
|
|
|
10
|
|
|
|
|
|
|
|
175
|
|
(Continued)
105
Novelis
Inc.
CONSOLIDATED
AND COMBINED STATEMENTS OF SHAREHOLDERS/INVESTED
EQUITY (Continued)
(In millions, except number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings/
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity April 1, 2007 through May 15, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97
|
)
|
|
|
|
|
|
|
(97
|
)
|
Issuance of common stock from the exercise of stock options
|
|
|
57,876
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Conversion of share-based compensation plans from equity-based
plans to liability-based plans
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
35
|
|
Change in fair value of effective portion of hedges
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of May 15, 2007
|
|
|
75,415,536
|
|
|
$
|
|
|
|
$
|
422
|
|
|
$
|
(360
|
)
|
|
$
|
43
|
|
|
$
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of May 16, 2007
|
|
|
75,415,536
|
|
|
$
|
|
|
|
$
|
3,405
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,405
|
|
Activity May 16, 2007 through March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
28
|
|
Issuance of additional common stock
|
|
|
2,044,122
|
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
26
|
|
Change in fair value of effective portion of hedges
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other benefits adjustment, net of tax effect of $(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2008
|
|
|
77,459,658
|
|
|
$
|
|
|
|
$
|
3,497
|
|
|
$
|
28
|
|
|
$
|
13
|
|
|
$
|
3,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to the consolidated and combined
financial statements
are an integral part of these statements.
106
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
1.
|
BUSINESS
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
References herein to Novelis, the
Company, we, our, or
us refer to Novelis Inc. and its subsidiaries unless
the context specifically indicates otherwise. References herein
to Hindalco refer to Hindalco Industries Limited. In
October 2007, the Rio Tinto Group purchased all the outstanding
shares of Alcan, Inc. References herein to Alcan
refer to Rio Tinto Alcan Inc.
Organization
and Description of Business
Novelis Inc., formed in Canada on September 21, 2004, and
its subsidiaries, is the worlds leading aluminum rolled
products producer based on shipment volume. We produce aluminum
sheet and light gauge products where the end-use destination of
the products includes the construction and industrial, beverage
and food cans, foil products and transportation markets. As of
March 31, 2008, we had operations on four continents: North
America; South America; Asia; and Europe, through 33 operating
plants and four research facilities in 11 countries. In addition
to aluminum rolled products plants, our South American
businesses include bauxite mining, alumina refining, primary
aluminum smelting and power generation facilities that are
integrated with our rolling plants in Brazil.
On May 18, 2004, Alcan announced its intention to transfer
its rolled products businesses into a separate company and to
pursue a spin-off of that company 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. On
January 6, 2005, Alcan and its subsidiaries contributed and
transferred to Novelis substantially all of the aluminum rolled
products businesses operated by Alcan, 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 rolling facilities in Europe
whose end-use markets and customers were similar.
The spin-off occurred on January 6, 2005, following
approval by Alcans board of directors and shareholders,
and legal and regulatory approvals. Alcan shareholders received
one Novelis common share for every five Alcan common shares
held. Our common shares 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.
Prior to January 6, 2005, Alcan was considered a related
party due to its parent-subsidiary relationship with the Novelis
entities. Following the spin-off, Alcan is no longer a related
party as defined in Financial Accounting Standards Board (FASB)
Statement No. 57, Related Party Disclosures.
Post-Transaction
Adjustments
The agreements giving effect to the spin-off provide for various
post-transaction adjustments and the resolution of outstanding
matters. On November 8, 2006, we executed a settlement
agreement with Alcan resolving the working capital and cash
balance adjustments to our opening balance sheet and issues
relating to the transfer of U.S. pension assets and
liabilities from Alcan to Novelis. In October 2007, we completed
the transfer of U.K. plan assets and liabilities. As of
March 31, 2008, there remained an outstanding matter
related to pension plans in Canada for those employees who
elected to transfer their past service to Novelis. We expect the
transfer of pension assets and liabilities in Canada to be
completed by June 30, 2008, and we expect that the plan
assets transferred will approximate the liabilities assumed. To
the extent that differences between transferred plan assets and
liabilities exist, we will record an adjustment to goodwill.
107
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Agreements
between Novelis and Alcan
At the spin-off, we entered into various agreements with Alcan
including the use of transitional and technical services, the
supply from Alcan of 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 our business. The terms and
conditions of the agreements were determined primarily by Alcan
and 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
favorable, or less favorable to us.
Acquisition
of Novelis Common Stock and Predecessor and Successor
Reporting
On May 15, 2007, the Company was acquired by Hindalco
through its indirect wholly-owned subsidiary AV Metals Inc.
(Acquisition Sub) pursuant to a plan of arrangement (the
Arrangement) entered into on February 10, 2007 and approved
by the Ontario Superior Court of Justice on May 14, 2007
(see Note 2 Acquisition of Novelis Common
Stock).
Subsequent to completion of the Arrangement on May 15,
2007, all of our common shares were indirectly held by Hindalco.
We are a domestic issuer for purposes of the Securities Exchange
Act of 1934, as amended, because our 7.25% senior unsecured
debt securities are registered with the Securities and Exchange
Commission.
Our acquisition by Hindalco was recorded in accordance with
Staff Accounting Bulletin (SAB) No. 103, Push Down Basis
of Accounting Required in Certain Limited Circumstances
(SAB No. 103). Accordingly, in the accompanying
March 31, 2008 consolidated balance sheet, the
consideration and related costs paid by Hindalco in connection
with the acquisition have been pushed down to us and
have been allocated to the assets acquired and liabilities
assumed in accordance with FASB Statement No. 141,
Business Combinations. Due to the impact of push down
accounting, the Companys consolidated financial statements
and certain note presentations for our fiscal year ended
March 31, 2008 are presented in two distinct periods to
indicate the application of two different bases of accounting
between the periods presented: (1) the period up to, and
including, the acquisition date (April 1, 2007 through
May 15, 2007, labeled Predecessor) and
(2) the period after that date (May 16, 2007 through
March 31, 2008, labeled Successor). All periods
including and prior to the three months ended March 31,
2007 are also labeled Predecessor. The accompanying
consolidated and combined financial statements include a black
line division which indicates that the Predecessor and Successor
reporting entities shown are not comparable.
To estimate fair values for the allocation of assets acquired
and liabilities assumed, we considered a number of factors,
including the application of multiples to discounted cash flow
estimates. There is considerable management judgment with
respect to cash flow estimates and appropriate multiples used in
determining fair value.
Change
in Fiscal Year End
On June 26, 2007, our board of directors approved the
change of our fiscal year end to March 31 from December 31.
On June 28, 2007, we filed a Transition Report on
Form 10-Q
for the three month period ended March 31, 2007 with the
United States Securities and Exchange Commission (SEC) pursuant
to
Rule 13a-10
under the Securities Exchange Act of 1934 for transition period
reporting. Accordingly, these consolidated and combined
financial statements present our financial position as of
March 31, 2008 and 2007, and the results of our operations,
cash flows and changes in shareholders/invested equity for
the periods from May 16, 2007 through March 31, 2008
and from April 1, 2007 through May 15, 2007, the three
months ended March 31, 2007 and the years ended
December 31, 2006 and 2005.
108
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Change
in Impairment Testing Datet
During the quarter ended December 31, 2007, we changed our
method of applying FASB Statement No. 142, Goodwill and
Other Intangible Assets by changing the date of our annual
testing for goodwill impairment from October 31 to the last day
in February of each year. We believe the change is preferable in
the circumstances due to (1) the change in our fiscal year
end from December 31 to March 31 and (2) our normal
business process for updating the Companys annual and
strategic plans, which we finalize each year during our fourth
fiscal quarter. This change had no impact on our consolidated
financial position, results of operations or cash flows.
Basis
of Presentation, Consolidation and Combination: Year Ended
December 31, 2005
Our consolidated and combined statements of operations, cash
flows and shareholders/invested equity for the year ended
December 31, 2005 include the period from January 1,
2005 to January 5, 2005 (the pre-spin results), which
represents our combined results of operations, cash flows and
changes in shareholders/invested equity on a carve-out
accounting basis, prior to our spin-off from Alcan.
The pre-spin results were 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, and were prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP) on a carve-out accounting basis. Management
believes the assumptions underlying the pre-spin results are
reasonable. Alcans investment in the Novelis businesses,
presented as Owners net investment in the
accompanying consolidated and combined financial statements,
includes the accumulated earnings of the businesses as well as
net cash transfers related to cash management functions
performed by Alcan.
Our consolidated statements of operations, cash flows and
shareholders equity for the period from January 6,
2005 (the date of the spin-off) to December 31, 2005
represent our results of operations, cash flows and changes in
shareholders equity as a stand-alone entity.
Consolidation
Policy
Beginning January 6, 2005, our consolidated and combined
financial statements include the assets, liabilities, revenues
and expenses of all wholly-owned subsidiaries, majority-owned
subsidiaries over which we exercise control and entities in
which we have a controlling financial interest.
As of March 31, 2008, we had investments in five
partially-owned affiliates, which include two corporations, one
public limited company, one limited liability company and one
unincorporated joint venture, in which Novelis Inc. or one of
our subsidiaries is a shareholder, general or limited partner,
member or venturer, as applicable.
To determine if partially-owned affiliates should be
consolidated, we evaluate them in accordance with the provisions
of American Institute of Certified Public Accountants (AICPA)
Statement of Position (SOP)
78-9,
Accounting for Investments in Real Estate Ventures, and
Emerging Issues Task Force (EITF) Issue
No. 98-6,
Investors Accounting for an Investment in a Limited
Partnership When the Investor Is the Sole General Partner and
the Limited Partners Have Certain Approval or Veto Rights,
to determine whether the rights held by other investors
constitute important rights as defined therein.
For general partners of all new limited partnerships formed and
for existing limited partnerships for which the partnership
agreements were modified on or subsequent to June 29, 2005,
we evaluate partially owned subsidiaries and joint ventures held
in partnership form using the guidance in EITF Issue
No. 04-5,
Investors Accounting for an Investment in a Limited
Partnership When the Investor Is the Sole General Partner and
the Limited Partners Have Certain Rights, which includes a
framework for evaluating whether a
109
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
general partner or a group of general partners controls a
limited partnership and therefore should include it in
consolidation.
In January 2003, FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, was issued.
It was revised in December 2003 by FASB Interpretation
No. 46 (Revised), which addresses the consolidation of
business enterprises to which the usual condition (ownership of
a majority voting interest) of consolidation does not apply. In
2004, we determined we were the primary beneficiary of Logan
Aluminum Inc. (Logan), a variable interest entity. As a result,
our consolidated and combined financial statements include the
assets and liabilities and results of operations of Logan. Logan
is a joint venture that manages a tolling (the conversion of
customer-owned metal) arrangement for Novelis and a third party.
For partially-owned affiliates or joint ventures held in
corporate form, we utilize the guidance of FASB Statement
No. 94, Consolidation of All Majority-Owned
Subsidiaries, and EITF Issue
No. 96-16,
Investors Accounting for an Investee When the Investor
Has a Majority of the Voting Interest but the Minority
Shareholder or Shareholders Have Certain Approval or Veto
Rights. To the extent that any minority investor has
important rights in a partnership or participating rights in a
corporation that inhibit our ability to control the corporation,
including substantive veto rights, we will not include the
entity in consolidation.
We use the equity method to account for our investments in
entities that we do not control, but where we have the ability
to exercise significant influence over operating and financial
policies. Consolidated net income (loss) includes our share of
the net earnings (losses) of these entities. The difference
between consolidation and the equity method impacts certain of
our financial ratios because of the presentation of the detailed
line items reported in the consolidated and combined financial
statements for consolidated entities, compared to a two-line
presentation of equity method investments and net earnings
(losses).
We use the cost method to account for our investments in
entities that we do not control and for which we do not have the
ability to exercise significant influence over operating and
financial policies. These investments are recorded at the lower
of their cost or fair value.
We eliminate all significant intercompany accounts and
transactions from our financial statements.
Cumulative
Effect of Accounting Change
On December 31, 2005, we adopted FASB Interpretation
No. 47, Accounting for Conditional Asset Retirement
Obligations. As a result of our adopting FASB Interpretation
No. 47, we identified conditional retirement obligations
primarily related to environmental contamination of equipment
and buildings at certain of our plants and administrative sites
in North America, South America, Asia and Europe. See
Note 6 Property, Plant and Equipment.
Use of
Estimates and Assumptions
The preparation of our consolidated and combined financial
statements in conformity with GAAP requires us to make estimates
and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and the disclosures
of contingent assets and liabilities as of the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Significant estimates and
assumptions are used for, but are not limited to: (1) fair
value of derivative financial instruments; (2) asset
impairments, including goodwill; (3) depreciable lives of
assets; (4) useful lives of intangible assets;
(5) economic lives and fair value of leased assets;
(6) income tax reserves and valuation allowances;
(7) fair value of share-based compensation awards;
(8) actuarial assumptions related to pension and other
postretirement benefit plans; (9) environmental cost
reserves; (10) the determination and allocation of the fair
value of assets acquired and liabilities assumed in connection
with our acquisition by Hindalco and (11) litigation
reserves. Future events and their effects cannot be predicted
with certainty, and accordingly, our accounting estimates
require the exercise of judgment. The accounting estimates used
in the preparation of our
110
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
consolidated and combined financial statements will change as
new events occur, as more experience is acquired, as additional
information is obtained and as our operating environment
changes. We evaluate and update our assumptions and estimates on
an ongoing basis and may employ outside experts to assist in our
evaluations. Actual results could differ from the estimates we
have used.
Risks
and Uncertainties
We are exposed to a number of risks in the normal course of our
operations that could potentially affect our financial position,
results of operations, and cash flows.
Laws
and regulations
We operate in an industry that is 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, the remediation of
environmental contamination and working conditions for our
employees. Some environmental laws, such as the
U.S. Comprehensive Environmental Response, Compensation,
and Liability Act, also known as CERCLA or Superfund, and
comparable state laws, impose joint and several liability for
the cost of environmental remediation, natural resource damages,
third party claims, and other expenses, without regard to the
fault or the legality of the original conduct, on those persons
who contributed to the release of a hazardous substance into the
environment.
The costs of complying with these laws and regulations,
including participation in assessments and remediation of
contaminated 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 associated with divested
assets, third party locations 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, 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, including certain activities and proceedings arising
under U.S. Superfund and comparable laws in other
jurisdictions where we have operations.
We have established reserves for environmental remediation
activities and liabilities where appropriate. However, the cost
of addressing 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 position or results of operations or cash
flows. Furthermore, the failure to comply with our obligations
under the environmental laws and regulations could subject us to
administrative, civil or criminal penalties, obligations to pay
damages or other costs, and injunctions or other orders,
including orders to cease operations. In addition, the presence
of environmental contamination at our properties could adversely
affect our ability to sell a property, receive full value for a
property or use a property as collateral for a loan.
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. Environmental laws typically provide for
participation in permitting decisions, site remediation
decisions and
111
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
other matters. Concern about environmental justice issues may
affect our operations. Should such community objections be
presented to government officials, 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 and may also have an effect on the cost of
our environmental remediation projects.
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. Because of the nature of these
substances or related residues, we may be liable for certain
costs, including, among others, costs for health-related claims
or removal or re-treatment of such substances. Certain of our
current and former facilities incorporate asbestos-containing
materials, a hazardous substance that has been the subject of
health-related claims for occupation exposure. In addition,
although we have developed environmental, health and safety
programs for our employees, including measures to reduce
employee exposure to hazardous substances, 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 financial position, results of operations and cash flows
could be adversely affected.
Materials
and labor
In the aluminum rolled products industry, our raw materials are
subject to continuous price volatility. 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 could 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 financial position, results of operations and cash flows.
Significant price increases may result in our customers
substituting other materials, such as plastic or glass, for
aluminum or switch to another aluminum rolled products producer,
which could have a material adverse effect on our financial
position, results of operations and cash flows.
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, but not limited to: (a) increases in
the cost of natural gas; (b) increases in the cost of
supplied electricity or fuel oil related to transportation;
(c) interruptions in energy supply due to equipment failure
or other causes and (d) the inability to extend energy
supply contracts upon expiration on economical terms. A
significant increase in energy costs or disruption of energy
supplies or supply arrangements could have a material impact on
our financial position, results of operations and cash flows.
Approximately three-quarters of our employees are represented by
labor 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
position, results of operations and cash flows.
112
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Geographic
markets
We are, and will continue to be, subject to financial,
political, economic and business risks in connection with our
global 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 labor
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 position,
results of operations and cash flows.
Other
risks and uncertainties
In addition, refer to Note 12 Fair Value of
Financial Instruments and Note 19 Commitments
and Contingencies for a discussion of financial instruments and
commitments and contingencies.
Reclassifications
Certain reclassifications of the prior period amounts and
presentation have been made to conform to the presentation
adopted for the current periods. The following reclassifications
and presentation changes were made to the prior periods
consolidated and combined statements of operations to conform to
the current period presentation: (a) the amounts previously
presented in Restructuring charges net and
Impairment charges on long-lived assets were reclassified
to Other (income) expenses net and (b)
(Gain) loss on change in fair value of derivative
instruments net and Sale transaction fees
were reclassified from Other (income)
expenses net to separate line items. These
reclassifications have no effect on total assets, total
shareholders/invested equity, net income (loss) or cash
flows as previously presented.
As a result of the acquisition by Hindalco, and based on the way
our President and Chief Operating Officer (our chief operating
decision-maker) reviews the results of segment operations,
during the period from May 16, 2007 through March 31,
2008, we changed our segment performance measure to Segment
Income, as defined in Note 20 Segment,
Geographical Area and Major Customer Information. All prior
periods have been reclassified to conform to this new measure.
Revenue
Recognition
We recognize sales when the revenue is realized or realizable,
and has been earned. We record sales when a firm sales agreement
is in place, delivery has occurred and collectibility of the
fixed or determinable sales price is reasonably assured.
We recognize product revenue, net of trade discounts and
allowances, in the reporting period in which the products are
shipped and the title and risk of ownership pass to the
customer. We generally ship our product to our customers FOB
(free on board) destination point. Our standard terms of
delivery are included in our contracts of sale, order
confirmation documents and invoices. We sell most of our
products under contracts based on a conversion
premium, which is subject to periodic adjustments based on
market factors. As a result, the aluminum price risk is largely
absorbed by the customer. In situations where we offer customers
113
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
fixed prices for future delivery of our products, we may enter
into derivative instruments for all or a portion of the cost of
metal inputs to protect our profit on the conversion of the
product. In addition, certain of our sales contracts provide for
a ceiling over which metal prices cannot contractually be passed
through to our customers, unless adjusted. We partially mitigate
the risk of this metal price exposure through the purchase of
derivative instruments.
We record tolling revenue when the revenue is realized or
realizable, and has been earned. Tolling refers to the process
by which certain customers provide metal to us for conversion to
rolled product. We do not take title to the metal and, after the
conversion and return shipment of the rolled product to the
customer, we charge them for the value-added conversion cost and
record these amounts in Net sales.
Shipping and handling amounts we bill to our customers are
included in Net sales and the related shipping and
handling costs we incur are included in Cost of goods
sold.
Cash
and Cash Equivalents
Cash and cash equivalents includes investments that are
highly liquid and have maturities of three months or less when
purchased. The carrying values of cash and cash equivalents
approximate their fair value due to the short-term nature of
these instruments.
We maintain amounts on deposit with various financial
institutions, which may, at times, exceed federally insured
limits. However, management periodically evaluates the
credit-worthiness of those institutions, and we have not
experienced any losses on such deposits.
Accounts
Receivable
Our accounts receivable are geographically dispersed. We do not
obtain collateral or other forms of security relating to our
accounts receivable. We do not believe there are any significant
concentrations of revenues from any particular customer or group
of customers that would subject us to any significant credit
risks in the collection of our accounts receivable. We report
accounts receivable at the estimated net realizable amount we
expect to collect from our customers.
Additions to the allowance for doubtful accounts are made by
means of the provision for doubtful accounts. We write-off
uncollectible accounts receivable against the allowance for
doubtful accounts after exhausting collection efforts.
For each of the periods presented, we performed an analysis of
our historical cash collection patterns and considered the
impact of any known material events in determining the allowance
for doubtful accounts. In performing the analysis, the impact of
any adverse changes in general economic conditions was
considered, and for certain customers we reviewed a variety of
factors including: past due receivables; macro-economic
conditions; significant one-time events and historical
experience. Specific reserves for individual accounts may be
established due to a customers inability to meet their
financial obligations, such as in the case of bankruptcy filings
or the deterioration in a customers operating results or
financial position. As circumstances related to customers
change, we adjust our estimates of the recoverability of the
accounts receivable.
Derivative
Instruments
We utilize derivative instruments to manage our exposure to
changes in foreign currency exchange rates, commodity prices and
interest rates. The fair values of all derivative instruments
are recognized as assets or liabilities at the balance sheet
date. Changes in the fair value of these instruments are
recognized as (Gain) loss on change in fair value of
derivative instruments net and included in our
consolidated and combined statements of operations or included
in Accumulated other comprehensive income (loss) (AOCI)
on our consolidated balance sheet, depending on the nature or
use of the derivative and whether it qualifies for hedge
114
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
accounting treatment under the provisions of FASB Statement
No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended.
Gains and losses on derivative instruments qualifying as cash
flow hedges are included, to the extent the hedges are
effective, in AOCI, until the underlying transactions are
recognized as gains or losses and included in our consolidated
and combined statements of operations. Gains and losses on
derivative instruments used as hedges of our net investment in
foreign operations are included, net of taxes, to the extent the
hedges are effective, in AOCI as part of the cumulative
translation adjustment (CTA). The ineffective portions of cash
flow hedges and hedges of net investments in foreign operations,
if any, are recognized as gains or losses and included in our
consolidated and combined statements of operations, in (Gain)
loss on change in fair value of derivative instruments
net in the current period.
Inventories
We carry our inventories at the lower of their cost or market
value, reduced by reserves for excess and obsolete items. We use
both the average cost and
first-in
/first-out methods to determine cost.
Property,
Plant and Equipment
We report land, buildings, leasehold improvements and machinery
and equipment at cost. We report assets under capital lease
obligations at the lower of their fair value or the present
value of the aggregate future minimum lease payments as of the
beginning of the lease term. We depreciate our assets using the
straight-line method over the shorter of the estimated useful
life of the assets or the lease term, excluding any lease
renewals, unless the lease renewals are reasonably assured. As a
result of the Arrangement, we report land, building, leasehold
improvements and machinery and equipment as of May 16, 2007
at fair value (see Note 2 Acquisition of
Novelis Common Stock).
The ranges of estimated useful lives are as follows:
|
|
|
|
|
|
|
Years
|
|
|
Buildings
|
|
|
30 to 40
|
|
Leasehold improvements
|
|
|
7 to 20
|
|
Machinery and equipment
|
|
|
5 to 25
|
|
Furniture, fixtures and equipment
|
|
|
3 to 10
|
|
Equipment under capital lease obligations
|
|
|
6 to 15
|
|
Maintenance and repairs of property and equipment are expensed
as incurred. We capitalize replacements and improvements that
increase the estimated useful life of an asset and we capitalize
interest on major construction and development projects while in
progress.
We retain fully depreciated assets in property and accumulated
depreciation accounts until we remove them from service. In the
case of sale, retirement or disposal, the asset cost and related
accumulated depreciation balances are removed from the
respective accounts, and the resulting net amount, less any
proceeds, is included as a gain or loss in Other (income)
expenses net in our consolidated and combined
statements of operations.
We account for operating leases under the provisions of FASB
Statement No. 13, Accounting for Leases, and FASB
Technical
Bulletin No. 85-3,
Accounting for Operating Leases with Scheduled Rent
Increases. These pronouncements require us to recognize
escalating rents, including any rent holidays, on a
straight-line basis over the term of the lease for those lease
agreements where we receive the right to control the use of the
entire leased property at the beginning of the lease term.
115
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Goodwill
We account for goodwill under the guidance in FASB Statement
No. 141, Business Combinations and FASB Statement
No. 142, Goodwill and Other Intangible Assets.
We test goodwill for impairment using a fair value approach at
the reporting unit level. We use our operating segments as our
reporting units. We test for impairment at least annually during
the fourth quarter of each fiscal year, unless some triggering
event occurs that would require an impairment assessment. During
the quarter ended December 31, 2007, we changed our method
of applying FASB Statement No. 142 by changing the date of
our annual testing for goodwill impairment from October 31 to
the last day in February of each year. We believe the change is
preferable in the circumstances due to (1) the change in
our fiscal year end from December 31 to March 31 and
(2) our normal business process for updating the
Companys annual and strategic plans, which we finalize
each year during our fourth fiscal quarter. This change had no
impact on our consolidated financial position, results of
operations or cash flows.
We use the present value of estimated future cash flows to
establish the estimated fair value of our reporting units as of
the testing dates. This approach includes many assumptions
related to future growth rates, discount factors and tax rates,
among other considerations. Changes in economic and operating
conditions impacting these assumptions could result in goodwill
impairment in future periods. When available and as appropriate,
we use comparative market multiples to corroborate the estimated
fair value. If the carrying amount of a reporting units
goodwill were to exceed its estimated fair value, we would
recognize an impairment charge in Other (income) expenses
net in our consolidated and combined statements
of operations.
When a business within a reporting unit is disposed of, goodwill
is allocated to the gain or loss on disposition using the
relative fair value methodology of FASB Statement No. 142.
Long-Lived
Assets and Other Intangible Assets
In accordance with FASB Statement No. 142, we amortize the
cost of intangible assets over their respective estimated useful
lives to their estimated residual value.
Under the guidance in FASB Statement No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, we
assess the recoverability of long-lived assets (excluding
goodwill) and definite-lived intangible assets, whenever events
or changes in circumstances indicate that we may not be able to
recover the assets carrying amount. We measure the
recoverability of assets to be held and used by a comparison of
the carrying amount of the asset (groups) to the expected,
undiscounted future net cash flows to be generated by that asset
(groups), or, for identifiable intangible assets, by determining
whether the amortization of the intangible asset balance over
its remaining life can be recovered through undiscounted future
cash flows. The amount of impairment of identifiable intangible
assets is based on the present value of estimated future cash
flows. We measure the amount of impairment of other long-lived
assets (excluding goodwill) as the amount by which the carrying
value of the asset exceeds the fair value of the asset, which is
generally determined as the present value of estimated future
cash flows or as the appraised value. If the carrying amount of
an intangible asset were to exceed its fair value, we would
recognize an impairment charge in Other (income)
expenses net in our consolidated and combined
statements of operations.
We continue to amortize long-lived assets to be disposed of
other than by sale. We carry long-lived assets to be disposed of
by sale in our consolidated balance sheets at the lower of net
book value or the fair value less cost to sell, and we cease
depreciation.
116
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Investment
in and Advances to Non-Consolidated Affiliates
Investments in entities in which we have the ability to exercise
significant influence over the operating and financial policies
of the investee and are not the primary beneficiary are
accounted for under the equity method. Equity method investments
are recorded at original cost and adjusted periodically to
recognize our proportionate share of the investees net
income or losses after the date of investment; additional
contributions made and dividends or distributions received; and
other than temporary impairment losses resulting from
adjustments to net realizable value. We record equity method
losses in excess of the carrying amount of an investment when we
guarantee obligations or we are otherwise committed to provide
further financial support to the affiliate.
We use the cost method to account for equity investments for
which the equity securities do not have readily determinable
fair values, for which we do not have the ability to exercise
significant influence and for which we are not the primary
beneficiary. Under the cost method of accounting, private equity
investments are carried at cost and are adjusted only for
other-than-temporary declines in fair value and additional
investments.
Management assesses the potential for other than temporary
impairment of our equity method and cost method investments. We
consider all available information, including the recoverability
of the investment, the earnings and near-term prospects of the
affiliate, factors related to the industry, conditions of the
affiliate, and our ability, if any, to influence the management
of the affiliate. We assess fair value based on valuation
methodologies, as appropriate, including the present value of
estimated future cash flows, estimates of sales proceeds, and
external appraisals. If an investment is considered to be
impaired and the decline in value is other than temporary, we
record an appropriate write-down.
Guarantees
We account for certain guarantees in accordance with FASB
Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FASB Interpretation
No. 45 requires that a guarantor recognize a liability for
the fair value of obligations undertaken at the inception of a
guarantee.
Financing
Costs and Interest Income
We amortize financing costs and premiums, and accrete discounts,
over the remaining life of the related debt using the
effective interest amortization and straight-line
methods. The related income or expense is included in
Interest expense and amortization of debt issuance
costs net in our consolidated and combined
statements of operations. We record discounts or premiums as a
direct deduction from, or addition to, the face amount of the
financing.
We net interest income earned against interest expense and
include both in Interest expense and amortization of debt
issuance costs net in our consolidated and
combined statements of operations.
Fair
Value of Financial Instruments
FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, requires disclosures of the fair
value of financial instruments. Our financial instruments
include: cash and cash equivalents; certificates of deposit;
accounts receivable; accounts payable; foreign currency, energy
and interest rate derivative instruments; cross-currency swaps;
metal option and forward contracts; related party notes
receivable and payable; letters of credit; short-term borrowings
and long-term debt.
The carrying amounts of cash and cash equivalents, certificates
of deposit, accounts receivable, accounts payable and current
related party notes receivable and payable approximate their
fair value because of the short-term maturity and highly liquid
nature of these instruments. The fair value of our letters of
credit is
117
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
deemed to be the amount of payment guaranteed on our behalf by
third party financial institutions. We determine the fair value
of our short-term borrowings and long-term debt based on various
factors including maturity schedules, call features and current
market rates. We also use quoted market prices, when available,
or the present value of estimated future cash flows to determine
fair value of short-term borrowings and long-term debt. When
quoted market prices are not available for various types of
financial instruments (such as currency, energy and interest
rate derivative instruments, swaps, options and forward
contracts), we use standard pricing models with market-based
inputs, which take into account the present value of estimated
future cash flows.
Pensions
and Postretirement Benefits
We account for our pensions and other postretirement benefits in
accordance with FASB Statements No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans, No. 87, Employers Accounting for
Pensions, and No. 106, Employers Accounting
for Postretirement Benefits Other than Pensions. We adopted
FASB Statement No. 158 for the year ended December 31,
2006. FASB Statement No. 158 requires us to recognize the
funded status of our benefit plans as a net asset or liability,
with an offsetting adjustment to AOCI in shareholders
equity. The funded status is calculated as the difference
between the fair value of plan assets and the benefit
obligation. Prior to and including the three months ended
March 31, 2007, we used a December 31 measurement date for
our pension and postretirement plans. As a result of our
acquisition by Hindalco and the application of push down
accounting, our pension and postretirement plans were remeasured
as of May 16, 2007. For the period ended March 31,
2008, we used March 31, 2008 as the measurement date.
We use standard actuarial methods and assumptions to account for
our pension and other postretirement benefit plans. Pension and
postretirement benefit obligations are actuarially calculated
using managements best estimates of expected service
periods, salary increases and retirement ages of employees.
Pension and postretirement 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 lives of plan participants.
Our pension obligations relate to funded defined benefit pension
plans in the U.S., Canada and the U.K., unfunded pension plans
in Germany, and unfunded lump sum indemnities in France, South
Korea, Malaysia and Italy. Our other postretirement obligations
include unfunded healthcare and life insurance benefits provided
to retired employees in Canada, the U.S. and Brazil. These
pension and other postretirement benefits are managed regionally
and the plans funded status and costs are included in our
consolidated and combined financial statements.
Minority
Interests in Consolidated Affiliates
Our consolidated and combined financial statements include all
assets, liabilities, revenues and expenses of
less-than-100%-owned affiliates that we control or for which we
are the primary beneficiary. We record a minority interest for
the allocable portion of income or loss to which the minority
interest holders are entitled based upon their ownership share
of the affiliate. Distributions made to the holders of minority
interests are charged to the respective minority interest
balance.
We suspend allocation of losses to minority interest holders
when the minority interest balance for an affiliate is reduced
to zero and the minority interest holder does not have an
obligation to fund such losses. As of March 31, 2008, we
have no such losses. Any excess loss above the minority interest
balance is recognized by us in our statements of operations
until the affiliate begins earning income again, at which time
the minority interest holders share of the income is
offset against the previously unrecorded losses, and only
118
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
cumulative income in excess of the previously unrecorded losses
will be credited
and/or
distributed to the minority interest holder.
Environmental
Liabilities
We record accruals for environmental matters when it is probable
that a liability has been incurred and the amount of the
liability can be reasonably estimated, based on current law and
existing technologies. We adjust these accruals periodically as
assessment and remediation efforts progress or as additional
technical or legal information become available. Accruals for
environmental liabilities are stated at undiscounted amounts and
included in our consolidated balance sheets in both Accrued
expenses and other current liabilities and Other
long-term liabilities, depending on their short- or
long-term nature. Any receivables for related insurance or other
third party recoveries for environmental liabilities are
recorded when it is probable that a recovery will be realized
and are included in our consolidated balance sheets in
Prepaid expenses and other current assets.
Costs related to environmental contamination treatment and
clean-up are
charged to expense. Estimated future incremental operations,
maintenance and management costs directly related to remediation
are accrued in the period in which such costs are determined to
be probable and estimable.
Litigation
Reserves
FASB Statement No. 5, Accounting for Contingencies,
requires that we accrue for loss contingencies associated
with outstanding litigation, claims and assessments for which
management has determined it is probable that a loss contingency
exists and the amount of loss can be reasonably estimated. We
expense professional fees associated with litigation claims and
assessments as incurred.
Income
Taxes
We provide for income taxes using the asset and liability method
as required by FASB Statement No. 109, Accounting for
Income Taxes. This approach recognizes the amount of income
taxes payable or refundable for the current year, as well as
deferred tax assets and liabilities for the future tax
consequence of events recognized in the consolidated and
combined financial statements and income tax returns. Deferred
income tax assets and liabilities are adjusted to recognize the
effects of changes in tax laws or enacted tax rates. Under FASB
Statement No. 109, a valuation allowance is required when
it is more likely than not that some portion of the deferred tax
assets will not be realized. Realization is dependent on
generating sufficient future taxable income.
In connection with our spin-off from Alcan we entered into a tax
sharing and disaffiliation agreement that provides
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 spin-off. 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 spin-off and after the spin-off 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 creates mutual collaboration
obligations with respect to tax matters.
We are subject to income taxes in Canada and in numerous foreign
jurisdictions.
Dividends
We record dividends as payable on their declaration date with a
corresponding charge to retained earnings.
119
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Share-Based
Compensation
For the year ended December 31, 2005, we applied the fair
value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, using the
retroactive restatement method described in FASB Statement
No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. Under
the fair value recognition provisions of FASB Statement
No. 123, stock-based compensation cost is measured at the
grant date based on the value of the award and is recognized as
expense over the vesting period.
On January 1, 2006, we adopted FASB Statement No. 123
(Revised), Share-Based Payment (FASB Statement
No. 123(R)), which is a revision to FASB Statement
No. 123. FASB Statement No. 123 (R) requires the
recognition of compensation expense for a share-based award over
an employees requisite service period based on the
awards grant date fair value, subject to adjustment.
We adopted FASB Statement No. 123(R) using the modified
prospective method, which requires companies to record
compensation cost beginning with the effective date based on the
requirements of FASB Statement No. 123(R) for all
share-based payments granted after the effective date. All
awards granted to employees prior to the effective date of FASB
Statement No. 123(R) that remain unvested at the adoption
date will continue to be expensed over the remaining service
period. Additionally, we determined that all of our compensation
plans settled in cash are considered liability based awards. As
such, liabilities for awards under these plans are required to
be measured at each reporting date until the date of settlement.
Various valuation methods were used to determine the fair value
of these awards.
Prior to the adoption of FASB Statement No. 123(R), we
presented all tax benefits of deductions resulting from the
exercise of stock options within operating cash flows in the
consolidated and combined statements of cash flows. Beginning on
January 1, 2006, we changed our cash flow presentation in
accordance with FASB Statement No. 123(R), which requires
that the cash flows resulting from tax benefits for deductions
in excess of compensation cost recognized be classified within
financing cash flows.
Prior to January 1, 2006, we applied the intrinsic value
based method of accounting prescribed by Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations in accounting for
stock-based compensation plans settled in cash. We incurred a
liability when the vesting of the award became probable under
the guidance provided by FASB Interpretation No. 28,
Accounting for Stock Appreciation Rights and Other Variable
Stock Option or Award Plans. When variable plan awards were
granted, we measured compensation expense as the amount by which
the quoted market value of the shares of our stock covered by
the grant exceeded the option price or value specified, by
reference to a market price or otherwise, subject to any
appreciation limitations under the plan. Changes, either
increases or decreases, in the quoted market value of those
shares between the date of grant and the measurement date
resulted in a prospective change in the measurement of
compensation expense for the right or award.
Foreign
Currency Translation
In accordance with FASB Statement No. 52, Foreign
Currency Translation, the assets and liabilities of foreign
operations, whose functional currency is other than the
U.S. dollar (located principally in Europe and Asia), are
remeasured to U.S. dollars at the period end exchange rates
and revenues and expenses are remeasured at average exchange
rates for the period. Differences arising from exchange rate
changes are included in the CTA component of AOCI. If there is a
reduction in our ownership in a foreign operation, the relevant
portion of the CTA is recognized in Other (income)
expenses 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
remeasured at period exchange rates
120
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
and translation gains and losses are included in Other
(income) expenses net in our combined and
consolidated statements of operations. Non-monetary items are
translated at historical rates.
Research
and Development
We incur costs in connection with research and development
programs that are expected to contribute to future earnings, and
charge such costs against income as incurred. Research and
development costs consist primarily of salaries and
administrative costs.
Restructuring
Activities
We assess the need to record restructuring charges in accordance
with FASB Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which requires
a company to recognize the liabilities for costs associated with
exit or disposal activities when the liabilities are incurred.
Examples of costs covered by FASB Statement No. 146 include
lease termination costs and certain employee severance costs
that are associated with restructuring activities, discontinued
operations, facility closings or other exit or disposal
activities.
We recognize liabilities that primarily include one-time
termination benefits, or severance, and contract termination
costs, primarily related to equipment and facility lease
obligations. These amounts are based on the remaining amounts
due under various contractual agreements, and are periodically
adjusted for any anticipated or unanticipated events or changes
in circumstances that would reduce or increase these
obligations. The settlement of these liabilities could differ
materially from recorded amounts.
Recently
Issued Accounting Standards
In May 2008, the FASB issued Statement No. 162, The
Hierarchy of Generally Accepted Accounting Principles. FASB
Statement No. 162 defines the order in which accounting
principles that are generally accepted should be followed. FASB
Statement No. 162 is effective 60 days following the
SECs approval of the Public Company Accounting Oversight
Board (PCAOB) amendments to AU Section 411,
The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. We have not yet commenced
evaluating the potential impact, if any, of the adoption of FASB
Statement No. 162 on our consolidated financial position,
results of operations and cash flows.
In March 2008, the FASB issued Statement No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging
Activities. FASB Statement No. 161 changes the
disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced
disclosures about (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related
hedged items are accounted for under FASB Statement
No. 133, Accounting for Derivative Instruments and
Hedging Activities, and its related interpretations and
(iii) how derivative instruments and related hedged items
affect an entitys financial position, results of
operations, and cash flows. FASB Statement No. 161 is
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with
early application permitted. FASB Statement No. 161
permits, but does not require, comparative disclosures for
earlier periods at initial adoption. We have not yet commenced
evaluating the potential impact, if any, of the adoption of FASB
Statement No. 161 on our consolidated financial position,
results of operations, cash flows or disclosures related to
derivative instruments and hedging activities.
In January 2008, the FASB issued Statement No. 133
Implementation Issue No. E23, Hedging
General: Issues Involving the Application of the Shortcut Method
under Paragraph 68 (Issue No. E23). Issue
No. E23 provides guidance on certain practice issues
related to the application of the shortcut method by amending
paragraph 68 of FASB Statement No. 133 with respect to
the conditions that must be met in order
121
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
to apply the shortcut method for assessing hedge effectiveness
of interest rate swaps. The provisions of Issue No. E23
became effective for us for our hedging arrangements designated
on or after January 1, 2008. Additionally, pre-existing
hedging arrangements must be assessed on January 1, 2008 to
determine whether the provisions of Issue No. E23 were met
as of the inception of the hedging arrangement. We have
evaluated the effects of the adoption of Issue No. E23 and
have determined it to have no material impact on our
consolidated financial position, results of operations and cash
flows.
In December 2007, the FASB issued Statement No. 141
(Revised), Business Combinations, which establishes
principles and requirements for how the acquirer in a business
combination (i) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree,
(ii) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase, and
(iii) determines what information to disclose to enable
users of the financial statements to evaluate the nature and
financial effects of the business combination. FASB Statement
No. 141(Revised) also requires acquirers to estimate the
acquisition-date fair value of any contingent consideration and
to recognize any subsequent changes in the fair value of
contingent consideration in earnings. We will be required to
apply this new standard prospectively to business combinations
for which the acquisition date is on or after the beginning of
the annual reporting period beginning on or after
December 15, 2008, with the exception of the accounting for
valuation allowances on deferred taxes and acquired tax
contingencies. FASB Statement No. 141(Revised) amends
certain provisions of FASB Statement No. 109 such that
adjustments made to valuation allowances on deferred taxes and
acquired tax contingencies associated with acquisitions that
closed prior to the effective date of FASB Statement
No. 141(Revised) would also apply the provisions of FASB
Statement No. 141(Revised). Early adoption is prohibited.
We are currently evaluating the effects that FASB Statement
No. 141(Revised) may have on our consolidated financial
position, results of operations and cash flows.
In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, which establishes accounting and reporting
standards that require (i) the ownership interest in
subsidiaries held by parties other than the parent to be clearly
identified and presented in the consolidated balance sheet
within shareholders equity, but separate from the
parents equity, (ii) the amount of consolidated net
income attributable to the parent and the noncontrolling
interest to be clearly identified and presented on the face of
the consolidated statement of operations, and (iii) changes
in a parents ownership interest while the parent retains
its controlling financial interest in its subsidiary to be
accounted for consistently. FASB Statement No. 160 applies
to fiscal years beginning after December 15, 2008. Earlier
adoption is prohibited. We have not yet commenced evaluating the
potential impact, if any, of the adoption of FASB Statement
No. 160 on our consolidated financial position, results of
operations and cash flows.
In April 2007, the FASB issued Staff Position (FSP)
No. FIN 39-1,
Amendment of FASB Interpretation No. 39, (FSP
FIN 39-1).
FSP
FIN 39-1
amends FASB Statement No. 39, Offsetting of Amounts
Related to Certain Contracts, by permitting entities that
enter into master netting arrangements as part of their
derivative transactions to offset in their financial statements
net derivative positions against the fair value of amounts (or
amounts that approximate fair value) recognized for the right to
reclaim cash collateral or the obligation to return cash
collateral under those arrangements. FSP
FIN 39-1
is effective for fiscal years beginning after November 15,
2007, with early adoption permitted. We have evaluated the
effects of adoption of FSP
FIN 39-1
and have determined the standard will have no material impact on
our consolidated financial position, results of operations and
cash flows.
In February 2007, the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, which provides companies with an option to
report selected financial assets and liabilities at fair value.
The new standard also establishes presentation and disclosure
requirements designed to facilitate comparisons between
companies that choose different measurement attributes for
similar types of assets and liabilities. It also requires
companies to provide additional information that will help
investors and other users
122
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
of financial statements to more easily understand the effect of
a companys choice to use fair value on its earnings. The
new standard also requires entities to display the fair value of
those assets and liabilities for which the company has chosen to
use fair value on the face of the balance sheet. FASB Statement
No. 159 does not eliminate disclosure requirements included
in other accounting standards, including requirements for
disclosures about fair value measurements included in FASB
Statements No. 157, Fair Value Measurements, and
No. 107, Disclosures about Fair Value of Financial
Instruments. FASB Statement No. 159 is effective as of
the beginning of an entitys first fiscal year beginning
after November 15, 2007. Early adoption is permitted as of
the beginning of the previous fiscal year provided that the
entity makes that choice in the first 120 days of that
fiscal year and also elects to apply the provisions of FASB
Statement No. 157. We have evaluated the effects of
adoption of FASB Statement No. 159 and have determined the
standard will have no material impact on our consolidated
financial position, results of operations and cash flows.
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements, which defines fair value,
establishes a framework for measuring fair value under GAAP, and
expands disclosures about fair value measurements. FASB
Statement No. 157 applies to other accounting
pronouncements that require or permit fair value measurements.
The new guidance is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and for
interim periods within those fiscal years. We are assessing the
potential impact of adoption of FASB Statement No. 157 on
our consolidated financial position, results of operations and
cash flows.
We have determined that all other recently issued accounting
pronouncements will not have a material impact on our
consolidated financial position, results of operation and cash
flows, or do not apply to our operations.
|
|
2.
|
ACQUISITION
OF NOVELIS COMMON STOCK
|
On May 15, 2007, the Company was acquired by Hindalco
through Acquisition Sub pursuant to the Arrangement entered into
on February 10, 2007 and approved by the Ontario Superior
Court of Justice on May 14, 2007. As a result of the
Arrangement, Acquisition Sub acquired all of the Companys
outstanding common shares at a price of $44.93 per share, and
all outstanding stock options and other equity incentives were
terminated in exchange for cash payments. The aggregate purchase
price for the Companys common shares was $3.4 billion
and immediately following the Arrangement, the common shares of
the Company were transferred from Acquisition Sub to its
wholly-owned subsidiary AV Aluminum Inc. (AV Aluminum). Hindalco
also assumed $2.8 billion of Novelis debt for a total
transaction value of $6.2 billion.
On June 22, 2007, we issued 2,044,122 additional common
shares to AV Aluminum for $44.93 per share resulting in an
additional equity contribution of approximately
$92 million. This contribution was equal in amount to
certain payments made by Novelis related to change in control
compensation to certain employees and directors, lender fees and
other transaction costs incurred by the Company. As this
transaction was approved by the Company and executed subsequent
to the Arrangement, the $92 million is not included in the
determination of total consideration.
Purchase
Price Allocation and Goodwill
As a result of the Arrangement, the consideration and
transaction costs paid by Hindalco in connection with the
transaction have been pushed down to us and have
been allocated to the assets acquired and
123
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
liabilities assumed in accordance with FASB Statement
No. 141. The following table summarizes total consideration
paid under the Arrangement (in millions).
|
|
|
|
|
Purchase of all outstanding 75,415,536 common shares at $44.93
per share
|
|
$
|
3,388
|
|
Direct transaction costs incurred by Hindalco
|
|
|
17
|
|
|
|
|
|
|
Total consideration
|
|
$
|
3,405
|
|
|
|
|
|
|
In accordance with FASB Statement No. 141, during our
quarter ended June 30, 2007, we substantially allocated
total consideration ($3.405 billion) to the assets acquired
and liabilities assumed based on our initial estimates of fair
value using methodologies and assumptions that we believed were
reasonable. During the three months ended March 31, 2008,
we finalized the allocation of the total consideration to
identifiable assets and liabilities. The final valuation
decreased the amount allocated to goodwill by $184 million
from our initial allocation. This is primarily due to the
finalization of our assessment of the valuation of the acquired
tangible and intangible assets, the allocation of fair value to
our reporting units, remeasurement of postretirement benefits
and the income tax implications of the new basis of accounting
triggered by the Arrangement.
The following table presents a summary of our final and initial
allocations of total consideration to assets acquired and
liabilities assumed at the date of the Arrangement (in millions).
|
|
|
|
|
|
|
|
|
|
|
Final
|
|
|
Initial
|
|
|
Assets acquired:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
3,210
|
|
|
$
|
3,210
|
|
Property, plant and equipment
|
|
|
3,451
|
|
|
|
3,350
|
|
Goodwill
|
|
|
2,157
|
|
|
|
2,341
|
|
Intangible assets
|
|
|
913
|
|
|
|
879
|
|
Investment in and advances to non-consolidated affiliates
|
|
|
927
|
|
|
|
762
|
|
Fair value of derivative instruments net of current
portion
|
|
|
3
|
|
|
|
3
|
|
Deferred income tax assets
|
|
|
117
|
|
|
|
117
|
|
Other long-term assets
|
|
|
109
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
10,887
|
|
|
|
10,772
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(1,612
|
)
|
|
|
(1,612
|
)
|
Accrued expenses and other current liabilities
|
|
|
(750
|
)
|
|
|
(738
|
)
|
Long-term debt, including current portion and short-term
borrowings
|
|
|
(2,824
|
)
|
|
|
(2,824
|
)
|
Deferred income tax liabilities, including current portion
|
|
|
(1,038
|
)
|
|
|
(874
|
)
|
Accrued postretirement benefits
|
|
|
(382
|
)
|
|
|
(430
|
)
|
Other long-term liabilities
|
|
|
(723
|
)
|
|
|
(736
|
)
|
Minority interests in equity of consolidated affiliates
|
|
|
(153
|
)
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(7,482
|
)
|
|
|
(7,367
|
)
|
|
|
|
|
|
|
|
|
|
Total consideration
|
|
$
|
3,405
|
|
|
$
|
3,405
|
|
|
|
|
|
|
|
|
|
|
The goodwill resulting from the Arrangement reflects the value
of our in-place workforce, deferred income taxes associated with
the fair value adjustments and potential synergies. The majority
of the push down adjustments, including goodwill, did not impact
our cash flows and were not deductible for income tax purposes.
124
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The final purchase price allocation shown above includes a total
of $685 million for the fair value of liabilities
associated with unfavorable sales contracts ($371 million
included in Other long-term liabilities and
$314 million included in Accrued expenses and other
current liabilities). Of this amount, $655 million
relates to unfavorable sales contracts in North America. These
contracts include a ceiling over which metal prices cannot
contractually be passed through to certain customers, unless
adjusted. Subsequent to the Arrangement, the fair values of
these liabilities are credited to Net sales over the
remaining lives of the underlying contracts. The reduction of
these liabilities does not affect our cash flows.
Intangible assets include (1) $124 million for a
favorable energy supply contract in North America, recorded at
its estimated fair value, (2) $15 million for other
favorable supply contracts in Europe and
(3) $9 million for the estimated value of acquired
in-process research and development projects that had not yet
reached technological feasibility. In accordance with FASB
Statement No. 141, the $9 million of acquired
in-process research and development was expensed upon
acquisition and charged to Research and development expenses
in the period from May 16, 2007 through March 31,
2008.
These final valuations and other studies were completed by
Hindalco and Novelis during the three months ended
March 31, 2008. To estimate fair values, we considered a
number of factors, including the application of multiples to
discounted cash flow estimates. There is considerable management
judgment with respect to cash flow estimates and appropriate
multiples used in determining fair value.
We incurred a total of $64 million of fees and expenses
related to the Arrangement, of which $32 million was
incurred in each of the periods from April 1, 2007 through
May 15, 2007, and for the three months ended March 31,
2007. These fees and expenses are included in Sale
transaction fees in our consolidated and combined statements
of operations.
Unaudited
Condensed Consolidated Pro Forma Results
The unaudited condensed consolidated pro forma results of
operations provided below for the year ended March 31,
2008, the three months ended March 31, 2007 and the year
ended December 31, 2006 are presented as though the
Arrangement had occurred at the beginning of each of the
respective periods, after giving effect to purchase accounting
adjustments related to depreciation and amortization of the
revalued assets and liabilities, interest expense and other
acquisition related adjustments in connection with the
Arrangement (in millions). The pro forma results include
estimates and assumptions that management believes are
reasonable. However, pro forma results are not necessarily
indicative of the results that would have occurred if the
acquisition had been in effect on the dates indicated, or which
may result in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
$
|
11,280
|
|
|
$
|
2,721
|
|
|
$
|
10,164
|
|
Loss before provision (benefit) for taxes and minority
interests share
|
|
$
|
(54
|
)
|
|
$
|
(60
|
)
|
|
$
|
(243
|
)
|
Net loss
|
|
$
|
(65
|
)
|
|
$
|
(69
|
)
|
|
$
|
(240
|
)
|
125
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
RESTRUCTURING
PROGRAMS
|
All restructuring provisions and recoveries are included in
Other (income) expenses net in the
accompanying consolidated and combined statements of operations.
The following table summarizes the activity in our restructuring
liabilities (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Exit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
|
|
|
|
|
|
|
Severance Reserves
|
|
|
Reserves
|
|
|
Total
|
|
|
|
|
|
|
North
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
North
|
|
|
Restructuring
|
|
|
|
Europe
|
|
|
America
|
|
|
and Other
|
|
|
Severance
|
|
|
Europe
|
|
|
America
|
|
|
Reserves
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
$
|
14
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
15
|
|
|
$
|
19
|
|
|
$
|
|
|
|
$
|
34
|
|
January 1, 2007 to March 31, 2007 Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions (recoveries) net
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Cash payments
|
|
|
(4
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(6
|
)
|
Adjustments other
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2007
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
36
|
|
April 1, 2007 to May 15, 2007 Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions (recoveries) net
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Cash payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Adjustments other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of May 15, 2007
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
18
|
|
|
|
|
|
|
|
37
|
|
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007 to March 31, 2008 Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions (recoveries) net
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
4
|
|
|
|
1
|
|
|
|
1
|
|
|
|
6
|
|
Cash payments
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
(20
|
)
|
Adjustments other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2008
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
16
|
|
|
$
|
1
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended March 31, 2008 Restructuring Activities
In March 2008, management approved the closure of our light
gauge converter products facility in Louisville, Kentucky. The
closure is intended to bring the capacity of our North American
operations in line with local market demand. As a result of the
closure, we recognized approximately $5 million in
restructuring charges during the quarter ended March 31,
2008. We expect the closing to be completed by December 2008.
Three
Months Ended March 31, 2007 Restructuring
Activities
In March 2007, management approved the proposed restructuring of
our facilities in Bridgnorth, U.K. These proposed actions were
intended to bring the capacity of our U.K. operations in line
with local market demand and to reduce the cost of our U.K.
operations. Certain production lines were shut down in the U.K.
and volume was relocated to other European plants. For the three
months ended March 31, 2007, we recognized approximately
$8 million each in impairment charges on long-lived assets
in the U.K. that will no longer be used and severance costs.
126
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Year
Ended December 31, 2006 Restructuring
Activities
In December 2006, we announced several restructuring actions at
our facilities in the U.K., Germany, France and Italy. These
actions are intended to streamline the management of these
operations. We incurred $2 million in severance-related
costs through December 31, 2006 in connection with these
programs. We incurred no additional costs related to these
programs and we completed all actions by March 2008.
In December 2006, we announced the closing of our Montreal
planning office. We incurred approximately $1 million of
severance-related costs through December 31, 2006. Through
March 31, 2008, we completed this action and incurred no
additional costs.
In August 2006, we announced a restructuring of our European
central management and administration activities in Zurich,
Switzerland to reduce overhead costs and streamline support
functions. In addition, we are exiting our Neuhausen research
and development center in Switzerland. These programs have begun
and through December 31, 2006, we incurred costs of
approximately $4 million. Through March 31, 2008, we
completed this action and incurred no additional costs.
In July 2006, we announced restructuring actions at our
Goettingen facility in Germany to reduce overhead administrative
costs and streamline functions. We incurred approximately
$5 million related primarily to severance costs through
December 31, 2006. We do not anticipate future costs
related to these programs to be significant and expect the
restructuring to be completed by December 2009.
In March 2006, we announced the restructuring of our European
operations, with the reorganization of our plants in Ohle and
Ludenscheid, Germany, including the closing of two non-core
business lines located within those facilities. In connection
with the reorganization of our Ohle and Ludenscheid plants, we
incurred costs of approximately $5 million during the year
ended December 31, 2006. We do not anticipate future costs
related to these programs to be significant and expect all
obligations to be fulfilled by December 2011.
Year
Ended December 31, 2005 Restructuring
Activities
In November 2005, we announced our intent to close our casting
alloy facility in Borgofranco, Italy in March 2006. In 2005, we
recognized charges of $5 million for asset impairments and
$9 million for other exit related costs, including
$6 million for environmental remediation expenses relating
to this plant closing. Through December 31, 2006, we have
incurred additional costs of approximately $2 million.
During the year ended December 31, 2005, we also recorded
recoveries of (1) $5 million relating to our 2004
restructuring program activities for the exit of certain
operations of Pechiney in Flemalle, Belgium, which reduced the
goodwill associated with the Pechiney acquisition,
(2) $1 million in connection with our 2004
restructuring program activities for our plant in Nachterstedt,
Germany and (3) $2 million in connection with our 2001
restructuring program activities in Rogerstone, Wales. In
addition, we received $7 million in proceeds from the sale
of land at the closed rolling mill in Falkirk, Scotland in
October 2005, resulting in a gain of $7 million, which is
included in Other (income) expenses net in
the accompanying consolidated and combined statement of
operations.
127
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Accounts receivable consists of the following (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Customer accounts receivable third parties
|
|
$
|
1,160
|
|
|
|
$
|
1,283
|
|
Other accounts receivable:
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
89
|
|
|
|
|
96
|
|
related parties
|
|
|
31
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
|
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable gross
|
|
|
1,280
|
|
|
|
|
1,404
|
|
Allowance for doubtful accounts third parties
|
|
|
(1
|
)
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable net
|
|
$
|
1,279
|
|
|
|
$
|
1,375
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Doubtful Accounts
The allowance for doubtful accounts is managements best
estimate of probable losses inherent in the accounts receivable
balance. Management determines the allowance based on known
uncollectible accounts, historical experience and other
currently available evidence. As of March 31, 2008 and
2007, our allowance for doubtful accounts represented
approximately 0.1% and 2.1%, respectively, of gross accounts
receivable.
Activity in the allowance for doubtful accounts is as follows
(in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Additions
|
|
|
Accounts
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Charged to
|
|
|
Recovered/
|
|
|
Foreign Exchange
|
|
|
Balance at
|
|
|
|
of Period
|
|
|
Expense
|
|
|
(Written-Off)
|
|
|
and Other
|
|
|
End of Period
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
$
|
33
|
|
|
$
|
3
|
|
|
$
|
(8
|
)
|
|
$
|
(2
|
)
|
|
$
|
26
|
|
Year Ended December 31, 2006
|
|
$
|
26
|
|
|
$
|
4
|
|
|
$
|
(4
|
)
|
|
$
|
3
|
|
|
$
|
29
|
|
Three Months Ended March 31, 2007
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
29
|
|
April 1, 2007 Through May 15, 2007
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
1
|
|
|
$
|
28
|
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007 Through March 31, 2008
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
Forfaiting
of Trade Receivables
Novelis Korea Ltd. forfaits trade receivables in the ordinary
course of business. These trade receivables are typically
outstanding for 60 to 120 days. Forfaiting is a
non-recourse method to manage credit and interest rate risks.
Under this method, customers contract to pay a financial
institution. The institution assumes the risk of non-payment and
remits the invoice value (net of a fee) to us after presentation
of a proof of delivery of goods to the customer. We do not
retain a financial or legal interest in these receivables, and
they are not included in the accompanying consolidated balance
sheets. Forfaiting expenses are included in Selling, general
and administrative expenses in our consolidated and combined
statements of operations.
128
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Factoring
of Trade Receivables
Our Brazilian operations factor, without recourse, certain trade
receivables that are unencumbered by pledge restrictions. Under
this method, customers are directed to make payments on invoices
to a financial institution, but are not contractually required
to do so. The financial institution pays us any invoices it has
approved for payment (net of a fee). We do not retain financial
or legal interest in these receivables, and they are not
included in the accompanying consolidated balance sheets.
Factoring expenses are included in Selling, general and
administrative expenses in our consolidated and combined
statements of operations.
Summary
Disclosures of Financial Amounts
The following tables summarize amounts relating to our
forfaiting and factoring activities (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Receivables forfaited
|
|
$
|
507
|
|
|
|
$
|
51
|
|
|
$
|
68
|
|
|
$
|
424
|
|
|
$
|
285
|
|
Receivables factored
|
|
$
|
75
|
|
|
|
$
|
|
|
|
$
|
18
|
|
|
$
|
71
|
|
|
$
|
94
|
|
Forfaiting expense
|
|
$
|
6
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
2
|
|
Factoring expense
|
|
$
|
1
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
2008
|
|
|
2007
|
|
|
Successor
|
|
|
Predecessor
|
Forfaited receivables outstanding
|
|
$
|
149
|
|
|
|
$
|
75
|
|
Factored receivables outstanding
|
|
$
|
|
|
|
|
$
|
|
|
Inventories consist of the following (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Finished goods
|
|
$
|
357
|
|
|
|
$
|
401
|
|
Work in process
|
|
|
638
|
|
|
|
|
556
|
|
Raw materials
|
|
|
386
|
|
|
|
|
428
|
|
Supplies
|
|
|
75
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,456
|
|
|
|
|
1,505
|
|
Allowances
|
|
|
(1
|
)
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
1,455
|
|
|
|
$
|
1,483
|
|
|
|
|
|
|
|
|
|
|
|
129
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property, plant and equipment net, consists of the
following (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Land and property rights
|
|
$
|
258
|
|
|
|
$
|
97
|
|
Buildings
|
|
|
826
|
|
|
|
|
895
|
|
Machinery and equipment
|
|
|
2,460
|
|
|
|
|
4,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,544
|
|
|
|
|
5,691
|
|
Accumulated depreciation and amortization
|
|
|
(323
|
)
|
|
|
|
(3,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,221
|
|
|
|
|
2,017
|
|
Construction in progress
|
|
|
144
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment net
|
|
$
|
3,365
|
|
|
|
$
|
2,106
|
|
|
|
|
|
|
|
|
|
|
|
Due to the assignment of new fair values as a result of the
Arrangement, we have no fully depreciated assets included in our
consolidated balance sheet as of March 31, 2008. The amount
of fully depreciated assets included in our consolidated balance
sheet as of March 31, 2007 was $1.2 billion.
Total depreciation expense is shown in the table below (in
millions). We had no material interest capitalized on
construction projects related to property, plant and equipment
for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
April 1, 2007
|
|
Three Months
|
|
|
|
|
|
|
Through
|
|
|
Through
|
|
Ended
|
|
Year Ended December 31,
|
|
|
March 31, 2008
|
|
|
May 15, 2007
|
|
March 31, 2007
|
|
2006
|
|
2005
|
|
|
Successor
|
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
Depreciation expense related to property, plant and equipment
|
|
$
|
330
|
|
|
|
$
|
28
|
|
|
$
|
58
|
|
|
$
|
231
|
|
|
$
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
impairments
During the period from May 16, 2007 through March 31,
2008, we recorded an impairment charge of $1 million in
Novelis Italy due to the obsolescence of certain production
related fixed assets.
During the year ended December 31, 2005, in connection with
the decision to close and sell our plant in Borgofranco, Italy,
we recognized an impairment charge of $5 million, included
in Other income (expenses) net in our
consolidated and combined statements of operations, to reduce
the net book value of the plants fixed assets to zero. We
based our estimate on third party offers and negotiations to
sell the business.
During the year ended December 31, 2005, capital
expenditures of $2 million required to keep our Annecy
plant operating were fully impaired as incurred and included in
Other income (expenses) net in our
consolidated and combined statements of operations.
Leases
We lease certain land, buildings and equipment under
non-cancelable operating leases expiring at various dates
through 2015, and we lease assets in Sierre, Switzerland
including a
15-year
capital lease through 2020 from Alcan. Operating leases
generally have five to ten-year terms, with one or more renewal
options, with terms to be negotiated at the time of renewal.
Various facility leases include provisions for rent escalation
to recognize increased operating costs or require us to pay
certain maintenance and utility costs.
130
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The following table summarizes rent expense included in our
consolidated and combined statements of operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
April 1, 2007
|
|
Three Months
|
|
|
|
|
|
|
Through
|
|
|
Through
|
|
Ended
|
|
Year Ended December 31,
|
|
|
March 31, 2008
|
|
|
May 15, 2007
|
|
March 31, 2007
|
|
2006
|
|
2005
|
|
|
Successor
|
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
Rent expense
|
|
$
|
27
|
|
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
22
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future minimum lease payments as of March 31, 2008, for our
operating and capital leases having an initial or remaining
non-cancelable lease term in excess of one year are as follows
(in millions). The future minimum lease payments for capital
lease obligations exclude $4 million of unamortized fair
value adjustments recorded as a result of the Arrangement (see
Note 10 Debt in the accompanying consolidated
and combined financial statements).
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital Lease
|
|
Year Ending March 31,
|
|
Leases
|
|
|
Obligations
|
|
|
2009
|
|
$
|
23
|
|
|
$
|
8
|
|
2010
|
|
|
18
|
|
|
|
8
|
|
2011
|
|
|
16
|
|
|
|
8
|
|
2012
|
|
|
14
|
|
|
|
7
|
|
2013
|
|
|
12
|
|
|
|
7
|
|
Thereafter
|
|
|
36
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
119
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
Less: interest portion on capital leases
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
Principal obligation on capital leases
|
|
|
|
|
|
$
|
57
|
|
|
|
|
|
|
|
|
|
|
Assets and related accumulated amortization under capital lease
obligations as of March 31, 2008 and 2007 are as follows
(in millions).
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Assets under capital lease obligations:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
|
|
|
$
|
1
|
|
Buildings
|
|
|
13
|
|
|
|
10
|
|
Machinery and equipment
|
|
|
55
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
51
|
|
Accumulated amortization
|
|
|
(17
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51
|
|
|
$
|
41
|
|
|
|
|
|
|
|
|
|
|
Sale
of assets
During March 2008, we sold land at our Kingston facility in
Ontario, Canada for $5 million. No gain or loss was
recognized on the sale.
During the year ended December 31, 2006, we sold our rights
to develop and operate two hydroelectric power plants in South
America and recorded a pre-tax gain of approximately
$11 million, included in Other (income)
expenses net in our consolidated and combined
statements of operations.
131
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
During the year ended December 31, 2005, we sold land and a
building in Malaysia and recorded a pre-tax gain of
$11 million, included in Other (income)
expenses net, in our consolidated and combined
statements of operations.
Asset
Retirement Obligations
On December 31, 2005, we adopted FASB Interpretation
No. 47, Accounting for Conditional Asset Retirement
Obligations (FIN 47). The interpretation clarifies that
the term conditional asset retirement obligation, as used in
FASB Statement 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 an entitys control. FIN 47 also
clarifies that an entity is required to recognize a liability
for the fair value of a conditional asset retirement obligation
when incurred, if fair value can be reasonably estimated.
FIN 47 uses the same methodology as FASB Statement
No. 143, which requires an entity to record the fair value
of a liability for an asset retirement obligation in the period
in which it is incurred and a corresponding increase in the
related long-lived asset. The liability is adjusted to its
present value each period and the asset is depreciated over its
useful life. A gain or loss may be incurred upon settlement of
the liability.
As a result of our adoption of FIN 47, we identified
conditional retirement obligations primarily related to
environmental contamination of equipment and buildings at
certain of our plants and administrative sites. Upon adoption,
we recognized assets of $6 million with offsetting
accumulated depreciation of $4 million, and an asset
retirement obligation of $11 million. We also recognized a
pre-tax charge of $9 million ($6 million after tax),
which is classified as a Cumulative effect of accounting
change net of tax in our accompanying
consolidated and combined statement of operations for the year
ended December 31, 2005.
The following is a summary of our asset retirement obligation
activity. The period-end balances are included in Other
long-term liabilities in our consolidated balance sheets (in
millions).
|
|
|
|
|
Predecessor:
|
|
|
|
|
Asset retirement obligation as of January 1, 2006
|
|
$
|
11
|
|
Liability incurred
|
|
|
|
|
Liability settled
|
|
|
|
|
Accretion
|
|
|
2
|
|
|
|
|
|
|
Asset retirement obligation as of December 31, 2006
|
|
|
13
|
|
Liability incurred
|
|
|
1
|
|
Liability settled
|
|
|
|
|
Accretion
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation as of March 31, 2007
|
|
|
14
|
|
Liability incurred
|
|
|
|
|
Liability settled
|
|
|
|
|
Accretion
|
|
|
|
|
Asset retirement obligation as of May 15, 2007
|
|
|
14
|
|
|
Successor:
|
|
|
|
|
Asset retirement obligation as of May 16, 2007
|
|
|
14
|
|
Liability incurred
|
|
|
|
|
Liability settled
|
|
|
|
|
Accretion
|
|
|
2
|
|
|
|
|
|
|
Asset retirement obligation as of March 31, 2008
|
|
$
|
16
|
|
|
|
|
|
|
132
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
GOODWILL
AND INTANGIBLE ASSETS
|
Goodwill
We performed our annual impairment test during the fourth fiscal
quarter of 2008 and determined that there was no impairment of
goodwill. The following tables summarize the changes in our
goodwill by operating segment (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
|
|
|
|
Balance as of
|
|
Operating Segment (Successor)
|
|
May 16, 2007
|
|
|
Adjustments(A)
|
|
|
March 31, 2008
|
|
|
North America
|
|
$
|
1,527
|
|
|
$
|
(434
|
)
|
|
$
|
1,093
|
|
Europe
|
|
|
389
|
|
|
|
414
|
|
|
|
803
|
|
Asia
|
|
|
162
|
|
|
|
(162
|
)
|
|
|
|
|
South America
|
|
|
263
|
|
|
|
(2
|
)
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,341
|
|
|
$
|
(184
|
)
|
|
$
|
2,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The adjustments of $184 million represent the finalization
of our estimates of fair value and allocation of the total
consideration to assets acquired and liabilities assumed in
connection with our acquisition by Hindalco, see
Note 2 Acquisition of Novelis Common Stock. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
|
as of
|
|
|
Cumulative
|
|
|
as of
|
|
|
Cumulative
|
|
|
as of
|
|
|
|
December 31,
|
|
|
Translation
|
|
|
March 31,
|
|
|
Translation
|
|
|
May 15,
|
|
Operating Segment (Predecessor)
|
|
2006
|
|
|
Adjustment
|
|
|
2007
|
|
|
Adjustment
|
|
|
2007
|
|
|
North America
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Europe
|
|
|
236
|
|
|
|
3
|
|
|
|
239
|
|
|
|
5
|
|
|
|
244
|
|
Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
236
|
|
|
$
|
3
|
|
|
$
|
239
|
|
|
$
|
5
|
|
|
$
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
Assets
The following is a summary of the components of intangible
assets (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008 Successor
|
|
|
|
As of March 31, 2007 Predecessor
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Weighted
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Weighted
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Average
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Average
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Life
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Life
|
|
Tradenames
|
|
$
|
152
|
|
|
$
|
(6
|
)
|
|
$
|
146
|
|
|
|
20 years
|
|
|
|
$
|
14
|
|
|
$
|
(6
|
)
|
|
$
|
8
|
|
|
|
15 years
|
|
Technology
|
|
|
169
|
|
|
|
(10
|
)
|
|
|
159
|
|
|
|
15 years
|
|
|
|
|
20
|
|
|
|
(8
|
)
|
|
|
12
|
|
|
|
15 years
|
|
Customer-related intangible assets
|
|
|
484
|
|
|
|
(21
|
)
|
|
|
463
|
|
|
|
20 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable energy supply contract
|
|
|
124
|
|
|
|
(13
|
)
|
|
|
111
|
|
|
|
9.5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other favorable contracts
|
|
|
15
|
|
|
|
(6
|
)
|
|
|
9
|
|
|
|
3.3 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
944
|
|
|
$
|
(56
|
)
|
|
$
|
888
|
|
|
|
17.2 years
|
|
|
|
$
|
34
|
|
|
$
|
(14
|
)
|
|
$
|
20
|
|
|
|
15 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our favorable energy supply contract and other favorable
contracts are amortized over their estimated useful lives using
methods that reflect the pattern in which the economic benefits
are expected to be consumed. All other intangible assets are
amortized using the straight-line method.
133
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Amortization expense related to intangible assets is as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
|
May 15,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Total Amortization expense related to intangible assets
|
|
$
|
56
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Less: Amortization expense related to intangible assets included
in Cost of goods sold(A)
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to intangible
assets included
in Depreciation and amortization
|
|
$
|
37
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Relates to amortization of favorable energy and other supply
contracts. |
Estimated total amortization expense related to intangible
assets for each of the five succeeding fiscal years is as
follows (in millions). Actual amounts may differ from these
estimates due to such factors as customer turnover, raw material
consumption patterns, impairments, additional intangible asset
acquisitions and other events.
|
|
|
|
|
Fiscal Year Ending March 31,
|
|
|
|
|
2009
|
|
$
|
62
|
|
2010
|
|
|
60
|
|
2011
|
|
|
56
|
|
2012
|
|
|
55
|
|
2013
|
|
|
82
|
|
|
|
8.
|
INVESTMENT
IN AND ADVANCES TO NON-CONSOLIDATED AFFILIATES AND RELATED PARTY
TRANSACTIONS
|
The following table summarizes the ownership structure and our
ownership percentage of the non-consolidated affiliates in which
we have an investment as of March 31, 2008, and which we
account for using the equity method. We have no material
investments that we account for using the cost method.
|
|
|
|
|
|
|
|
|
|
|
Ownership
|
|
Affiliate Name
|
|
Ownership Structure
|
|
Percentage
|
|
|
Aluminium Norf GmbH
|
|
Corporation
|
|
|
50
|
%
|
Consorcio Candonga
|
|
Unincorporated Joint Venture
|
|
|
50
|
%
|
MiniMRF LLC
|
|
Limited Liability Company
|
|
|
50
|
%
|
Deutsche Aluminium Verpackung Recycling GmbH
|
|
Corporation
|
|
|
30
|
%
|
France Aluminium Recyclage S.A.
|
|
Public Limited Company
|
|
|
20
|
%
|
In September 2007, we completed the dissolution of EuroNorca
Partners, and we received approximately $2 million in the
completion of liquidation proceedings. No gain or loss was
recognized on the liquidation.
In November 2006, we sold the common and preferred shares of our
25% interest in Petrocoque S.A. Industria e Comercio
(Petrocoque) to the other shareholders of Petrocoque. Prior to
the sale, we accounted for Petrocoque using the equity method of
accounting. The results of operations of Petrocoque through the
date of sale are included in the table below.
134
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
We do not control our non-consolidated affiliates, but have the
ability to exercise significant influence over their operating
and financial policies.
The following table summarizes the combined and condensed
assets, liabilities and equity of our equity method affiliates
(on a 100% basis, in millions) on a historical basis of
accounting. The results do not include the unamortized fair
value adjustments made to our non-consolidated affiliates due to
the Arrangement. As of March 31, 2008, there were
$737 million of unamortized fair value adjustments recorded
in Investment in and advances to non-consolidated
affiliates
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
192
|
|
|
$
|
152
|
|
Non-current assets
|
|
|
677
|
|
|
|
638
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
869
|
|
|
$
|
790
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
151
|
|
|
$
|
225
|
|
Non-current liabilities
|
|
|
359
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
510
|
|
|
|
485
|
|
Equity:
|
|
|
|
|
|
|
|
|
Novelis
|
|
|
180
|
|
|
|
153
|
|
Third parties
|
|
|
179
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
869
|
|
|
$
|
790
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the combined and condensed
results of operations of our equity method affiliates (on a 100%
basis, in millions) on a historical basis of accounting. These
results do not include the incremental depreciation and
amortization expense that we record in our equity method
accounting, which arises as a result of the amortization of fair
value adjustments we made to our investments in non-consolidated
affiliates due to the Arrangement. For the period from
May 16, 2007 through March 31, 2008, we recorded
incremental depreciation and amortization expense of
$39 million as part of our equity method accounting for
these affiliates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Through
|
|
|
Through
|
|
|
Ended
|
|
|
December 31,
|
|
|
|
March 31, 2008
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
$
|
564
|
|
|
$
|
45
|
|
|
$
|
127
|
|
|
$
|
558
|
|
|
$
|
497
|
|
Costs, expenses and income taxes
|
|
|
495
|
|
|
|
43
|
|
|
|
122
|
|
|
|
521
|
|
|
|
479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
69
|
|
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
37
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Included in the accompanying consolidated and combined financial
statements are transactions and balances arising from business
we conduct with these non-consolidated affiliates, which we
classify as related party transactions and balances. The
following table describes the nature and amounts of transactions
that we had with related parties (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Purchases of tolling services, electricity and inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminium Norf GmbH(A)
|
|
$
|
253
|
|
|
|
$
|
21
|
|
|
$
|
61
|
|
|
$
|
227
|
|
|
$
|
205
|
|
Consorcio Candonga(B)
|
|
|
24
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
14
|
|
|
|
8
|
|
Petrocoque S.A. Industria e Comercio(C)
|
|
|
n.a.
|
|
|
|
|
n.a.
|
|
|
|
n.a.
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchases from related parties
|
|
$
|
277
|
|
|
|
$
|
22
|
|
|
$
|
64
|
|
|
$
|
243
|
|
|
$
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (income) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminium Norf GmbH(D)
|
|
$
|
1
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
We purchase tolling services (the conversion of customer-owned
metal) from Aluminium Norf GmbH. |
|
(B) |
|
We purchase electricity from Consorcio Candonga for our
operations in South America. |
|
(C) |
|
We purchased calcined-coke from Petrocoque for use in our
smelting operations in South America. As previously discussed,
we sold our interest in Petrocoque in November 2006. They are
not considered a related party in periods subsequent to November
2006. |
|
(D) |
|
We earn interest income on a loan due from Aluminium Norf GmbH. |
|
n.a. |
|
not applicable see (C). |
The following table describes the period-end account balances
that we have with these non-consolidated affiliates, shown as
related party balances in the accompanying consolidated balance
sheets (in millions). We have no other material related party
balances.
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Accounts receivable(A)
|
|
$
|
31
|
|
|
|
$
|
25
|
|
Other long-term receivables(A)
|
|
$
|
41
|
|
|
|
$
|
54
|
|
Accounts payable(B)
|
|
$
|
55
|
|
|
|
$
|
49
|
|
|
|
|
(A) |
|
The balances represent current and non-current portions of a
loan due from Aluminium Norf GmbH. |
|
(B) |
|
We purchase tolling services from Aluminium Norf GmbH and
electricity from Consorcio Candonga. |
136
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
ACCRUED
EXPENSES AND OTHER CURRENT LIABILITIES
|
Accrued expenses and other current liabilities are comprised of
the following (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Accrued compensation and benefits
|
|
$
|
141
|
|
|
|
$
|
138
|
|
Accrued settlement of legal claim
|
|
|
39
|
|
|
|
|
39
|
|
Accrued interest payable
|
|
|
15
|
|
|
|
|
24
|
|
Accrued income taxes
|
|
|
35
|
|
|
|
|
9
|
|
Current portion of fair value of unfavorable sales contracts
|
|
|
242
|
|
|
|
|
|
|
Current portion of fair value of derivative instruments
|
|
|
148
|
|
|
|
|
33
|
|
Other current liabilities
|
|
|
230
|
|
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
$
|
850
|
|
|
|
$
|
480
|
|
|
|
|
|
|
|
|
|
|
|
Debt consists of the following (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Unamortized
|
|
|
|
|
|
|
Principal/
|
|
|
|
Interest
|
|
|
|
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
Carrying
|
|
|
|
Rates(A)
|
|
|
Principal
|
|
|
Adjustments(B)
|
|
|
Value
|
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
Predecessor
|
|
Novelis Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.25% Senior Notes, due February 2015
|
|
|
7.25
|
%
|
|
$
|
1,399
|
|
|
$
|
67
|
|
|
$
|
1,466
|
|
|
|
$
|
1,400
|
|
Floating rate Term Loan facility, due July 2014
|
|
|
4.70
|
%
|
|
|
298
|
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
Floating rate Term Loan B(D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259
|
|
Novelis Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate Term Loan facility, due July 2014
|
|
|
4.70
|
%(C)
|
|
|
655
|
|
|
|
|
|
|
|
655
|
|
|
|
|
|
|
Floating rate Term Loan B(D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
449
|
|
Novelis Switzerland S.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation, due January 2020 (Swiss francs (CHF)
54 million)
|
|
|
7.50
|
%
|
|
|
54
|
|
|
|
(4
|
)
|
|
|
50
|
|
|
|
|
46
|
|
Capital lease obligation, due August 2011 (CHF 3 million)
|
|
|
2.49
|
%
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
4
|
|
Novelis Korea Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loan, due October 2010
|
|
|
5.44
|
%
|
|
|
100
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
Bank loan, due December 2007(F)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
Bank loan (Korean won (KRW) 40 billion)(E)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
Bank loan, due December 2007 (KRW 25 billion)(F)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
Bank loans, due September 2008 through June 2011 (KRW
1 billion)
|
|
|
3.60
|
%(G)
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
1
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt, due April 2008 through December 2012
|
|
|
1.99
|
%(G)
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
|
|
|
|
2,512
|
|
|
|
63
|
|
|
|
2,575
|
|
|
|
|
2,300
|
|
Less: current portion
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt net of current portion
|
|
|
|
|
|
$
|
2,497
|
|
|
$
|
63
|
|
|
$
|
2,560
|
|
|
|
$
|
2,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Interest rates are as of March 31, 2008 and exclude the
effects of accretion/amortization of fair value adjustments as a
result of the Arrangement. |
|
(B) |
|
Debt was recorded at fair value as a result of the Arrangement
(see Note 2 Acquisition of Novelis Common
Stock). |
137
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
(C) |
|
Excludes the effect of any related interest rate swaps. See
New Senior Secured Credit Facilities. |
|
(D) |
|
The Floating rate Term Loan B was refinanced in July 2007. See
New Senior Secured Credit Facilities. |
|
(E) |
|
The Bank loan was refinanced in August 2007 with a short-term
borrowing. See Korean Bank Loans. |
|
(F) |
|
These two Bank loans were refinanced in October 2007. See
Korean Bank Loans. |
|
(G) |
|
Weighted average interest rate. |
Principal repayment requirements for our total debt over the
next five years and thereafter (excluding unamortized fair value
adjustments and using rates of exchange as of March 31,
2008 for our debt denominated in foreign currencies) are as
follows (in millions).
|
|
|
|
|
Year Ending March 31,
|
|
Amount
|
|
|
2009
|
|
$
|
15
|
|
2010
|
|
|
14
|
|
2011
|
|
|
114
|
|
2012
|
|
|
14
|
|
2013
|
|
|
14
|
|
Thereafter
|
|
|
2,341
|
|
|
|
|
|
|
Total
|
|
$
|
2,512
|
|
|
|
|
|
|
New
Senior Secured Credit Facilities
On May 25, 2007, we entered into a Bank and Bridge
Facilities Commitment with affiliates of UBS and ABN AMRO, to
provide backstop assurance for the refinancing of our existing
indebtedness following the Arrangement. The commitments from UBS
and ABN AMRO, provided by the banks on a 50%-50% basis,
consisted of the following: (1) a senior secured term loan
of up to $1.06 billion; (2) a senior secured
asset-based revolving credit facility of up to $900 million
and (3) a commitment to issue up to $1.2 billion of
unsecured senior notes, if necessary. The commitment contained
terms and conditions customary for facilities of this nature.
In connection with these backstop commitments, we paid fees
totaling $14 million, which were included in Other
long-term assets third parties as of
June 30, 2007. Of this amount, $6 million was related
to the unsecured senior notes, which were not refinanced, and
was written off during the quarter ended September 30,
2007. The remaining $8 million in fees paid have been
credited by the lenders towards fees associated with the new
senior secured credit facilities (described below) and will be
amortized over the lives of the related borrowings.
On July 6, 2007, we entered into new senior secured credit
facilities with a syndicate of lenders led by affiliates of UBS
and ABN AMRO (New Credit Facilities) providing for aggregate
borrowings of up to $1.76 billion. The New Credit
Facilities consist of (1) a $960 million seven-year
Term Loan facility (Term Loan facility) and (2) an
$800 million five year multi-currency asset-based revolving
credit line and letter of credit facility (ABL facility).
Under the ABL facility, interest charged is dependent on the
type of loan as follows: (1) any swingline loan or any loan
categorized as an ABR borrowing will bear interest at an annual
rate equal to the alternate base rate (which is the greater of
(a) the base rate in effect on a given day and (b) the
federal funds effective rate in effect on a given day, plus
0.50%) plus the applicable margin; (2) Eurocurrency loans
will bear interest at an annual rate equal to the adjusted LIBOR
rate for the applicable interest period, plus the applicable
margin; (3) loans designated as Canadian base rate
borrowings will bear an annual interest rate equal to the
Canadian base rate (CAPRIME), plus the applicable margin;
(4) loans designated as bankers acceptances (BA) rate loans
will bear interest at the average discount rate offered for
bankers acceptances for the applicable BA
138
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
interest period, plus the applicable margin and (5) loans
designated as Euro Interbank Offered Rate (EURIBOR) loans will
bear interest annually at a rate equal to the adjusted EURIBOR
rate for the applicable interest period, plus the applicable
margin. Applicable margins under the ABL facility depend upon
excess availability levels calculated on a quarterly basis.
Generally, for both the Term Loan facility and ABL facility,
interest rates reset every three months and interest is payable
on a monthly, quarterly, or other periodic basis depending on
the type of loan.
The proceeds from the Term Loan facility of $960 million,
drawn in full at the time of closing, and an initial draw of
$324 million under the ABL facility were used to pay off
our old senior secured credit facility (discussed below), pay
for debt issuance costs of the New Credit Facilities and provide
for additional working capital. Mandatory minimum principal
amortization payments under the Term Loan facility are
$2.4 million per calendar quarter. The first minimum
principal amortization payment was made on September 30,
2007. Additional mandatory prepayments are required to be made
for certain collateral liquidations, asset sales, debt and
preferred stock issuances, equity issuances, casualty events and
excess cash flow (as defined in the New Credit Facilities). Any
unpaid principal is due in full on July 6, 2014.
Under the Term Loan facility, loans characterized as alternate
base rate (ABR) borrowings bear interest annually at a rate
equal to the alternate base rate (which is the greater of
(a) the base rate in effect on a given day and (b) the
federal funds effective rate in effect on a given day, plus
0.50%) plus the applicable margin. Loans characterized as
Eurocurrency borrowings bear interest at an annual rate equal to
the adjusted LIBOR rate for the interest period in effect, plus
the applicable margin.
Borrowings under the ABL facility are generally based on 85% of
eligible accounts receivable and 75% to 85% of eligible
inventories. Commitment fees ranging from 0.25% to 0.375% are
based on average daily amounts outstanding under the ABL
facility during a fiscal quarter and are payable quarterly.
The New Credit Facilities include customary affirmative and
negative covenants. Under the ABL facility, if our excess
availability, as defined under the borrowing, is less than 10%
of the borrowing base, we are required to maintain a minimum
fixed charge coverage ratio of 1 to 1. Substantially all of our
assets are pledged as collateral under the New Credit Facilities.
We incurred debt issuance costs on our New Credit Facilities
totaling $32 million, including the $8 million in fees
previously paid in conjunction with the backstop commitment.
These fees are included in Other long-term assets
third parties and are being amortized over the life of the
related borrowing in Interest expense and amortization of
debt issuance costs net using the
effective interest amortization method for the Term
Loan facility and the straight-line method for the ABL facility.
The unamortized amount of these costs was $27 million as of
March 31, 2008.
During the quarter ended December 31, 2007, we entered into
interest rate swaps to fix the variable LIBOR interest rate for
up to $600 million of our floating rate Term Loan facility
at effective weighted average interest rates and amounts
expiring as follows: (i) 4.1% on $600 million through
September 30, 2008, (ii) 4.0% on $500 million
through March 31, 2009 and (iii) 4.0% on
$400 million through March 31, 2010. We are still
obligated to pay any applicable margin, as defined in our New
Credit Facilities, in addition to these interest rates.
On July 3, 2007, we terminated an interest rate swap to fix
the 3-month
LIBOR interest rate at an effective weighted average interest
rate of 3.9% on $100 million of the floating rate Term Loan
B debt, which was originally scheduled to expire on
February 3, 2008. The termination resulted in a gain of
less than $1 million.
As of March 31, 2008 approximately 84% of our debt was
fixed rate and approximately 16% was variable rate.
139
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Old
Senior Secured Credit Facilities
In connection with our spin-off from Alcan, we entered into
senior secured credit facilities (Old Credit Facilities)
providing for aggregate borrowings of up to $1.8 billion.
The Old Credit Facilities consisted of (1) a
$1.3 billion seven-year senior secured Term Loan B
facility, bearing interest at London Interbank Offered Rate
(LIBOR) plus 1.75% (which was subject to change based on certain
leverage ratios), all of which was borrowed on January 10,
2005, and (2) a $500 million five-year multi-currency
revolving credit and letters of credit facility.
The Old Credit Facilities included 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. Substantially
all of our assets were pledged as collateral under the Old
Credit Facilities.
The terms of our Old Credit Facilities required that we deliver
unaudited quarterly and audited annual financial statements to
our lenders within specified periods of time. Due to delays in
certain of our SEC filings for 2005 and 2006, we obtained a
series of five waiver and consent agreements from the lenders
under the facility to extend the various filing deadlines. Fees
paid related to the five waiver and consent agreements totaled
$6 million.
On October 16, 2006, we amended the financial covenants to
our Old Credit Facilities. In particular, we amended our maximum
total leverage, minimum interest coverage, and minimum fixed
charge coverage ratios through the quarter ended March 31,
2008.
We also amended and modified other provisions of the Old Credit
Facilities to permit more efficient ordinary-course operations,
including increasing the amounts of certain permitted
investments and receivables securitizations, permitting nominal
quarterly dividends, and the transfer of an intercompany loan to
another subsidiary. In return for these amendments and
modifications, we paid aggregate fees of approximately
$3 million to lenders who consented to the amendments and
modifications, and agreed to continue paying higher applicable
margins on our Old Credit Facilities, and higher unused
commitment fees on our existing revolving credit facilities that
were instated with a prior waiver and consent agreement in May
2006. Commitment fees related to the unused portion of the
$500 million revolving credit facility were 0.625% per
annum.
On April 27, 2007, our lenders consented to a further
amendment of our Old Credit Facilities. The amendment included
increasing the Term Loan B facility by $150 million. We
utilized the additional funds available under the Term Loan B
facility to reduce the outstanding balance of our
$500 million revolving credit facility. The additional
borrowing capacity under the revolving credit facility was used
to fund working capital requirements and certain costs
associated with the Arrangement, including the cash settlement
of share-based compensation arrangements and lender fees.
Additionally, the amendment included a limited waiver of the
change of control Event of Default (as defined) which
effectively extended the requirement to repay the Old Credit
Facilities to July 11, 2007. We paid fees of approximately
$2 million to lenders who consented to this amendment.
Total debt issuance costs of $43 million, including
amendment fees and the waiver and consent agreements discussed
above, had been recorded in Other long-term
assets third parties and were being amortized
over the life of the related borrowing in Interest expense
and amortization of debt issuance costs net
using the effective interest amortization method
for the Term Loans and the straight-line method for the
revolving credit and letters of credit facility. The unamortized
amount of these costs was $26 million as of March 31,
2007. We incurred an additional $2 million in debt issuance
costs as described above during the period from April 1,
2007 through May 15, 2007. As a result of the Arrangement
and the recording of debt at fair value, the total amount of
unamortized debt issuance costs of $28 million was reduced
to zero as of May 15, 2007.
140
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
7.25% Senior
Notes
On February 3, 2005, we issued $1.4 billion aggregate
principal amount of senior unsecured debt securities (Senior
Notes). The Senior Notes were priced at par, bear interest at
7.25% and mature on February 15, 2015.
As a result of the Arrangement, the Senior Notes were recorded
at their fair value of $1.474 billion based on their market
price of 105.25% of $1,000 face value per bond as of
May 14, 2007. The incremental fair value of
$74 million is being amortized to interest income over the
remaining life of the Senior Notes in Interest expense and
amortization of debt issuance costs net using
the effective interest amortization method.
Debt issuance costs totaling $28 million relating to the
Senior Notes had also been included in Other long-term
assets third parties and were being amortized
over the life of the related borrowing in Interest expense
and amortization of debt issuance costs net
using the effective interest amortization
method. The unamortized amount of these costs was
$24 million as of March 31, 2007. As a result of the
Arrangement and the recording of debt at fair value, the total
amount of unamortized debt issuance costs of $23 million
was reduced to zero as of May 15, 2007.
Under the indenture that governs the Senior Notes, we are
subject to certain restrictive covenants applicable to incurring
additional debt and providing additional guarantees, paying
dividends beyond certain amounts and making other restricted
payments, sales and transfers of assets, certain consolidations
or mergers, and certain transactions with affiliates.
The indenture governing the Senior Notes and the related
registration rights agreement required us to file a registration
statement for the notes and exchange the original, privately
placed notes for registered notes. Under the indenture and the
related registration rights agreement, we were required to
complete the exchange offer for the Senior Notes by
November 11, 2005. We did not complete the exchange offer
by that date and, as a result, we began to incur additional
special interest at rates ranging from 0.25% to 1.00%. We filed
a post-effective amendment to the registration statement on
December 1, 2006 which was declared effective by the SEC on
December 22, 2006. We ceased paying additional special
interest effective January 5, 2007, upon completion of the
exchange offer.
Tender
Offer and Consent Solicitation for 7.25% Senior
Notes
Pursuant to the terms of the indenture governing our Senior
Notes, we were obligated, within 30 days of closing of the
Arrangement, to make an offer to purchase the Senior Notes at a
price equal to 101% of their principal amount, plus accrued and
unpaid interest to the date the Senior Notes were purchased.
Consequently, we commenced a tender offer on May 16, 2007
to repurchase all of the outstanding Senior Notes at the
prescribed price. This offer expired on July 3, 2007 with
holders of approximately $1 million of principal presenting
their Senior Notes pursuant to the tender offer.
Korean
Bank Loans
In November 2004, Novelis Korea Limited (Novelis Korea),
formerly Alcan Taihan Aluminium Limited, entered into a Korean
won (KRW) 40 billion ($40 million) floating rate
long-term loan due November 2007. We immediately entered into an
interest rate swap to fix the interest rate at 4.80%. In August
2007, we refinanced this loan with a floating rate short-term
borrowing in the amount of $40 million due by August 2008.
We recognized a loss on extinguishment of debt of less than
$1 million in connection with this refinancing.
Additionally, we immediately entered into an interest rate swap
and cross currency swap for the new loan through a 3.94% fixed
rate KRW 38 billion ($38 million) loan.
141
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
In December 2004, we entered into (1) a $70 million
floating rate loan and (2) a KRW 25 billion
($25 million) floating rate loan, both due in December
2007. We immediately entered into an interest rate and cross
currency swap on the $70 million floating rate loan through
a 4.55% fixed rate KRW 73 billion ($73 million) loan
and an interest rate swap on the KRW 25 billion floating
rate loan to fix the interest rate at 4.45%. On October 25,
2007, we entered into a $100 million floating rate loan due
October 2010 and immediately repaid the $70 million loan.
In December 2007, we repaid the KRW 25 billion loan from
the proceeds of the $100 million floating rate loan.
Additionally, we immediately entered into an interest rate swap
and cross currency swap for the $100 million floating rate
loan through a 5.44% fixed rate KRW 92 billion
($92 million) loan.
Other
Agreements
In May 2007, we terminated a loan and a corresponding
deposit-and-guarantee
agreement for $80 million. We did not include the loan or
deposit amounts in our consolidated balance sheets as of
March 31, 2007 as the agreement included a legal right of
setoff and we had the intent and ability to setoff.
Capital
Lease Obligations
In December 2004, we entered into a fifteen-year capital lease
obligation with Alcan for assets in Sierre, Switzerland, which
has an interest rate of 7.5% and fixed quarterly payments of CHF
1.7 million, which is equivalent to $1.7 million at
the exchange rate as of March 31, 2008.
In September 2005, we entered into a six-year capital lease
obligation for equipment in Switzerland which has an interest
rate of 2.49% and fixed monthly payments of CHF
0.1 million, which is equivalent to $0.1 million at
the exchange rate as of March 31, 2008.
Short-Term
Borrowings and Lines of Credit
As of March 31, 2008, our short-term borrowings were
$115 million consisting of (1) $70 million of
short-term loans under our ABL facility, (2) a
$40 million in short-term loan in Korea and
(3) $5 million in bank overdrafts. As of
March 31, 2008, $28 million of our ABL facility was
utilized for letters of credit and we had $582 million in
remaining availability under this revolving credit facility.
As of March 31, 2008, we had an additional
$120 million under letters of credit in Korea not included
in our revolving credit facility. The weighted average interest
rate on our total short-term borrowings was 4.12% and 7.77% as
of March 31, 2008 and 2007, respectively.
142
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
The components of other comprehensive income (loss) are as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Net change in foreign currency translation adjustments
|
|
$
|
26
|
|
|
|
$
|
31
|
|
|
$
|
11
|
|
|
$
|
172
|
|
|
$
|
(169
|
)
|
Net change in fair value of effective portion of hedges
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
7
|
|
|
|
(46
|
)
|
|
|
|
|
Postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Net change in pension and other benefits
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
(14
|
)
|
Net other comprehensive income (loss) adjustments, before income
tax effect
|
|
|
9
|
|
|
|
|
29
|
|
|
|
20
|
|
|
|
142
|
|
|
|
(183
|
)
|
Income tax effect
|
|
|
4
|
|
|
|
|
4
|
|
|
|
(5
|
)
|
|
|
(8
|
)
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
13
|
|
|
|
$
|
33
|
|
|
$
|
15
|
|
|
$
|
134
|
|
|
$
|
(172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), net of income tax
effects, consists of the following (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Foreign currency translation adjustments
|
|
$
|
26
|
|
|
|
$
|
144
|
|
Fair value of effective portion of hedges net
|
|
|
|
|
|
|
|
(43
|
)
|
Postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
|
|
|
|
|
(82
|
)
|
Pension and other benefits
|
|
|
(13
|
)
|
|
|
|
|
|
Net prior service cost
|
|
|
|
|
|
|
|
(8
|
)
|
Net transition obligation
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
$
|
13
|
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
143
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
The carrying value approximates fair value for our financial
instruments that are classified as current in our consolidated
balance sheets. The fair values of our financial instruments
that are recorded at cost and classified as long-term are
summarized in the table below (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
|
Value
|
|
|
Value
|
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term receivables from related parties
|
|
$
|
72
|
|
|
$
|
72
|
|
|
|
$
|
54
|
|
|
$
|
54
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Novelis Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.25% Senior Notes, due February 2015
|
|
|
1,466
|
|
|
|
1,249
|
|
|
|
|
1,400
|
|
|
|
1,481
|
|
Floating rate Term Loan facility, due July 2014
|
|
|
298
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
Floating rate Term Loan B
|
|
|
|
|
|
|
|
|
|
|
|
259
|
|
|
|
259
|
|
Novelis Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate Term Loan facility, due July 2014
|
|
|
655
|
|
|
|
655
|
|
|
|
|
|
|
|
|
|
|
Floating rate Term Loan B
|
|
|
|
|
|
|
|
|
|
|
|
449
|
|
|
|
449
|
|
Novelis Switzerland S.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation, due January 2020 (CHF 54 million)
|
|
|
50
|
|
|
|
43
|
|
|
|
|
46
|
|
|
|
43
|
|
Capital lease obligation, due August 2011 (CHF 3 million)
|
|
|
3
|
|
|
|
3
|
|
|
|
|
4
|
|
|
|
3
|
|
Novelis Korea Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loan, due October 2010
|
|
|
100
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
Bank loan, due December 2007
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
67
|
|
Bank loan (KRW 40 billion)
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
41
|
|
Bank loan, due December 2007 (KRW 25 billion)
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
26
|
|
Bank loans, due September 2008 through June 2011
(KRW 1 billion)
|
|
|
1
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
1
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt, due April 2008 through December 2012
|
|
|
2
|
|
|
|
2
|
|
|
|
|
2
|
|
|
|
2
|
|
Financial commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial instruments are marked to market to adjust to
fair value and are disclosed in Note 16
Financial Instruments and Commodity Contracts.
144
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
SHARE-BASED
COMPENSATION
|
Effect of
Acquisition by Hindalco
As a result of the Arrangement (see Note 2
Acquisition of Novelis Common Stock in the accompanying
consolidated and combined financial statements), all of our
share-based compensation awards (except for our Recognition
Awards) were accelerated to vest, cancelled and settled in cash
using the $44.93 purchase price per common share paid by
Hindalco in the transaction. We made aggregate cash payments
(including applicable payroll-related taxes) totaling
$72 million to plan participants following consummation of
the Arrangement, as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares/Units
|
|
|
Cash Payments
|
|
|
|
Settled
|
|
|
(In millions)
|
|
|
Novelis 2006 Incentive Plan (stock options)
|
|
|
825,850
|
|
|
$
|
16
|
|
Novelis 2006 Incentive Plan (stock appreciation rights)
|
|
|
378,360
|
|
|
|
7
|
|
Novelis Conversion Plan of 2005
|
|
|
1,238,183
|
|
|
|
29
|
|
Stock Price Appreciation Unit Plan
|
|
|
299,873
|
|
|
|
7
|
|
Deferred Share Unit Plan for Non-Executive Directors
|
|
|
109,911
|
|
|
|
5
|
|
Novelis Founders Performance Awards
|
|
|
180,400
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
Compensation expense resulting from the accelerated vesting of
plan awards, totaling $45 million is included in
Selling, general and administrative expenses in our
consolidated statement of operations for the period from
April 1, 2007 through May 15, 2007. We also recorded a
$7 million reduction to Additional paid-in capital
during the period from April 1, 2007 through
May 15, 2007 for the conversion of certain of our
share-based compensation plans from equity-based to
liability-based plans.
Our Recognition Awards plan remains in place as of
March 31, 2008. However, the awards are now payable only in
either, at the option of the executive, (i) Hindalco common
shares (if offered by Hindalco) or (ii) cash.
Adoption
of FASB Statement No. 123 (Revised)
On January 1, 2006, we adopted FASB Statement
No. 123(R) using the modified prospective method. The
modified prospective method requires companies to record
compensation cost beginning with the effective date based on the
requirements of FASB Statement No. 123(R) for all
share-based payments granted after the effective date. All
awards granted to employees prior to the effective date of FASB
Statement No. 123(R) that remain unvested at the adoption
date will continue to be expensed over the remaining service
period. The cumulative effect of the accounting change, net of
tax, as of January 1, 2006 was approximately
$1 million, and was not considered material as to require
presentation as a cumulative effect of accounting change in the
accompanying consolidated and combined statements of operations.
Accordingly, the expense recognized as a result of adopting FASB
Statement No. 123(R) was included in Selling, general
and administrative expenses in the quarter ended
March 31, 2006.
Recognition
Awards
On September 25, 2006, we entered into Recognition
Agreements and granted Recognition Awards to certain executive
officers and other key employees (Executives) to retain and
reward them for continued dedication towards corporate
objectives. Under the terms of these agreements, Executives who
remain continuously employed by us through the vesting dates of
December 31, 2007 and December 31, 2008 are entitled
to receive one-half of their total Recognition Awards on each
vesting date.
145
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
On February 10, 2007, our board of directors adopted
resolutions to amend the Recognition Awards with the Executives.
As amended, if the Executive remains continuously employed by us
through the vesting dates of December 31, 2007 and
December 31, 2008, the Executive is entitled to the awards,
payable at a value of $44.93 per share, in either, at the option
of the Executive, (i) Hindalco common shares (if offered by
Hindalco) or (ii) cash.
The number of Recognition Awards payable under the agreements
varies by Executive. Originally, there were 145,800 shares
subject to award. Prior to the Arrangement and in accordance
with the provisions of FASB Statement No. 123(R), we valued
these awards as of the issuance date and were recognizing their
cost over the requisite service period of the Executives. As a
result of the Arrangement, the Recognition Awards changed from
an equity-based to a liability-based plan using the $44.93 per
common share transaction price as the per share value. This
change resulted in additional share-based compensation expense
of $1.3 million during the period from April 1, 2007
through May 15, 2007.
One-half of the outstanding Recognition Awards vested on
December 31, 2007, and were settled for approximately
$3 million in cash in January 2008.
The table below shows the activity for our Recognition Awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Number of
|
|
|
Fair Value
|
|
|
Award
|
|
|
|
Recognition
|
|
|
at Grant
|
|
|
Redemption
|
|
|
|
Awards
|
|
|
Date
|
|
|
Price
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition Awards as of December 31, 2006
|
|
|
145,800
|
|
|
$
|
23.15
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition Awards as of March 31, 2007
|
|
|
145,800
|
|
|
$
|
23.15
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition Awards as of May 15, 2007
|
|
|
145,800
|
|
|
|
|
|
|
$
|
44.93
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(59,050
|
)
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
(30,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition Awards as of March 31, 2008
|
|
|
56,350
|
|
|
|
|
|
|
$
|
44.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008, there was approximately
$1 million of unamortized compensation expense related to
the remaining vesting date for the Recognition Awards, which is
expected to be recognized over the next 0.75 years.
Novelis
2006 Incentive Plan
At our annual shareholders meeting on October 26, 2006, our
shareholders approved the Novelis 2006 Incentive Plan (2006
Incentive Plan) to effectively replace the Novelis Conversion
Plan of 2005 and Stock Price Appreciation Unit Plan (both
described below). Under the 2006 Incentive Plan, up to an
aggregate number of 7,000,000 shares of Novelis common
stock were authorized to be issued in the form of stock options,
stock appreciation rights (SARs), restricted shares, restricted
share units, performance shares and other share-based
incentives. Stock options and SARs expire seven years from their
grant date. SARs may be settled
146
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
in cash, common shares or a combination thereof, at the election
of the holder. Any shares that were subject to an award under
the 2006 Incentive Plan other than stock options and SARs would
be counted against the 7,000,000 share limit as
1.75 shares for every one share subject to the award. The
number of annual awards issued to any single employee or
non-employee director was limited. The Human Resources Committee
of our board of directors had the discretion to determine which
employees and non-employee directors receive awards and the
type, number and terms and conditions of such awards under the
2006 Incentive Plan. As a result of the Arrangement, all awards
under the 2006 Incentive Plan were accelerated to vest,
cancelled and settled in cash using the $44.93 purchase price
per common share paid by Hindalco in the transaction.
2006
Stock Options
On October 26, 2006, our board of directors authorized a
grant of an aggregate of 885,170 seven-year non-qualified stock
options under the 2006 Incentive Plan at an exercise price of
$25.53 to certain of our executive officers and key employees.
These options were comprised of equal portions of premium and
non-premium options. Both the premium and non-premium options
were to vest ratably in 25% annual increments over a four year
period measured from October 26, 2006, and could be
exercised, in whole or in part, once vested. However, while the
premium and non-premium options carried the same exercise price
of $25.53, in no event could the premium options be exercised
unless the fair market value per share, as defined in the 2006
Incentive Plan, on the business day preceding the exercise date
equaled or exceeded $28.59. As a result of the Arrangement, all
of our stock options under the 2006 Incentive Plan were
accelerated to vest, cancelled and settled in cash using the
$44.93 purchase price per common share paid by Hindalco in the
transaction.
The table below shows the option activity (for both premium and
non-premium options) under our 2006 Incentive Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
(In years)
|
|
|
Value
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2006
|
|
|
858,500
|
|
|
$
|
25.53
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
(32,650
|
)
|
|
$
|
25.53
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of March 31, 2007
|
|
|
825,850
|
|
|
$
|
25.53
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settled as a result of the Arrangement
|
|
|
(825,850
|
)
|
|
$
|
25.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of May 15, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable as of May 15, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to the Arrangement, we used the Monte Carlo valuation
model to determine the fair value of the premium options
outstanding under the 2006 Incentive Plan. The Monte Carlo model
utilizes multiple input variables that determine the probability
of satisfying the market condition stipulated in the award and
calculates the fair market value of each award. Because our
trading history was shorter than the expected life of the
options, we used historical stock price volatility data from
comparable companies to supplement our own historical volatility
to determine expected volatility assumptions. The annual
expected dividend yield was based on dividend payments of $0.01
per share per quarter. Risk-free interest rates were based on
147
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
U.S. Treasury Strip yields, compounded daily, consistent
with the expected lives of the options. The fair value of the
premium options was being amortized over the requisite service
period of each award, which was originally from one to four
years, subject to acceleration in cases where the employee
elects retirement or is retirement eligible after
October 26, 2007.
Prior to the Arrangement, we used the Black-Scholes valuation
model to determine the fair value of non-premium options issued.
Because our trading history was shorter than the expected life
of the options, we used historical stock price volatility data
from comparable companies to supplement our own historical
volatility to determine expected volatility assumptions. The
annual expected dividend yield was based on dividend payments of
$0.01 per share per quarter. Risk-free interest rates were based
on U.S. Treasury Strip yields, compounded daily, consistent
with the expected lives of the options. Because we did not have
a sufficient history of option exercise or cancellation, we
estimated the expected life of the options based on an extension
of the simplified method as prescribed by SEC Staff
Accounting Bulletin No. 107, Share-Based Payment
(SAB No. 107), which allows for the use of a
mid-point between the earliest and latest dates that an award
can be exercised.
The weighted-average fair value of premium and non-premium
options granted during the year ended December 31, 2006
under the 2006 Incentive Plan was $10.08 and $10.73,
respectively. No premium or non-premium options under the 2006
Incentive Plan were granted during the three month period ended
March 31, 2007 or from April 1, 2007 through
May 15, 2007. Prior to the Arrangement, the fair value of
our premium and non-premium options was estimated using the
following assumptions:
|
|
|
|
|
Year Ended
|
|
|
December 31, 2006;
|
|
|
Three Months Ended
|
|
|
March 31, 2007; and
|
|
|
the Period from
|
|
|
April 1, 2007
|
|
|
Through
|
|
|
May 15, 2007
|
|
|
Predecessor
|
|
Expected volatility
|
|
42.20 to 46.40%
|
Weighted average volatility
|
|
44.30%
|
Dividend yield
|
|
0.16%
|
Risk-free interest rate
|
|
4.68 to 4.71%
|
Expected life
|
|
1.00 to 4.75 years
|
As a result of the Arrangement, 825,850 premium and non-premium
options under the 2006 Incentive Plan were accelerated to vest
and were settled in cash for approximately $16 million.
Stock
Appreciation Rights
On October 26, 2006, our board of directors authorized a
grant of 381,090 Stock Appreciation Rights (SARs) under the 2006
Incentive Plan at an exercise price of $25.53 to certain of our
executive officers and key employees. The terms of the SARs were
identical in all material respects to those of the stock options
issued under the 2006 Incentive Plan, except that the
incremental increase in the value of the SARs was to be settled
in cash rather than shares of Novelis common stock at the
time of exercise. The SARs were comprised of two equal portions:
premium and non-premium SARs. Both the premium and non-premium
SARs vested ratably in 25% annual increments over the four-year
period measured from October 26, 2006, and could be
exercised, in whole or in part, once vested. However, while the
premium and non-premium SARs carried the same exercise price of
$25.53, in no event could the premium SARs be exercised unless
the fair market value per share, as defined in the 2006
Incentive Plan, on the business day preceding the exercise date
equaled or exceeded $28.59. As a result of the Arrangement, all
of our SARs under the 2006 Incentive Plan were
148
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
accelerated to vest, cancelled and settled in cash using the
$44.93 purchase price per common share paid by Hindalco in the
transaction.
The table below shows the SARs activity (for both premium and
non-premium SARs) under our 2006 Incentive Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
SARs
|
|
|
Exercise Price
|
|
|
(In years)
|
|
|
Value
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs outstanding as of December 31, 2006
|
|
|
381,090
|
|
|
$
|
25.53
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
(1,090
|
)
|
|
$
|
25.53
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs outstanding as of March 31, 2007
|
|
|
380,000
|
|
|
$
|
25.53
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
(1,640
|
)
|
|
$
|
25.53
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settled as a result of the Arrangement
|
|
|
(378,360
|
)
|
|
$
|
25.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs outstanding as of May 15, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs exercisable as of May 15, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to the Arrangement, we used the Monte Carlo valuation
model to determine the fair value of the premium SARs
outstanding under the 2006 Incentive Plan. The Monte Carlo model
utilizes multiple input variables that determine the probability
of satisfying the market condition stipulated in the award and
calculates the fair market value of each award. Because our
trading history was shorter than the expected life of the SARs,
we used historical stock price volatility data from comparable
companies to supplement our own historical volatility to
determine expected volatility assumptions. No quarterly or
annual dividend was expected. Risk-free interest rates were
based on U.S. Treasury Strip yields, compounded daily,
consistent with the expected remaining lives of the premium
SARs. The fair value of the premium SARs was being amortized
over the requisite remaining service period of each award,
subject to acceleration in cases where the employee elects
retirement or is retirement eligible after October 26, 2007.
Prior to the Arrangement, we used the Black-Scholes valuation
model to determine the fair value of the non-premium SARs
outstanding. Because our trading history was shorter than the
expected life of the SARs, we used historical stock price
volatility data from comparable companies to supplement our own
historical volatility to determine expected volatility
assumptions. No quarterly or annual dividend was expected.
Risk-free interest rates were based on U.S. Treasury Strip
yields, compounded daily, consistent with the expected remaining
lives of the SARs. Because we did not have a sufficient history
of SAR exercise or cancellation, we estimated the expected
remaining life of the SARs based on an extension of the
simplified method as prescribed by
SAB No. 107.
149
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The fair value of premium and non-premium SARs under the 2006
Incentive Plan was estimated using the following assumptions:
|
|
|
|
|
|
|
Three Months Ended
|
|
Year Ended
|
|
|
March 31, 2007
|
|
December 31, 2006
|
|
|
Predecessor
|
|
Predecessor
|
|
Expected volatility
|
|
40.70 to 44.70%
|
|
40.80 to 45.40%
|
Weighted average volatility
|
|
42.70%
|
|
43.10%
|
Dividend yield
|
|
None
|
|
0.14%
|
Risk-free interest rate
|
|
4.51 to 4.59%
|
|
4.67 to 4.71%
|
Expected life
|
|
0.57 to 4.32 years
|
|
0.83 to 4.57 years
|
As a result of the Arrangement, 378,360 premium and non-premium
SARs were accelerated to vest and were settled in cash for
approximately $7 million.
Novelis
Conversion Plan of 2005
On January 5, 2005, our board of directors adopted the
Novelis Conversion Plan of 2005 (the Conversion Plan) to allow
for 1,372,663 Alcan stock options held by employees of Alcan who
became our employees following our spin-off from Alcan to be
replaced with options to purchase 2,723,914 of our common
shares. All options were to expire ten years from their date of
grant. All converted options that were vested on the spin-off
date continued to be vested. Unvested options as of the spin-off
date were to vest in four equal annual installments beginning on
January 6, 2006, the first anniversary of the spin-off date.
In October 2006, we amended the Conversion Plan to allow
(1) the immediate vesting of all options upon the death or
retirement of the optionee and (2) in the case of an
unsolicited change of control of Novelis, all options will vest
immediately. While the amendment of the Conversion Plan has been
accounted for as a modification under FASB Statement
No. 123(R), it resulted in no incremental compensation cost
as the fair value of the modified options after the modification
was less than the fair value of the options immediately before
the modification. However, options held by 67 employees who
had retired or were retirement eligible were affected by this
modification, which included the accelerated vesting of 821,318
options for 20 employees who had previously retired. As a
result of this modification, we accelerated the vesting for
employees who previously retired and shortened the requisite
service period for all remaining employees based on their
retirement eligibility date. We recorded additional compensation
expense of $4 million during the three months ended
December 31, 2006 as a result of this modification.
As a result of the Arrangement, all of our unvested stock
options under the Conversion Plan were accelerated to vest,
cancelled and settled in cash using the $44.93 purchase price
per common share paid by Hindalco in the transaction.
150
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The following table shows the option activity in our Conversion
Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
(In years)
|
|
|
Value
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2006
|
|
|
2,514,277
|
|
|
$
|
21.84
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,217,325
|
)
|
|
$
|
21.95
|
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of March 31, 2007
|
|
|
1,296,952
|
|
|
$
|
21.74
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(57,876
|
)
|
|
$
|
22.00
|
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
(893
|
)
|
|
$
|
23.74
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settled as a result of the Arrangement
|
|
|
(1,238,183
|
)
|
|
$
|
21.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of May 15, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable as of May 15, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to the Arrangement, we used the Black-Scholes valuation
model to determine the fair value of the options outstanding.
Because we had no trading history at the time of the valuation,
we used historical stock price volatility data from comparable
companies to determine expected volatility assumptions. The
annual expected dividend yield was based on our then current and
anticipated dividend payments. Risk-free interest rates were
based on U.S. Treasury bond yields, compounded daily,
consistent with the expected lives of the options. Because we
did not have a sufficient history of option exercise or
cancellation, we estimated the expected life of the options
based on the lesser of the expected term of six years or the
remaining life of the option.
No new options under the Conversion Plan were granted since its
adoption in January 2005. The fair value of each option was
estimated using the following assumptions:
|
|
|
|
|
Years December 31,
|
|
|
2005 and 2006;
|
|
|
Three Months Ended
|
|
|
March 31, 2007; and
|
|
|
the Period from
|
|
|
April 1, 2007
|
|
|
Through
|
|
|
May 15, 2007
|
|
|
Predecessor
|
|
Expected volatility
|
|
30.30%
|
Weighted-average volatility
|
|
30.30%
|
Dividend yield
|
|
1.56%
|
Risk-free interest rate
|
|
2.88 to 3.73%
|
Expected life
|
|
0.70 to 5.70 years
|
The weighted average fair value of options granted or modified
under the Conversion Plan during the year ended
December 31, 2005 was $6.97.
151
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The number of options that vested and the related fair value
under our Conversion Plan was 6,548 and less than
$1 million for the period from April 1, 2007 through
May 15, 2007; 381,009 and $3 million for the three
months ended March 31, 2007; 1,423,930 and $10 million
for the year ended December 31, 2006; and none for the year
ended December 31, 2005.
As a result of the Arrangement, 563,651 options were accelerated
to vest with a total fair value of approximately $4 million
and a total of 1,238,183 options were settled in cash using the
$44.93 purchase price per common share paid by Hindalco in the
transaction for approximately $29 million.
The total intrinsic value of options exercised under our
Conversion Plan was $1 million for the period from
April 1, 2007 through May 15, 2007; $19 million
for the three months ended March 31, 2007; $1 million
for the year ended December 31, 2006; and less than
$1 million for the year ended December 31, 2005.
Cash received from options exercised under our Conversion Plan
was $1 million for the period from April 1, 2007
through May 15, 2007; $27 million for the three months
ended March 31, 2007; $2 million for the year ended
December 31, 2006; less than $1 million for the year
ended December 31, 2005.
The actual tax benefit realized for the tax deductions from the
options exercised under our Conversion Plan was less than
$1 million for the period from April 1, 2007 through
May 15, 2007; $1 million, including $1 million of
windfall tax benefits, for the three months ended
March 31, 2007; and less than $1 million for each of
the years ended December 31, 2006 and 2005.
Stock
Price Appreciation Unit Plan
Prior to the spin-off, some Alcan employees who later
transferred to Novelis held Alcan stock price appreciation units
(SPAUs). These units entitled them to receive cash equal to the
excess of the market value of an Alcan common share on the
exercise date of a SPAU over the market value of an Alcan common
share on its grant date. On January 6, 2005, these
employees received 418,777 Novelis SPAUs to replace their
211,035 Alcan SPAUs at a weighted average exercise price of
$22.04. All converted SPAUs that were vested at the spin-off
date continued to be vested. Unvested SPAUs were to vest in four
equal annual installments beginning on January 6, 2006, the
first anniversary of the spin-off date. In October 2006, we
amended the SPAUs to allow the continued vesting of all SPAUs
upon the death or retirement of the employee. While the
amendment of the SPAUs had been accounted for as a modification
under FASB Statement No. 123(R), it resulted in no
incremental compensation cost since the fair value of the
modified SPAUs after the modification was less than the fair
value of the SPAUs immediately before the modification. However,
SPAUs held by 7 employees who were retirement eligible were
affected by this modification, which included an acceleration of
$1 million in compensation cost recognized during the three
months ended December 31, 2006.
152
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The table below shows the activity in our SPAU Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
SPAUs
|
|
|
Exercise Price
|
|
|
(In years)
|
|
|
Value
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPAUs outstanding as of December 31, 2007
|
|
|
418,405
|
|
|
$
|
22.04
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(117,788
|
)
|
|
$
|
22.29
|
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPAUs outstanding as of March 31, 2007
|
|
|
300,617
|
|
|
$
|
21.94
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(744
|
)
|
|
$
|
21.49
|
|
|
|
|
|
|
|
|
|
Settled as a result of the Arrangement
|
|
|
(299,873
|
)
|
|
$
|
21.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPAUs outstanding as of May 15, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPAUs exercisable as of May 15, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upon the adoption of FASB Statement No. 123(R), we changed
from the intrinsic value method to the Black-Scholes valuation
model to estimate the fair value of SPAUs granted to employees
and to determine the fair value of the SPAUs outstanding.
Because our trading history was shorter than the expected life
of the SPAUs, we used historical stock price volatility data
from comparable companies to supplement our own historical
volatility to determine expected volatility assumptions. No
quarterly or annual dividend was expected. Risk-free interest
rates were based on U.S. Treasury spot rates consistent
with the expected remaining lives of the SPAUs. Because we did
not have a sufficient history of SPAUs exercise or cancellation,
we estimated the expected remaining life of the SPAUs based on
an extension of the simplified method as prescribed
by SAB No. 107. As a result of the Arrangement, the
SPAUs were valued using the $44.93 per common share
transaction price.
The number of SPAUs that vested was 101,119 during the three
months ended March 31, 2007 and 101,104 during the year
ended December 31, 2006.
The fair value of each SPAU was estimated using the following
assumptions:
|
|
|
|
|
|
|
Three Months Ended
|
|
Year Ended
|
|
|
March 31, 2007
|
|
December 31, 2006
|
|
|
Predecessor
|
|
Predecessor
|
|
Expected volatility
|
|
38.20 to 40.80%
|
|
36.20 to 40.30%
|
Weighted average volatility
|
|
39.31%
|
|
39.32%
|
Dividend yield
|
|
None
|
|
0.14%
|
Risk-free interest rate
|
|
4.51 to 4.56%
|
|
4.67 to 4.80%
|
Expected life
|
|
2.25 to 4.37 years
|
|
2.37 to 4.37 years
|
153
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
As a result of the Arrangement, 201,495 SPAUs were accelerated
to vest and 299,873 SPAUs were settled in cash using the $44.93
per common share purchase price paid by Hindalco in the
transaction for approximately $7 million.
Deferred
Share Unit Plan for Non-Executive Directors
On January 5, 2005, Novelis established the Deferred Share
Unit Plan for Non-Executive Directors under which non-executive
directors would receive 50% of their compensation payable in the
form of directors deferred share units (DDSUs) and the
other 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 was determined by dividing the
quarterly amount payable, as elected, by the average closing
prices of a common share on the Toronto Stock Exchange (TSX)
(adjusted for the noon exchange rate) and New York Stock
Exchange (NYSE) on the last five trading days of each quarter.
Additional DDSUs representing the equivalent of dividends
declared on common shares are credited to each holder of DDSUs.
The number of DDSUs outstanding as of March 31, 2007
included DDSUs issued on April 1, 2007, as the required
service was provided by the period-end.
Prior to the Arrangement, the DDSUs were redeemable in cash
and/or
shares of our common stock following the participants
retirement from the board. The redemption amount was calculated
by multiplying the accumulated balance of DDSUs by the average
closing price of a common share on the TSX (adjusted for the
noon exchange rate) and the NYSE for the last five trading days
prior to the redemption date.
The table below shows our DDSU activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Redemption
|
|
|
Intrinsic
|
|
|
|
DDSUs
|
|
|
Price
|
|
|
Value
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
DDSUs outstanding as of December 31, 2006
|
|
|
112,039
|
|
|
$
|
27.11
|
|
|
|
|
|
Granted
|
|
|
7,060
|
|
|
|
|
|
|
|
|
|
Exercised (paid out)
|
|
|
(12,521
|
)
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired/Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DDSUs outstanding as of March 31, 2007
|
|
|
106,578
|
|
|
$
|
44.09
|
|
|
|
|
|
Granted
|
|
|
3,333
|
|
|
|
|
|
|
|
|
|
Exercised (paid out)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired/Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
Settled as a result of the Arrangement
|
|
|
(109,911
|
)
|
|
$
|
44.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DDSUs outstanding as of May 15, 2007
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DDSUs exercisable as of May 15, 2007
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the Arrangement, 109,911 DDSUs were settled in
cash using the $44.93 purchase price per common share paid by
Hindalco in the transaction for approximately $5 million.
Novelis
Founders Performance Awards
In March 2005 (as amended and restated in March 2006 and
February 2007), Novelis established a plan to reward certain key
executives with Performance Share Units (PSUs) if Novelis common
share price
154
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
improvement targets were achieved within specific time periods.
There were three equal tranches of PSUs, and each had a specific
share price improvement target. For the first tranche, the
target share price of $23.57 applied for the period from
March 24, 2005 to March 23, 2008. For the second
tranche, the target share price of $25.31 applied for the period
from March 24, 2006 to March 23, 2008. For the third
tranche, the target share price of $27.28 applied for the period
from March 24, 2007 to March 23, 2008. If awarded, a
particular tranche was to be paid in cash on the later of six
months from the date the specific common share price target was
reached or twelve months after the start of the performance
period, and was to be based on the average of the daily common
share closing prices on the NYSE for the last five trading days
prior to the payment date.
The share price improvement targets for the first tranche were
achieved and 180,350 PSUs were awarded on June 20, 2005.
For the year ended December 31, 2005, 1,650 PSUs were
forfeited and 178,700 remained outstanding. In March 2006,
46,850 PSUs were forfeited and 131,850 PSUs were ultimately paid
out. The liability for the first tranche was accrued over its
term, was valued on March 24, 2006, and was paid in April
2006 in the aggregate amount of approximately $3 million.
Upon adoption of FASB Statement No. 123(R), we changed our
valuation technique to the Monte Carlo valuation model due to
the fact that the PSUs contain a market condition for vesting of
the award. The Monte Carlo model utilized multiple input
variables that determine the probability of satisfying the
market condition stipulated in the award and calculates the fair
market value of each award. We used our own historical stock
price volatility to determine expected volatility assumptions.
The annual expected dividend yield was based on dividend
payments of $0.01 per share per quarter. The risk-free interest
rate represented U.S. Treasury Strip yield as of the
valuation date. The fair value of the PSUs was being amortized
over the derived service period of each tranche, which was up to
three years, subject to acceleration in the event the vesting
condition was met (as defined above).
The fair value of each PSU was estimated using the following
assumptions:
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31, 2006
|
|
|
Predecessor
|
|
Expected volatility
|
|
|
37.00%
|
|
Weighted average volatility
|
|
|
37.00%
|
|
Dividend yield
|
|
|
0.14%
|
|
Risk-free interest rate
|
|
|
4.75%
|
|
Expected life (derived service periods)
|
|
|
0.93 to 1.23 years
|
|
In February 2007, our board of directors recognized that the
applicable share price threshold had been (or would likely be)
met with respect to the second tranche and would probably be met
for the third tranche, but in light of the insiders
awareness of the possibility of a change in control transaction,
they were subject to a trading blackout. Moreover, it was
unlikely that a 15 day open trading window under the
Novelis disclosure and insider trading policies would arise
prior to the consummation of the Arrangement. Accordingly, on
February 10, 2007, our board of directors further amended
the PSUs in order to provide that the applicable threshold for
(a) the second tranche was to be met as of
February 28, 2007 and (b) the third tranche was to be
met as of March 26, 2007, for purposes of PSUs to be
awarded.
As a result of the Arrangement, the second and third tranches
(represented by 94,450 and 85,950 PSUs, respectively) were
settled in cash using the $44.93 purchase price per common share
paid by Hindalco in the transaction for approximately
$8 million.
Total
Shareholder Returns Performance Plan
Some Alcan employees who transferred to Novelis were entitled to
receive cash awards under the Alcan Total Shareholder Returns
Performance Plan (TSR). TSR was a cash incentive plan that
rewarded eligible
155
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
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 starting on October 1, 2002 and
2003. On January 6, 2005, these employees immediately
ceased participating in and accruing benefits under the TSR. The
current three-year performance periods, namely 2002 to 2005 and
2003 to 2006, were truncated as of the date of the spin-off. The
accrued awards for all of the TSR participants were converted
into 452,667 Novelis restricted share units (RSUs). At the end
of each performance period, each holder of RSUs was to receive
net proceeds based on the price of Novelis common shares at that
time, including declared dividends.
In October 2005, an aggregate of $7 million was paid to
employees who held RSUs that had vested on September 30,
2005. In October 2006, 120,949 RSUs and related dividends
outstanding were paid to employees in the aggregate amount of
$3 million.
Deferred
Share Agreements
On January 6, 2005, 33,500 Alcan deferred shares held by
one of our executives who was an Alcan employee immediately
prior to the spin-off were replaced with the right to receive
66,477 Novelis shares. On July 27, 2005, the deferred share
agreement was amended to provide that we would, in lieu of
granting the executive 66,477 common shares, pay the executive
in cash in an amount equal to the value of the shares based on
the closing price of the shares on the NYSE on August 1,
2005. This obligation was paid in cash in August 2005 for
$2 million.
Share-Based
Compensation Expense
Total share-based compensation expense for the respective
periods, including amounts related to the cumulative effect of
an accounting change (exclusive of income taxes) from adopting
FASB Statement No. 123 (R) on January 1, 2006, is
presented in the table below (in millions). These amounts are
included in Selling, general and administrative expenses
in our consolidated and combined statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Recognition Awards
|
|
$
|
2.3
|
|
|
|
$
|
1.5
|
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
|
|
Novelis 2006 Incentive Plan (stock options)
|
|
|
n.a.
|
|
|
|
|
14.5
|
|
|
|
0.9
|
|
|
|
0.7
|
|
|
|
|
|
Novelis 2006 Incentive Plan (stock appreciation rights)
|
|
|
n.a.
|
|
|
|
|
5.6
|
|
|
|
1.4
|
|
|
|
0.4
|
|
|
|
|
|
Novelis Conversion Plan of 2005
|
|
|
n.a.
|
|
|
|
|
23.8
|
|
|
|
0.3
|
|
|
|
7.3
|
|
|
|
3.1
|
|
Stock Price Appreciation Unit Plan
|
|
|
n.a.
|
|
|
|
|
(0.5
|
)
|
|
|
4.4
|
|
|
|
4.5
|
|
|
|
|
|
Deferred Share Unit Plan for Non-Executive Directors
|
|
|
n.a.
|
|
|
|
|
0.2
|
|
|
|
2.2
|
|
|
|
1.8
|
|
|
|
1.8
|
|
Novelis Founders Performance Awards
|
|
|
n.a.
|
|
|
|
|
0.1
|
|
|
|
6.0
|
|
|
|
2.7
|
|
|
|
1.9
|
|
Total Shareholder Returns Performance Plan
|
|
|
n.a.
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
(0.4
|
)
|
Deferred Share Agreements
|
|
|
n.a.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Share-Based Compensation Expense
|
|
$
|
2.3
|
|
|
|
$
|
45.2
|
|
|
$
|
15.7
|
|
|
$
|
18.1
|
|
|
$
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n.a. not applicable as plan was cancelled as a
result of the Arrangement
|
|
14.
|
POSTRETIREMENT
BENEFIT PLANS
|
Our pension obligations relate to funded defined benefit pension
plans in the U.S., Canada, Switzerland and the U.K., unfunded
pension plans in Germany, and unfunded lump sum indemnities in
France,
156
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
South Korea, Malaysia and Italy. Our other postretirement
obligations (Other Benefits, as shown in certain tables below)
include unfunded healthcare and life insurance benefits provided
to retired employees in Canada, the U.S. and Brazil.
Some of our employees participated in defined benefit plans that
were previously managed by Alcan in the U.S., the U.K. and
Switzerland. These benefits are generally based on the
employees years of service and the highest average
eligible compensation before retirement.
In 2005, the following occurred related to existing Alcan
pension plans covering our employees:
a) In the U.S., for our 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 if the employee worked
for us and we paid 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 us, and the
plan was renamed the Novelis U.K. Pension Plan. No new plan was
established. Approximately 575 of our employees who had
participated in the British Alcan RILA Plan remained in that
plan for 2005. As agreed with the trustees of the plan, we were
responsible for remitting to Alcan both the employee and
employer contributions for the 2005 year and
c) In Switzerland, we became a participating employer in
the Alcan Swiss Pension Plan effective January 1, 2005. Our
employees are participating in this plan indefinitely (subject
to Alcan approval and provided we make the required pension
contributions.) We made contributions of $4 million,
$0.4 million, $1 million for the periods from
May 16, 2007 through March 31, 2008, from
April 1, 2007 through May 15, 2007 and the three
months ended March 31, 2007, respectively, and
$3 million for each of the years ended December 31,
2006 and 2005. Upon withdrawal from the Alcan Swiss Pension
Plan, we are responsible for the pension liabilities related to
our employees and we will receive assets per applicable Swiss
law. As of March 31, 2008, the projected benefit obligation
and plan assets related to our employees was approximately
$83 million and $90 million, respectively.
The following plans were established in 2005 to replace the
Alcan pension plans that previously covered both Alcan and
Novelis employees:
Novelis Pension Plan (Canada) The Novelis
Pension Plan (Canada) provides for pensions calculated on years
of service and eligible earnings. There is no service cap.
Eligible earnings are based on the average of an employees
highest 36 consecutive months of salary and short-term incentive
award (up to its target). Pensions are normally paid as a
lifetime annuity with either guaranteed payments for
60 months, 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 Alcan and
eligible earnings. Eligible earnings are based on the excess of
the average of an employees highest 60 consecutive months
of salary and target short-term incentive award over eligible
earnings in the U.S. Plan or U.K. Plan, as applicable.
Pensions are normally paid as a lifetime annuity. Payments are
not subject to Social Security taxes or other offsets.
Subsequent to the final payment we made to our former Chief
Executive Officer on February 28, 2007, this plan was
terminated.
157
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The board of directors reviewed managements
recommendations with respect to certain modifications of our
postretirement benefit plans. On October 28, 2005, our
board of directors approved and adopted the following changes
related to our postretirement benefit plans:
a) New hires (on or after January 1, 2005 in the U.S.,
on or after January 1, 2006 in Canada and the U.K. or on or
after September 30, 2006 in Germany) will generally
participate in Defined Contribution (DC) rather than
Defined Benefit (DB) plans. The Novelis board of directors also
approved the adoption of the Novelis Savings and Retirement Plan
effective December 1, 2005. This plan replaced the
Alcancorp Employees Savings Plan (for non-union
U.S. employees) and added a retirement account feature for
new hires not eligible for a DB plan. New defined contribution
pension plans were established in Canada, the U.K. and Germany
during 2006;
b) As a result of the spin-off, account balances in
Alcans savings plans in the U.S. and Canada were
transferred to the newly established Novelis Savings and
Retirement Plan (for non-union U.S. employees), the Novelis
Hourly Savings Plan (for hourly union U.S. employees) and
the Novelis Savings Plan (Canada) for all Canadian
employees; and
c) Pursuant to the Employee Matters Agreement (EMA) between
Alcan and Novelis, active Novelis transferred employees
continued to participate in the Alcancorp Pension Plan (ACPP)
until December 31, 2005. Effective October 28, 2005,
the Novelis board of directors approved the adoption of Novelis
DB pension arrangements (to be called the Novelis Pension Plan
(NPP) in the U.S.) for employees who participated in a DB plan
with Alcan. Under the terms of the EMA and subject to Internal
Revenue Service (IRS) requirements, assets and liabilities were
transferred from ACPP to the new NPP for all transferred
employees who were actively employed on December 31, 2005.
Similar transfers will occur in Canada and the U.K. for pension
plans, but only for employees who elect to have their accrued
pensions transferred to Novelis.
For the year ended March 31, 2008, the following occurred
relating to existing Alcan pension plans covering our employees:
a) In October 2007, we completed the transfer of U.K. plan
assets and liabilities from Alcan to Novelis. Plan liabilities
assumed exceeded plan assets received by $4 million. We
made an additional contribution of approximately $2 million
to the plan in February 2008.
b) In April 2008, Alcan transferred $49 million to the
Novelis Pension Plan (Canada) for the first payment. We expect
to receive a second payment of $1 million by the end of
fiscal year 2009. Plan liabilities assumed is expected to equal
plan assets to be received.
For the year ended December 31, 2006, the following
occurred relating to existing Alcan pension plans covering our
employees:
a) In the U.K., former Alcan employees who participated in
the British Alcan RILA Plan in 2005 began participating in the
Novelis U.K. pension plan effective January 1, 2006. Of the
approximate 575 Novelis employees who had participated in the
British Alcan RILA plan, 208 employees elected to transfer
their past service to the Novelis U.K. pension plan. Novelis
made a payment of $7 million to the British Alcan RILA plan
in November 2006 to pay the statutory withdrawal liability.
b) In Canada, former Alcan employees who subsequently
became Novelis employees could elect in 2006 to transfer their
past service in the Alcan Pension Plan (Canada) to the Novelis
Pension Plan (Canada). Of the approximate 680 Novelis employees
who had participated in the Alcan Pension Plan (Canada),
420 employees elected to transfer their past service to the
Novelis Pension Plan (Canada).
c) Novelis assumed coverage for employees participating in
the ACPP and the Alcan Supplemental Executive Retirement Plan
effective January 1, 2006 for future service. The plan
assets of $178 million
158
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
and liabilities of $200 million, as of January 1,
2006, associated with these employees for service prior to
January 1, 2006 were transferred from the ACPP to the
Novelis Pension Plan. Effective January 1, 2006 the accrued
postretirement pension costs related to the transfer of
employees from the ACPP and the Alcan Supplemental Executive
Retirement Plan were $43 million and $7 million,
respectively.
Employer
Contributions to Plans
For pension plans, our policy is to fund an amount required to
provide for contractual benefits attributed to service to date,
and amortize unfunded actuarial liabilities typically over
periods of 15 years or less. We also participate in savings
plans in Canada and the U.S., as well as defined contribution
pension plans in the U.S., U.K., Canada, Germany, Italy,
Switzerland, Malaysia and Brazil. We contributed the following
amounts to all plans, including the Alcan plans that cover our
employees (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Funded pension plans
|
|
$
|
35
|
|
|
|
$
|
4
|
|
|
$
|
10
|
|
|
$
|
39
|
|
|
$
|
27
|
|
Unfunded pension plans
|
|
|
19
|
|
|
|
|
2
|
|
|
|
6
|
|
|
|
22
|
|
|
|
16
|
|
Savings and defined contribution pension plans
|
|
|
13
|
|
|
|
|
2
|
|
|
|
3
|
|
|
|
12
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contributions
|
|
$
|
67
|
|
|
|
$
|
8
|
|
|
$
|
19
|
|
|
$
|
73
|
|
|
$
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal year 2009, we expect to contribute
$35 million to our funded pension plans, $17 million
to our unfunded pension plans and $16 million to our
savings and defined contribution plans.
Investment
Policy and Asset Allocation
Each of our funded pension plans is governed by an Investment
Fiduciary, who establishes an investment policy appropriate for
the pension plan. The Investment Fiduciary is responsible for
selecting the asset allocation for each plan, monitoring
investment managers, monitoring returns versus benchmarks and
monitoring compliance with the investment policy. Pension assets
are diversified across major asset classes and are primarily
invested in publicly traded stocks and high quality bonds, with
small allocations to real estate and other assets. The targeted
allocation ranges by asset class, and the actual allocation
percentages for each class are listed in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation in
|
|
|
|
|
|
|
Aggregate as of
|
|
|
|
Target
|
|
|
March 31,
|
|
Asset Category
|
|
Allocation Ranges
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Equity securities
|
|
|
35 - 70
|
%
|
|
|
50
|
%
|
|
|
|
58
|
%
|
Debt securities
|
|
|
25 - 60
|
%
|
|
|
42
|
%
|
|
|
|
40
|
%
|
Real estate
|
|
|
0 - 25
|
%
|
|
|
4
|
%
|
|
|
|
1
|
%
|
Other
|
|
|
0 - 15
|
%
|
|
|
3
|
%
|
|
|
|
1
|
%
|
159
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Benefit
Obligations, Fair Value of Plan Assets, Funded Status and
Amounts Recognized in Financial Statements
The following tables present the change in benefit obligation,
change in fair value of plan assets and the funded status for
pension and other benefits (in millions), including the Swiss
Pension Plan effective May 16, 2007. Other Benefits in the
tables below include unfunded healthcare and life insurance
benefits provided to retired employees in Canada, Brazil and the
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of period
|
|
$
|
867
|
|
|
|
$
|
885
|
|
|
$
|
877
|
|
|
$
|
575
|
|
Service cost
|
|
|
40
|
|
|
|
|
6
|
|
|
|
12
|
|
|
|
42
|
|
Interest cost
|
|
|
43
|
|
|
|
|
6
|
|
|
|
12
|
|
|
|
44
|
|
Members contributions
|
|
|
5
|
|
|
|
|
|
|
|
|
1
|
|
|
|
4
|
|
Benefits paid
|
|
|
(39
|
)
|
|
|
|
(4
|
)
|
|
|
(10
|
)
|
|
|
(30
|
)
|
Amendments
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Transfers/mergers
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
209
|
|
Curtailments/settlements/termination benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
Actuarial (gains) losses
|
|
|
(52
|
)
|
|
|
|
(32
|
)
|
|
|
(9
|
)
|
|
|
(10
|
)
|
Currency (gains) losses
|
|
|
41
|
|
|
|
|
6
|
|
|
|
2
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period
|
|
$
|
991
|
|
|
|
$
|
867
|
|
|
$
|
885
|
|
|
$
|
877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation of funded plans
|
|
$
|
800
|
|
|
|
$
|
680
|
|
|
$
|
696
|
|
|
$
|
690
|
|
Benefit obligation of unfunded plans
|
|
|
191
|
|
|
|
|
187
|
|
|
|
189
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period
|
|
$
|
991
|
|
|
|
$
|
867
|
|
|
$
|
885
|
|
|
$
|
877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Benefit obligation at beginning of period
|
|
$
|
140
|
|
|
|
$
|
141
|
|
|
$
|
139
|
|
|
$
|
122
|
|
Service cost
|
|
|
4
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
5
|
|
Interest cost
|
|
|
7
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
7
|
|
Benefits paid
|
|
|
(6
|
)
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(8
|
)
|
Amendments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers/mergers
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
1
|
|
Actuarial (gains) losses
|
|
|
25
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
12
|
|
Currency (gains) losses
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period
|
|
$
|
171
|
|
|
|
|
140
|
|
|
$
|
141
|
|
|
$
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation of funded plans
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Benefit obligation of unfunded plans
|
|
|
171
|
|
|
|
|
140
|
|
|
|
141
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period
|
|
$
|
171
|
|
|
|
$
|
140
|
|
|
$
|
141
|
|
|
$
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Change in fair value of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
$
|
607
|
|
|
|
$
|
578
|
|
|
$
|
568
|
|
|
$
|
301
|
|
Actual return on plan assets
|
|
|
(14
|
)
|
|
|
|
16
|
|
|
|
6
|
|
|
|
41
|
|
Members contributions
|
|
|
5
|
|
|
|
|
|
|
|
|
1
|
|
|
|
4
|
|
Benefits paid
|
|
|
(39
|
)
|
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
(30
|
)
|
Company contributions
|
|
|
54
|
|
|
|
|
12
|
|
|
|
3
|
|
|
|
51
|
|
Transfers/mergers
|
|
|
94
|
|
|
|
|
|
|
|
|
4
|
|
|
|
178
|
|
Currency gains (losses)
|
|
|
17
|
|
|
|
|
3
|
|
|
|
1
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period
|
|
$
|
724
|
|
|
|
$
|
607
|
|
|
$
|
578
|
|
|
$
|
568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Pension
|
|
|
Other
|
|
|
|
Pension
|
|
|
Other
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Funded status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status at end of period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets less the benefit obligation of funded plans
|
|
$
|
(76
|
)
|
|
$
|
|
|
|
|
$
|
(118
|
)
|
|
$
|
|
|
Benefit obligation of unfunded plans
|
|
|
(191
|
)
|
|
|
(171
|
)
|
|
|
|
(189
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(267
|
)
|
|
$
|
(171
|
)
|
|
|
$
|
(307
|
)
|
|
$
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As included on consolidated balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term assets third parties
|
|
$
|
7
|
|
|
$
|
|
|
|
|
$
|
2
|
|
|
$
|
|
|
Accrued expenses and other current liabilities
|
|
|
(16
|
)
|
|
|
(8
|
)
|
|
|
|
(17
|
)
|
|
|
(7
|
)
|
Accrued postretirement benefits
|
|
|
(258
|
)
|
|
|
(163
|
)
|
|
|
|
(292
|
)
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(267
|
)
|
|
$
|
(171
|
)
|
|
|
$
|
(307
|
)
|
|
$
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The postretirement amounts recognized in Accumulated other
comprehensive income (loss), before tax effects, are
presented in the table below (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Pension
|
|
|
Other
|
|
|
|
Pension
|
|
|
Other
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Net actuarial loss
|
|
$
|
2
|
|
|
$
|
25
|
|
|
|
$
|
59
|
|
|
$
|
33
|
|
Prior service cost (credit)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
15
|
|
|
|
(2
|
)
|
Net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total postretirement amounts recognized in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
$
|
(8
|
)
|
|
$
|
25
|
|
|
|
$
|
74
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Accumulated
Benefit Obligation in Excess of Plan Assets
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for pension plans with an
accumulated benefit obligation in excess of plan assets as of
March 31, 2008 and 2007 are presented in the table below
(in millions).
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Projected benefit obligation
|
|
$
|
528
|
|
|
|
$
|
606
|
|
Accumulated benefit obligation
|
|
$
|
496
|
|
|
|
$
|
536
|
|
Fair value of plan assets
|
|
$
|
302
|
|
|
|
$
|
325
|
|
Future
Benefit Payments
Expected benefit payments to be made during the next ten fiscal
years are listed in the table below
(in millions).
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Other
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
2009
|
|
$
|
39
|
|
|
$
|
8
|
|
2010
|
|
|
43
|
|
|
|
8
|
|
2011
|
|
|
47
|
|
|
|
9
|
|
2012
|
|
|
51
|
|
|
|
10
|
|
2013
|
|
|
55
|
|
|
|
11
|
|
2014 through 2018
|
|
|
352
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
587
|
|
|
$
|
117
|
|
|
|
|
|
|
|
|
|
|
Components
of Net Periodic Benefit Cost
The components of net periodic benefit cost for the respective
periods are listed in the table below (in millions).
162
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended December 31,
|
|
Pension Benefits
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
40
|
|
|
|
$
|
6
|
|
|
$
|
12
|
|
|
$
|
42
|
|
|
$
|
23
|
|
Interest cost
|
|
|
43
|
|
|
|
|
6
|
|
|
|
12
|
|
|
|
44
|
|
|
|
29
|
|
Expected return on assets
|
|
|
(41
|
)
|
|
|
|
(5
|
)
|
|
|
(11
|
)
|
|
|
(38
|
)
|
|
|
(20
|
)
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
actuarial losses
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
6
|
|
|
|
5
|
|
prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Curtailment/settlement losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
42
|
|
|
|
|
7
|
|
|
|
14
|
|
|
|
52
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proportionate share of non-consolidated affiliates
deferred pension costs, net of tax
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit costs recognized
|
|
$
|
46
|
|
|
|
$
|
7
|
|
|
$
|
14
|
|
|
$
|
56
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
December 31,
|
|
Other Benefits
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
4
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
4
|
|
Interest cost
|
|
|
7
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
7
|
|
|
|
7
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
actuarial losses
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit costs recognized
|
|
$
|
11
|
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
13
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected long-term rate of return on plan assets is 6.9% in
fiscal 2009.
Actuarial
Assumptions and Sensitivity Analysis
The weighted average assumptions used to determine benefit
obligations and net periodic benefit costs for the respective
periods are listed in the table below.
163
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended December 31,
|
|
Pension Benefits
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Weighted average assumptions used to determine benefit
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.8
|
%
|
|
|
|
5.4
|
%
|
|
|
5.3
|
%
|
|
|
5.4
|
%
|
|
|
5.1
|
%
|
Average compensation growth
|
|
|
3.4
|
%
|
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
|
|
4.0
|
%
|
Weighted average assumptions used to determine net periodic
benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.2
|
%
|
|
|
|
5.4
|
%
|
|
|
5.4
|
%
|
|
|
5.1
|
%
|
|
|
5.4
|
%
|
Average compensation growth
|
|
|
3.7
|
%
|
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
|
|
3.9
|
%
|
|
|
4.2
|
%
|
Expected return on plan assets
|
|
|
7.3
|
%
|
|
|
|
7.5
|
%
|
|
|
7.5
|
%
|
|
|
7.3
|
%
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended December 31,
|
|
Other Benefits
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Weighted average assumptions used to determine benefit
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.1
|
%
|
|
|
|
5.8
|
%
|
|
|
5.7
|
%
|
|
|
5.7
|
%
|
|
|
5.7
|
%
|
Average compensation growth
|
|
|
3.9
|
%
|
|
|
|
3.9
|
%
|
|
|
3.9
|
%
|
|
|
3.9
|
%
|
|
|
3.9
|
%
|
Weighted average assumptions used to determine net periodic
benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.7
|
%
|
|
|
|
5.7
|
%
|
|
|
5.7
|
%
|
|
|
5.7
|
%
|
|
|
5.8
|
%
|
Average compensation growth
|
|
|
3.9
|
%
|
|
|
|
3.9
|
%
|
|
|
3.9
|
%
|
|
|
3.9
|
%
|
|
|
4.0
|
%
|
In selecting the appropriate discount rate for each plan, we
generally used a country-specific, high-quality corporate bond
index, adjusted to reflect the duration of the particular plan.
In the U.S. and Canada, the discount rate was calculated by
matching the plans projected cash flows with similar
duration high-quality corporate bonds to develop a present
value, which was then calibrated to develop a single equivalent
discount rate.
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 of equity or
real estate over long-term bond yields in each relevant country.
The approach is consistent with the principle that assets with
higher risk provide a greater return over the long-term.
We provide unfunded healthcare and life insurance benefits to
our retired employees in Canada, the U.S. and Brazil, for
which we paid $6 million for the period from May 16,
2007 through March 31, 2008; $1 million for the period
from April 1, 2007 through May 15, 2007;
$2 million for the three months ended March 31, 2007,
$8 million for the year ended December 31, 2006 and
$7 million for the year ended
164
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2005. The assumed healthcare cost trend used
for measurement purposes is 8% for fiscal 2009, decreasing
gradually to 5% in 2014 and remaining at that level thereafter.
A change of one percentage point in the assumed healthcare cost
trend rates would have the following effects on our other
benefits (in millions).
|
|
|
|
|
|
|
|
|
|
|
1% Increase
|
|
1% Decrease
|
|
Sensitivity Analysis
|
|
|
|
|
|
|
|
|
Effect on service and interest costs
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
Effect on benefit obligation
|
|
$
|
15
|
|
|
$
|
(13
|
)
|
In addition, we provide post-employment benefits, including
disability, early retirement and continuation of benefits
(medical, dental, and life insurance) to our former or inactive
employees, which are accounted for on the accrual basis in
accordance with FASB Statement No. 112, Employers
Accounting for Postemployment Benefits. Other long-term
liabilities on our consolidated balance sheets includes
$23 million and $22 million as of March 31, 2008
and 2007, respectively, for these benefits.
|
|
15.
|
CURRENCY
LOSSES (GAINS)
|
The following currency losses (gains) are included in the
accompanying consolidated and combined statements of operations
(in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Net (gain) loss on change in fair value of currency derivative
instruments(A)
|
|
$
|
37
|
|
|
|
$
|
(10
|
)
|
|
$
|
(5
|
)
|
|
$
|
24
|
|
|
$
|
(96
|
)
|
Net (gain) loss on translation of monetary assets and
liabilities(B)
|
|
|
(2
|
)
|
|
|
|
4
|
|
|
|
6
|
|
|
|
(8
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net currency (gain) loss
|
|
$
|
35
|
|
|
|
$
|
(6
|
)
|
|
$
|
1
|
|
|
$
|
16
|
|
|
$
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Included in (Gain) loss on change in fair value of derivative
instruments net.
|
|
(B) |
|
Included in Other (income) expenses net.
|
The following currency gains (losses) are included in
Accumulated other comprehensive income (loss) in the
accompanying consolidated balance sheets (net of tax effect and
in millions).
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
January 1, 2007
|
|
|
|
Through
|
|
|
|
Through
|
|
|
|
March 31, 2008
|
|
|
|
March 31, 2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Cumulative currency translation adjustment beginning
of period
|
|
$
|
|
|
|
|
$
|
133
|
|
Effect of changes in exchange rates
|
|
|
26
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative currency translation adjustment end of
period
|
|
$
|
26
|
|
|
|
$
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
FINANCIAL
INSTRUMENTS AND COMMODITY CONTRACTS
|
In conducting our business, we use various derivative and
non-derivative instruments to manage the risks arising from
fluctuations in exchange rates, interest rates, aluminum prices
and energy prices. Such
165
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
instruments are used for risk management purposes only. We may
be exposed to losses in the future if the counterparties to the
contracts fail to perform. We are satisfied that the risk of
such non-performance is remote, due to our monitoring of credit
exposures.
Certain contracts are designated as hedges of either net
investment or cash flows. For these contracts we recognize the
change in fair value of the ineffective portion of the hedge as
a gain or loss in our current period results of operations. We
include the change in fair value of the effective and interest
portions of these hedges in Accumulated other comprehensive
income (loss) within Shareholders equity in the
accompanying consolidated balance sheets.
Prior
to Completion of the Arrangement
During the period from April 1, 2007 through May 15,
2007 and the three months ended March 31, 2007, we applied
hedge accounting to certain of our cross-currency interest swaps
with respect to intercompany loans to several European
subsidiaries and forward exchange contracts. Our euro and
British pound (GBP) cross-currency interest swaps were
designated as net investment hedges, while our Swiss franc (CHF)
cross-currency interest rate swaps and our Brazilian real (BRL)
forward foreign exchange contracts were designated as cash flow
hedges. As of May 15, 2007, we had $712 million of
cross-currency swaps (euro 475 million, GBP 62 million
and CHF 35 million) and $99 million of forward foreign
exchange contracts (BRL 229 million). During the period
from April 1, 2007 through May 15, 2007, we
implemented cash flow hedge accounting for an electricity swap,
which was embedded in a supply contract.
During the period from April 1, 2007 through May 15,
2007, the change in fair value of the effective and interest
portions of our net investment hedges was a loss of
$8 million and the change in fair value of the effective
portion of our cash flow hedges was a gain of $7 million.
Impact
of the Arrangement and Purchase Accounting
Concurrent with completion of the Arrangement on May 15,
2007, we dedesignated all hedging relationships. The cumulative
change in fair value of effective and interest portions of these
hedges, previously presented in Accumulated other
comprehensive income (loss) within Shareholders equity
on May 15, 2007, was incorporated in the new basis of
accounting. As a result of purchase accounting, the fair value
of all embedded derivative instruments was allocated to the fair
value of their respective host contracts, reducing the fair
value of embedded derivative instruments to zero.
Subsequent
to Completion of the Arrangement
With the exception of the electricity swap, noted above, which
was redesignated as a cash flow hedge on June 1, 2007,
hedge accounting was not applied to any of our financial
instruments or commodity contracts between May 16, 2007 and
August 31, 2007. During this period, changes in fair value
have been recognized in (Gain) loss on change in fair value
of derivative instruments net in our
consolidated statement of operations.
On September 1, 2007, we redesignated our euro, GBP and CHF
cross-currency swaps, noted above, as net investment hedges.
Also, from September 1, 2007 through March 31, 2008,
we entered into a series of interest rate swaps which we
designated as cash flow hedges (see Note 10
Debt). As of March 31, 2008, we had $712 million of
cross-currency swaps (euro 475 million, GBP 62 million
and CHF 35 million) and $600 million of interest rate
swaps.
Our consolidated statement of operations for the period from
May 16, 2007 through March 31, 2008 includes a pre-tax
gain of less than $1 million for the change in fair value
of the effective portion of our cash flow hedges. As of
March 31, 2008, the amount of effective net losses to be
realized during the next twelve
166
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
months is $4 million. The maximum period over which we have
hedged our exposure to cash flow variability is through November
2016.
From May 16, 2007 through March 31, 2008, we
recognized pre-tax losses of $82 million for the change in
fair value of the effective portion of our net investment
hedges. As of March 31, 2008, we expect to realize
$11 million of effective net losses during the next twelve
months. The maximum period over which we have hedged our
exposure to net investment variability is through February 2015.
The fair values of our financial instruments and commodity
contracts as of March 31, 2008 and 2007 were as follows (in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008
|
|
|
|
Maturity Dates
|
|
|
|
|
|
|
|
Net Fair
|
|
|
|
(Fiscal Year)
|
|
Assets
|
|
|
Liabilities
|
|
|
Value
|
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
2009 through 2012
|
|
$
|
47
|
|
|
$
|
(116
|
)
|
|
$
|
(69
|
)
|
Cross-currency swaps
|
|
2009 through 2015
|
|
|
19
|
|
|
|
(189
|
)
|
|
|
(170
|
)
|
Interest rate currency swaps
|
|
2009 through 2011
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Interest rate swaps
|
|
2009 through 2010
|
|
|
|
|
|
|
(15
|
)
|
|
|
(15
|
)
|
Aluminum forward contracts
|
|
2009 through 2011
|
|
|
134
|
|
|
|
(9
|
)
|
|
|
125
|
|
Aluminum options
|
|
2009 through 2011
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Electricity swap
|
|
2017
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
Embedded derivative instruments
|
|
2009
|
|
|
|
|
|
|
(20
|
)
|
|
|
(20
|
)
|
Natural gas swaps
|
|
2009 through 2010
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value
|
|
|
|
|
224
|
|
|
|
(349
|
)
|
|
|
(125
|
)
|
Less: current portion(A)
|
|
|
|
|
203
|
|
|
|
(148
|
)
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent portion(A)
|
|
|
|
$
|
21
|
|
|
$
|
(201
|
)
|
|
$
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2007
|
|
|
|
Maturity Dates
|
|
|
|
|
|
|
|
Net Fair
|
|
|
|
(Fiscal Year)
|
|
Assets
|
|
|
Liabilities
|
|
|
Value
|
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
2008 through 2012
|
|
$
|
16
|
|
|
$
|
(20
|
)
|
|
$
|
(4
|
)
|
Interest rate swaps
|
|
2008
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Cross-currency swaps
|
|
2008 through 2015
|
|
|
6
|
|
|
|
(90
|
)
|
|
|
(84
|
)
|
Aluminum forward contracts
|
|
2008 through 2010
|
|
|
60
|
|
|
|
(8
|
)
|
|
|
52
|
|
Aluminum options
|
|
2008
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Electricity swap
|
|
2017
|
|
|
60
|
|
|
|
|
|
|
|
60
|
|
Embedded derivative instruments
|
|
2008
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Natural gas swaps
|
|
2008
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value
|
|
|
|
|
147
|
|
|
|
(118
|
)
|
|
|
29
|
|
Less: current portion(A)
|
|
|
|
|
92
|
|
|
|
(33
|
)
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent portion(A)
|
|
|
|
$
|
55
|
|
|
$
|
(85
|
)
|
|
$
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
(A) |
|
The amounts of the current and long-term portions of fair values
under assets are each presented on the face of our accompanying
consolidated balance sheets. The amounts of the current and
noncurrent portions of fair values under liabilities are
included in Accrued expenses and other current liabilities
and Other long-term liabilities, respectively, in the
accompanying consolidated balance sheets. |
|
|
17.
|
OTHER
(INCOME) EXPENSES NET
|
Other (income) expenses net is comprised of the
following (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Restructuring charges net
|
|
$
|
6
|
|
|
|
$
|
1
|
|
|
$
|
9
|
|
|
$
|
19
|
|
|
$
|
10
|
|
Exchange (gains) losses net
|
|
|
(2
|
)
|
|
|
|
4
|
|
|
|
6
|
|
|
|
(8
|
)
|
|
|
(6
|
)
|
Impairment charges on long-lived assets
|
|
|
1
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
7
|
|
(Gain) loss on disposal of business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
(Gain) loss on sale of equity interest in non-consolidated
affiliate(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
(Gain) loss on sale of rights to develop and operate
hydroelectric power plants(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
(Gains) losses on disposals of property, plant and
equipment net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
(17
|
)
|
Other net
|
|
|
(5
|
)
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
(5
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expenses net
|
|
$
|
|
|
|
|
$
|
4
|
|
|
$
|
24
|
|
|
$
|
|
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
In November 2006, we sold the common and preferred shares of our
25% interest in Petrocoque to the other shareholders of
Petrocoque for approximately $20 million. We recognized a
pre-tax gain of approximately $15 million. |
|
(B) |
|
During the fourth quarter of 2006, we sold our rights to develop
and operate two hydroelectric power plants in South America and
recorded a pre-tax gain of approximately $11 million. |
We provide for income taxes using the liability method in
accordance with FASB Statement No. 109, Accounting for
Income Taxes.
We are subject to Canadian and United States federal, state, and
local income taxes as well as other foreign income taxes. The
domestic (Canada) and foreign components of our Income (loss)
before provision (benefit) for taxes on income (loss), minority
interests share and cumulative effect of accounting change
(and after removing our Equity in net (income) loss of
non-consolidated affiliates) are as follows (in millions).
168
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Domestic (Canada)
|
|
$
|
(102
|
)
|
|
|
$
|
(45
|
)
|
|
$
|
(44
|
)
|
|
$
|
(100
|
)
|
|
$
|
(40
|
)
|
Foreign (all other countries)
|
|
|
142
|
|
|
|
|
(50
|
)
|
|
|
(14
|
)
|
|
|
(194
|
)
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax income (loss) before equity in net (income) loss on
non-consolidated affiliates and minority interests share
|
|
$
|
40
|
|
|
|
$
|
(95
|
)
|
|
$
|
(58
|
)
|
|
$
|
(294
|
)
|
|
$
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the Provision (benefit) for taxes on income
(loss) are as follows (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Current provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
7
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
11
|
|
Foreign (all other countries)
|
|
|
71
|
|
|
|
|
21
|
|
|
|
15
|
|
|
|
72
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
78
|
|
|
|
|
21
|
|
|
|
16
|
|
|
|
73
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
(15
|
)
|
Foreign (all other countries)
|
|
|
(75
|
)
|
|
|
|
(21
|
)
|
|
|
(9
|
)
|
|
|
(81
|
)
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(75
|
)
|
|
|
|
(17
|
)
|
|
|
(9
|
)
|
|
|
(77
|
)
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for taxes on income (loss)
|
|
$
|
3
|
|
|
|
$
|
4
|
|
|
$
|
7
|
|
|
$
|
(4
|
)
|
|
$
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The reconciliation of the Canadian statutory tax rates to our
effective tax rates are shown below (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Pre-tax income (loss) before equity in net (income) loss on
non-consolidated affiliates and minority interests share
|
|
|
40
|
|
|
|
|
(95
|
)
|
|
|
(58
|
)
|
|
|
(294
|
)
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian Statutory tax rate
|
|
|
32
|
%
|
|
|
|
33
|
%
|
|
|
33
|
%
|
|
|
33
|
%
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) at the Canadian statutory rate
|
|
$
|
13
|
|
|
|
$
|
(31
|
)
|
|
$
|
(19
|
)
|
|
$
|
(97
|
)
|
|
$
|
72
|
|
Increase (decrease) for taxes on income (loss) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange translation items
|
|
|
39
|
|
|
|
|
23
|
|
|
|
6
|
|
|
|
15
|
|
|
|
23
|
|
Exchange remeasurement of deferred income taxes
|
|
|
27
|
|
|
|
|
3
|
|
|
|
2
|
|
|
|
3
|
|
|
|
1
|
|
Change in valuation allowances
|
|
|
(6
|
)
|
|
|
|
13
|
|
|
|
23
|
|
|
|
71
|
|
|
|
5
|
|
Tax credits and other allowances
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Expense/income items with no tax effect net
|
|
|
5
|
|
|
|
|
(9
|
)
|
|
|
1
|
|
|
|
13
|
|
|
|
7
|
|
Enacted tax rate changes
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax rate differences on foreign earnings
|
|
|
(12
|
)
|
|
|
|
2
|
|
|
|
(6
|
)
|
|
|
(15
|
)
|
|
|
5
|
|
Uncertain tax positions
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net
|
|
|
(1
|
)
|
|
|
|
3
|
|
|
|
|
|
|
|
6
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for taxes on income (loss)
|
|
$
|
3
|
|
|
|
$
|
4
|
|
|
$
|
7
|
|
|
$
|
(4
|
)
|
|
$
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
8
|
%
|
|
|
|
(4
|
)%
|
|
|
(12
|
)%
|
|
|
1
|
%
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our effective tax rate differs from the Canadian statutory rate
primarily due to the following factors: (1) pre-tax foreign
currency gains or losses with no tax effect and the tax effect
of U.S. dollar denominated currency gains or losses with no
pre-tax effect, which is shown above as exchange translation
items; (2) the remeasurement of deferred income taxes due
to foreign currency changes, which is shown above as exchange
remeasurement of deferred income taxes; (3) changes in
valuation allowances primarily related to tax losses in certain
jurisdictions where we believe it is more likely than not that
we will not be able to utilize those losses; (4) the
effects of enacted tax rate changes on cumulative taxable
temporary differences and (5) differences between the
Canadian statutory and foreign effective tax rates applied to
entities in different jurisdictions shown above as tax rate
differences on foreign earnings and (6) increases in
uncertain tax positions recorded under the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes.
Deferred
Income Taxes
Deferred income taxes recognize the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the carrying
amounts used for income tax purposes, and the impact of
available net operating loss (NOL) and tax credit carryforwards.
These items are stated at the enacted tax rates that are
expected to be in effect when taxes are actually paid or
recovered.
170
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Our deferred income tax assets and deferred income tax
liabilities are as follows (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
|
Provisions not currently deductible for tax purposes
|
|
$
|
324
|
|
|
|
$
|
212
|
|
Tax losses/benefit carryforwards net
|
|
|
311
|
|
|
|
|
286
|
|
Depreciation and Amortization
|
|
|
91
|
|
|
|
|
1
|
|
Other assets
|
|
|
53
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
779
|
|
|
|
|
547
|
|
|
|
|
|
|
|
|
|
|
|
Less: valuation allowance
|
|
|
(161
|
)
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
$
|
618
|
|
|
|
$
|
404
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
1,205
|
|
|
|
$
|
219
|
|
Inventory valuation reserves
|
|
|
81
|
|
|
|
|
114
|
|
Other liabilities
|
|
|
189
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
$
|
1,475
|
|
|
|
$
|
458
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
$
|
1,475
|
|
|
|
$
|
458
|
|
Less: Net deferred income tax assets
|
|
|
618
|
|
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liabilities
|
|
$
|
857
|
|
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
FASB Statement No. 109 requires that we reduce our deferred
income tax assets by a valuation allowance if, based on the
weight of the available evidence, it is more likely than not
that all or a portion of a deferred tax asset will not be
realized. After consideration of all evidence, both positive and
negative, management concluded that it is more likely than not
that we will not realize a portion of our deferred tax assets
and that valuation allowances of $161 million and
$143 million were necessary as of March 31, 2008 and
2007, as described below.
As of March 31, 2008, we had net operating loss
carryforwards of approximately $269 million (tax effected)
and tax credit carryforwards of $42 million, which will be
available to offset future taxable income and tax liabilities,
respectively. The carryforwards begin expiring in 2008 with some
amounts being carried forward indefinitely. As of March 31,
2008, valuation allowances of $103 million and
$21 million had been recorded against net operating loss
carryforwards and tax credit carryforwards, respectively, where
it appeared more likely than not that such benefits will not be
realized. The net operating loss carryforwards are predominantly
in the U.S., the U.K., Canada, France, and Italy.
As of March 31, 2007, we had net operating loss
carryforwards of approximately $247 million (tax effected)
and tax credit carryforwards of $39 million, which will be
available to offset future taxable income and tax liabilities,
respectively. The carryforwards began expiring in 2007 with some
amounts being carried forward indefinitely. As of March 31,
2007, valuation allowances of $113 million and
$23 million had been recorded against net operating loss
carryforwards and tax credit carryforwards, respectively, where
it appeared more likely than not that such benefit will not be
realized. The net operating loss carryforwards are predominantly
in the U.S., the U.K., Canada, France, and Italy.
We have undistributed earnings in our foreign subsidiaries. For
those subsidiaries where the earnings are considered to be
permanently reinvested, no provision for Canadian income taxes
has been provided. Upon
171
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
repatriation of those earnings, in the form of dividends or
otherwise, we would be subject to both Canadian income taxes
(subject to an adjustment for foreign taxes paid) and
withholding taxes payable to the various foreign countries. For
those subsidiaries where the earnings are not considered
permanently reinvested, taxes have been provided as required.
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.
We believe that it is more likely than not that the remaining
deferred income tax assets as shown above will be realized when
future taxable income is generated through the reversal of
existing temporary differences and income that is expected to be
generated by businesses that have long-term contracts or a
history of generating taxable income.
Tax
Uncertainties
Adoption
of FASB Interpretation No. 48
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48).
FIN 48 clarifies the accounting for income taxes, by
prescribing a minimum recognition threshold a tax position is
required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition. Upon adoption of
FIN 48 as of January 1, 2007, we increased our
reserves for uncertain tax positions by $1 million. We
recognized the increase as a cumulative effect adjustment to
Shareholders equity, as an increase to our Retained
earnings (Accumulated deficit). Including this
adjustment, reserves for uncertain tax positions totaled
$46 million as of January 1, 2007.
As of March 31, 2008 and March 31, 2007, the total
amount of unrecognized benefits that, if recognized, would
affect the effective income tax rate in future periods based on
anticipated settlement dates is $44 million and
$44 million, respectively.
Tax authorities are currently examining certain of our prior
years tax returns for
1999-2006.
We are evaluating potential adjustments related to certain items
and we anticipate that it is reasonably possible that settlement
of the examination will result in a payment in the range of up
to $3 million and a corresponding decrease in unrecognized
tax benefits by March 31, 2009.
Separately, we are awaiting a court ruling regarding the
utilization of certain operating losses. We anticipate that it
is reasonably possible that this ruling will result in a
$13 million decrease in unrecognized tax benefits by
March 31, 2009 related to this matter. We have fully funded
this contingent liability through a judicial deposit, which is
included in Other long-term assets third parties
since January 2007.
With the exception of the ongoing tax examinations described
above, we are no longer subject to any income tax examinations
by any tax authorities for years before 2001. With few
exceptions, tax returns for all jurisdictions for all tax years
after 2000 are subject to examination by taxing authorities.
Our continuing practice and policy is to record potential
interest and penalties related to unrecognized tax benefits in
our Provision (benefit) for taxes on income (loss). As of
March 31, 2008 and March 31, 2007, we had
$13 million and $8 million accrued for potential
interest on income taxes, respectively. For the periods from
May 16, 2007 through March 31, 2008; from
April 1, 2007 through May 15, 2007 and for the three
months ended March 31, 2007, our Provision (benefit) for
taxes on income (loss) included a charge for an additional
$5 million, $0.4 million and $1 million of
potential interest, respectively.
172
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Beginning balance
|
|
$
|
47
|
|
|
|
$
|
46
|
|
|
$
|
46
|
|
Additions based on tax positions related to the current period
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Additions based on tax positions of prior years
|
|
|
7
|
|
|
|
|
|
|
|
|
1
|
|
Reductions based on tax positions of prior years
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange
|
|
|
3
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
59
|
|
|
|
$
|
47
|
|
|
$
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes Payable and Paid
Our consolidated balance sheets include income taxes payable of
$93 million and $42 million as of March 31, 2008
and 2007, respectively. Of these amounts, $35 million and
$9 million are reflected in Accrued expenses and other
current liabilities as of March 31, 2008 and 2007,
respectively. Cash taxes paid are shown in the table below (in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
April 1, 2007
|
|
Three Months
|
|
|
|
|
|
|
Through
|
|
|
Through
|
|
Ended
|
|
Year Ended December 31,
|
|
|
March 31, 2008
|
|
|
May 15, 2007
|
|
March 31, 2007
|
|
2006
|
|
2005
|
|
|
Successor
|
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
Cash taxes paid
|
|
$
|
64
|
|
|
|
$
|
9
|
|
|
$
|
18
|
|
|
$
|
68
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.
|
COMMITMENTS
AND CONTINGENCIES
|
Primary
Supplier
Alcan is our primary supplier of metal inputs, including prime
and sheet ingot. The table below shows our purchases from Alcan
as a percentage of our total combined metal purchases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
April 1, 2007
|
|
Three Months
|
|
|
|
|
|
|
Through
|
|
|
Through
|
|
Ended
|
|
Year Ended December 31,
|
|
|
March 31, 2008
|
|
|
May 15, 2007
|
|
March 31, 2007
|
|
2006
|
|
2005
|
|
|
Successor
|
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
Purchases from Alcan as a percentage of total combined prime and
sheet ingot purchases in kt(A)
|
|
|
35
|
%
|
|
|
|
34
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
One kilotonne (kt) is 1,000 metric tonnes. One metric tonne is
equivalent to 2,204.6 pounds. |
Legal
Proceedings
Reynolds Boat Case. As previously disclosed,
we and Alcan were defendants in a case in the United States
District Court for the Western District of Washington, in
Tacoma, Washington, case number
C04-0175RJB.
Plaintiffs were Reynolds Metals Company, Alcoa, Inc. and
National Union Fire Insurance Company of Pittsburgh PA. The case
was tried before a jury beginning on May 1, 2006 under
implied warranty theories, based on allegations that from 1998
to 2001 we and Alcan sold certain aluminum products
173
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
that were ultimately used for marine applications and were
unsuitable for such applications. The jury reached a verdict on
May 22, 2006 against us and Alcan for approximately
$60 million, and the court later awarded Reynolds and Alcoa
approximately $16 million in prejudgment interest and court
costs.
The case was settled during July 2006 as among us, Alcan,
Reynolds, Alcoa and their insurers for $71 million. We
contributed approximately $1 million toward the settlement,
and the remaining $70 million was funded by our insurers.
Although the settlement was substantially funded by our
insurance carriers, certain of them have reserved the right to
request a refund from us, after reviewing details of the
plaintiffs damages to determine if they include costs of a
nature not covered under the insurance contracts. Of the
$70 million funded, $39 million is in dispute with and
under further review by certain of our insurance carriers. In
the quarter ended December 31, 2006, we posted a letter of
credit in the amount of approximately $10 million in favor
of one of those insurance carriers, while we resolve the extent
of coverage of the costs included in the settlement. On
October 8, 2007, we received a letter from these insurers
stating that they have completed their review and they are
requesting a refund of the $39 million plus interest. We
reviewed the insurers position, and on January 7,
2008, we sent a letter to the insurers rejecting their position
that Novelis is not entitled to insurance coverage for the
judgment against Novelis.
Since our fiscal 2005 Annual Report on
Form 10-K
was not filed until August 25, 2006, we recognized a
liability for the full settlement amount of $71 million on
December 31, 2005, included in Accrued expenses and
other current liabilities on our consolidated balance sheet,
with a corresponding charge against earnings. We also recognized
an insurance receivable included in Prepaid expenses and
other current assets on our consolidated balance sheet of
$31 million, with a corresponding increase to earnings.
Although $70 million of the settlement was funded by our
insurers, we only recognized an insurance receivable to the
extent that coverage was not in dispute. This resulted in a net
charge of $40 million during the quarter ended
December 31, 2005.
In July 2006, we contributed and paid $1 million to our
insurers who subsequently paid the entire settlement amount of
$71 million to the plaintiffs. Accordingly, during the
quarter ended December 31, 2006 we reversed the previously
recorded insurance receivable of $31 million and reduced
our recorded liability by the same amount plus the
$1 million contributed by us. The remaining liability of
$39 million represents the amount of the settlement claim
that was funded by our insurers but is still in dispute with and
under further review by the parties as described above. The
$39 million liability is included in Accrued expenses
and other current liabilities in our condensed consolidated
balance sheets as of March 31, 2008 and 2007.
While the ultimate resolution of the nature and extent of any
costs not covered under our insurance contracts cannot be
determined with certainty or reasonably estimated at this time,
if there is an adverse outcome with respect to insurance
coverage, and we are required to reimburse our insurers, it
could have a material impact on our cash flows in the period of
resolution. Alternatively, the ultimate resolution could be
favorable, such that insurance coverage is in excess of the net
expense that we have recognized to date. This would result in
our recording a non-cash gain in the period of resolution, and
this non-cash gain could have a material impact on our results
of operations during the period in which such a determination is
made.
Coca-Cola
Lawsuits. A lawsuit was commenced against Novelis
Corporation on February 15, 2007 by
Coca-Cola
Bottlers Sales and Services Company LLC (CCBSS) in state
court in Georgia. In addition, a lawsuit was commenced against
Novelis Corporation and Alcan Corporation on April 3, 2007
by Coca-Cola
Enterprises Inc., Enterprises Acquisition Company, Inc., The
Coca-Cola
Company and The
Coca-Cola
Trading Company, Inc. (collectively CCE) in federal court in
Georgia. Novelis intends to defend these claims vigorously.
CCBSS is a consortium of
Coca-Cola
bottlers across the United States, including
Coca-Cola
Enterprises Inc. CCBSS alleges that Novelis Corporation breached
an aluminum can stock supply agreement between the parties, and
seeks monetary damages in an amount to be determined at trial
and a declaration of its rights
174
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
under the agreement. The agreement includes a most favored
nations provision regarding certain pricing matters. CCBSS
alleges that Novelis Corporation breached the terms of the most
favored nations provision. The dispute will likely turn on the
facts that are presented to the court by the parties and the
courts finding as to how certain provisions of the
agreement ought to be interpreted. If CCBSS were to prevail in
this litigation, the amount of damages would likely be material.
Novelis Corporation has filed its answer and the parties are
proceeding with discovery.
The claim by CCE seeks monetary damages in an amount to be
determined at trial for breach of a prior aluminum can stock
supply agreement between CCE and Novelis Corporation, successor
to the rights and obligations of Alcan Aluminum Corporation
under the agreement. According to its terms, that agreement with
CCE terminated in 2006. The CCE supply agreement included a
most favored nations provision regarding certain
pricing matters. CCE alleges that Novelis Corporations
entry into a supply agreement with Anheuser-Busch, Inc. breached
the most favored nations provision of the CCE supply
agreement. Novelis Corporation moved to dismiss the complaint
and on March 26, 2008, the U.S. District Court for the
Northern District of Georgia issued an order granting Novelis
Corporations motion to dismiss CCEs claim. On
April 24, 2008, CCE filed a notice of appeal of the
courts order with the United Stated Circuit Court of
Appeal for the 11th Circuit. If CCE were to ultimately
prevail in this appeal and litigation, the amount of damages
would likely be material. We have not recorded any reserves for
these matters.
Anheuser-Busch Litigation. On
September 19, 2006, Novelis Corporation filed a lawsuit
against Anheuser-Busch, Inc. in federal court in Ohio.
Anheuser-Busch, Inc. subsequently filed suit against Novelis
Corporation and the Company in federal court in Missouri. On
January 3, 2007, Anheuser-Busch, Inc.s suit was
transferred to the Ohio federal court.
Novelis Corporation alleged that Anheuser-Busch, Inc. breached
the existing multi-year aluminum can stock supply agreement
between the parties, and sought monetary damages and declaratory
relief. Among other claims, we asserted that since entering into
the supply agreement, Anheuser-Busch, Inc. has breached its
confidentiality obligations and there has been a structural
change in market conditions that requires a change to the
pricing provisions under the agreement.
In its complaint, Anheuser-Busch, Inc. asked for a declaratory
judgment that Anheuser-Busch, Inc. is not obligated to modify
the supply agreement as requested by Novelis Corporation, and
that Novelis Corporation must continue to perform under the
existing supply agreement.
On January 18, 2008, Anheuser-Busch, Inc. filed a motion
for summary judgment. On May 22, 2008, the court granted
Anheuser-Busch, Inc.s motion for summary judgment. Novelis
Corporation has 30 days to file a notice of appeal with the
court and is currently reviewing the courts order to
understand the reasoning behind the decision and evaluate its
grounds for appeal. Novelis Corporation has continued to perform
under the supply agreement during the litigation.
ARCO Aluminum Complaint. On May 24, 2007,
Arco Aluminum Inc. (ARCO) filed a complaint against Novelis
Corporation and Novelis Inc. in the United States District Court
for the Western District of Kentucky. ARCO and Novelis are
partners in a joint venture rolling mill located in Logan,
Kentucky. In the complaint, ARCO seeks to resolve a perceived
dispute over management and control of the joint venture
following Hindalcos acquisition of Novelis.
ARCO alleges that its consent was required in connection with
Hindalcos acquisition of Novelis. Failure to obtain
consent, ARCO alleges, has put us in default of the joint
venture agreements, thereby triggering certain provisions in
those agreements. The provisions include a reversion of the
production management at the joint venture to Logan Aluminum
from Novelis, and a reduction of the board of directors of the
entity that manages the joint venture from seven members (four
appointed by Novelis and three appointed by ARCO) to six members
(three appointed by each of Novelis and ARCO).
175
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
ARCO seeks a court declaration that (1) Novelis and its
affiliates are prohibited from exercising any managerial
authority or control over the joint venture,
(2) Novelis interest in the joint venture is limited
to an economic interest only and (3) ARCO has authority to
act on behalf of the joint venture. Or, alternatively, ARCO is
seeking a reversion of the production management function to
Logan Aluminum, and a change in the composition of the board of
directors of the entity that manages the joint venture. Novelis
filed its answer to the complaint on July 16, 2007.
On July 3, 2007, ARCO filed a motion for partial summary
judgment with respect to one of the counts of its complaint
relating to the claim that Novelis breached the joint venture
agreement by not seeking ARCOs consent. On July 30,
2007, Novelis filed a motion to hold ARCOs motion for
summary judgment in abeyance (pending further discovery), along
with a demand for a jury. On February 14, 2008, the judge
issued an order granting our motion to hold ARCOs summary
judgment motion in abeyance. Pursuant to this ruling, the joint
venture continues to conduct management and board activities as
normal.
Environmental
Matters
The following describes certain environmental matters relating
to our business. None of the environmental matters include
government sanctions of $100,000 or more.
We are involved in proceedings under the U.S. Comprehensive
Environmental Response, Compensation, and Liability Act, also
known as CERCLA or Superfund, or analogous state provisions
regarding liability arising from the usage, storage, treatment
or disposal of hazardous substances and wastes at a number of
sites in the United States, as well as similar proceedings under
the laws and regulations of the other jurisdictions in which we
have operations, including Brazil and certain countries in the
European Union. Many of these jurisdictions have laws that
impose joint and several liability, without regard to fault or
the legality of the original conduct, for the costs of
environmental remediation, natural resource damages, third party
claims, and other expenses, on those persons who contributed to
the release of a hazardous substance into the environment. In
addition, we are, from time to time, subject to environmental
reviews and investigations by relevant governmental authorities.
As described further in the following paragraph, we have
established procedures for regularly evaluating environmental
loss contingencies, including those arising from such
environmental reviews and investigations and any other
environmental remediation or compliance matters. We believe we
have a reasonable basis for evaluating these environmental loss
contingencies, and we believe we have made reasonable estimates
of the costs that are likely to be borne by us for these
environmental loss contingencies. Accordingly, we have
established reserves based on our reasonable estimates for the
currently anticipated costs associated with these environmental
matters. We estimate that the undiscounted remaining
clean-up
costs related to all of our known environmental matters as of
March 31, 2008 will be approximately $50 million. Of
this amount, $34 million is included in Other long-term
liabilities, with the remaining $16 million included in
Accrued expenses and other current liabilities in our
consolidated balance sheet as of March 31, 2008. Management
has reviewed the environmental matters, including those for
which we assumed liability as a result of our spin-off from
Alcan. As a result of this review, management has determined
that the currently anticipated costs associated with these
environmental matters will not, individually or in the
aggregate, materially impair our operations or materially
adversely affect our financial condition, results of operations
or liquidity.
With respect to environmental loss contingencies, we record a
loss contingency 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 each claim. Management
reviews the status of, and estimated liability related to,
pending claims and civil actions on a quarterly basis. The
estimated costs in
176
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
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 unless otherwise noted.
Brazil
Tax Matters
Primarily as a result of legal proceedings with Brazils
Ministry of Treasury regarding certain taxes in South America,
as of March 31, 2008 and 2007, we had cash deposits
aggregating approximately $36 million and $25 million,
respectively, in judicial depository accounts pending
finalization of the related cases. The depository accounts are
in the name of the Brazilian government and will be expended
towards these legal proceedings or released to us, depending on
the outcome of the legal cases. These deposits are included in
Other long-term assets third parties in our
accompanying consolidated balance sheets. In addition, we are
involved in several disputes with Brazils Minister of
Treasury about various forms of manufacturing taxes and social
security contributions, for which we have made no judicial
deposits but for which we have established reserves ranging from
$7 million to $90 million as of March 31, 2008.
In total, these reserves approximate $111 million as of
March 31, 2008 and are included in Other long-term
liabilities in our accompanying consolidated balance sheet.
On August 15, 2007, there was a Superior Court of Justice
ruling in Brazil reducing the statute of limitations from ten
years to five years for claims relating to the application of
Brazilian tax credits resulting from previous payments made
under a social contribution tax. Accordingly, for the fiscal
year ended March 31, 2008, we reversed $21 million of
reserves ($15 million net of tax) relating to the disputed
application of such credits in 1999 and 2000, as these tax
credits may no longer be challenged by the government.
Guarantees
of Indebtedness
We have issued guarantees on behalf of certain of our
subsidiaries and non-consolidated affiliates, including:
|
|
|
|
|
certain of our wholly-owned subsidiaries and
|
|
|
|
Aluminium Norf GmbH, which is a fifty percent (50%) owned joint
venture that does not meet the requirements for consolidation
under FASB Interpretation No. 46 (Revised),
Consolidation of Variable Interest Entities.
|
In the case of our wholly-owned subsidiaries, the indebtedness
guaranteed is for trade accounts payable to third parties. Some
of the guarantees have annual terms while others have no
expiration and have termination notice requirements. Neither we
nor any of our subsidiaries or non-consolidated affiliates holds
any assets of any third parties as collateral to offset the
potential settlement of these guarantees.
Since we consolidate wholly-owned and majority-owned
subsidiaries in our financial statements, all outstanding
liabilities associated with trade accounts payable and
short-term debt facilities for these entities are already
included in our consolidated balance sheets.
The following table discloses information about our obligations
under guarantees of indebtedness as of March 31, 2008 (in
millions). We did not have obligations under guarantees of
indebtedness related to our majority-owned subsidiaries as of
March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
Liability
|
|
|
Potential
|
|
Carrying
|
Type of Entity
|
|
Future Payment
|
|
Value
|
|
Wholly-owned subsidiaries
|
|
$
|
98
|
|
|
$
|
67
|
|
Aluminium Norf GmbH
|
|
|
16
|
|
|
|
|
|
In May 2007, we terminated a loan and a corresponding
deposit-and-guarantee
agreement for $80 million. We did not include the loan or
deposit amounts in our consolidated balance sheet as of
March 31, 2007 as the agreement included a legal right of
setoff and we had the intent and ability to setoff.
177
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
We have no retained or contingent interest in assets transferred
to an unconsolidated entity or similar entity or similar
arrangement that serves as credit, liquidity or market risk
support to that entity for such assets.
|
|
20.
|
SEGMENT,
GEOGRAPHICAL AREA AND MAJOR CUSTOMER INFORMATION
|
Segment
Information
Due in part to the regional nature of supply and demand of
aluminum rolled products and in order to best serve our
customers, we manage our activities on the basis of geographical
areas and are organized under four operating segments: North
America; Europe; Asia and South America.
As a result of the acquisition by Hindalco, and based on the way
our President and Chief Operating Officer (our chief operating
decision-maker) reviews the results of segment operations, we
changed our segment performance measure to Segment Income during
the quarter ended June 30, 2007, as defined below. As a
result, certain prior period amounts have been reclassified to
conform to the new segment performance measure.
We measure the profitability and financial performance of our
operating segments, based on Segment Income, in accordance with
FASB Statement No. 131, Disclosure About the Segments of
an Enterprise and Related Information. Segment Income
provides a measure of our underlying segment results that is in
line with our portfolio approach to risk management. We define
Segment Income as earnings before (a) interest expense and
amortization of debt issuance costs net;
(b) unrealized gains (losses) on change in fair value of
derivative instruments net; (c) realized gains
(losses) on corporate derivative instruments net;
(d) depreciation and amortization; (e) impairment
charges on long-lived assets; (f) minority interests
share; (g) adjustments to reconcile our proportional share
of Segment Income from non-consolidated affiliates to income as
determined on the equity method of accounting;
(h) restructuring charges net; (i) gains
or losses on disposals of property, plant and equipment and
businesses net; (j) corporate selling, general
and administrative expenses; (k) other costs
net; (l) litigation settlement net of insurance
recoveries; (m) sale transaction fees; (n) provision
or benefit for taxes on income (loss) and (o) cumulative
effect of accounting change net of tax.
Net sales and expenses are measured in accordance with the
policies and procedures described in Note 1
Business and Summary of Significant Accounting Policies.
We do not treat all derivative instruments as hedges under FASB
Statement No. 133. Accordingly, changes in fair value are
recognized immediately in earnings, which results in the
recognition of fair value as a gain or loss in advance of the
contract settlement. In the accompanying consolidated and
combined statements of operations, change in fair value of
derivative instruments not accounted for as hedges under FASB
Statement No. 133 are recognized (Gain) loss on change
in fair value of derivative instruments net.
These gains or losses may or may not result from cash
settlement. For Segment Income purposes we only include the
impact of the derivative gains or losses to the extent they are
settled in cash (i.e., realized) during that period.
The following is a description of our operating segments:
|
|
|
|
|
North America. Headquartered in Cleveland,
Ohio, this segment manufactures aluminum sheet and light gauge
products and operates 12 plants, including two fully dedicated
recycling facilities, in two countries.
|
|
|
|
Europe. Headquartered in Zurich, Switzerland,
this segment manufactures aluminum sheet and light gauge
products and operates 14 plants, including one recycling
facility, in six countries.
|
|
|
|
Asia. Headquartered in Seoul, South Korea,
this segment manufactures aluminum sheet and light gauge
products and operates three plants in two countries.
|
|
|
|
South America. Headquartered in Sao Paulo,
Brazil, this segment comprises bauxite mining, alumina refining,
smelting operations, power generation, carbon products, aluminum
sheet and light gauge products and operates four plants in
Brazil.
|
178
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Adjustment to Eliminate Proportional
Consolidation. The financial information for our
segments includes the results of our non-consolidated affiliates
on a proportionately consolidated basis, which is consistent
with the way we manage our business segments. However, under
GAAP, these non-consolidated affiliates are accounted for using
the equity method of accounting. Therefore, in order to
reconcile the financial information for the segments shown in
the tables below to the GAAP-based measure, we must remove our
proportional share of each line item that we included in the
segment amounts. See Note 8 Investment in and
Advances to Non-Consolidated Affiliates and Related Party
Transactions for further information about these
non-consolidated affiliates.
The tables below show selected segment financial information (in
millions). The Corporate and Other column in the tables below
includes functions that are managed directly from our corporate
office, which focuses on strategy development and oversees
governance, policy, legal compliance, human resources and
finance matters. It also includes consolidating and other
elimination accounts.
Selected
Segment Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
North
|
|
|
|
|
|
South
|
|
Proportional
|
|
Corporate
|
|
|
Total Assets
|
|
America
|
|
Europe
|
|
Asia
|
|
America
|
|
Consolidation
|
|
and Other
|
|
Total
|
|
March 31, 2008 (Successor)
|
|
$
|
3,892
|
|
|
$
|
4,430
|
|
|
$
|
1,082
|
|
|
$
|
1,478
|
|
|
$
|
(149
|
)
|
|
$
|
213
|
|
|
$
|
10,946
|
|
|
|
March 31, 2007 (Predecessor)
|
|
$
|
1,566
|
|
|
$
|
2,543
|
|
|
$
|
1,110
|
|
|
$
|
821
|
|
|
$
|
(114
|
)
|
|
$
|
44
|
|
|
$
|
5,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
North
|
|
|
|
|
|
South
|
|
Proportional
|
|
Corporate
|
|
|
Investment in and Advances to Non-Consolidated Affiliates
|
|
America
|
|
Europe
|
|
Asia
|
|
America
|
|
Consolidation
|
|
and Other
|
|
Total
|
|
March 31, 2008 (Successor)
|
|
$
|
1
|
|
|
$
|
868
|
|
|
$
|
|
|
|
$
|
48
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
917
|
|
|
|
March 31, 2007 (Predecessor)
|
|
$
|
2
|
|
|
$
|
102
|
|
|
$
|
|
|
|
$
|
49
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Proportional
|
|
|
Corporate
|
|
|
|
|
May 16, 2007 Through March 31, 2008
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Consolidation
|
|
|
and Other
|
|
|
Total
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (to third parties)
|
|
$
|
3,655
|
|
|
$
|
3,828
|
|
|
$
|
1,602
|
|
|
$
|
885
|
|
|
$
|
(5
|
)
|
|
|
|
|
|
$
|
9,965
|
|
Intersegment sales
|
|
|
9
|
|
|
|
3
|
|
|
|
10
|
|
|
|
27
|
|
|
|
|
|
|
|
(49
|
)
|
|
|
|
|
Segment Income (Loss)
|
|
|
266
|
|
|
|
241
|
|
|
|
46
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
696
|
|
Interest income
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
(18
|
)
|
Interest expense and amortization of debt issuance costs
|
|
|
53
|
|
|
|
5
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
191
|
|
Depreciation and amortization
|
|
|
137
|
|
|
|
172
|
|
|
|
51
|
|
|
|
61
|
|
|
|
(55
|
)
|
|
|
1
|
|
|
|
367
|
|
Write-off and amortization of fair value adjustments
|
|
|
242
|
|
|
|
(8
|
)
|
|
|
(9
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
219
|
|
Impairment charges on long-lived assets
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Provision (benefit) for taxes on income (loss)
|
|
|
24
|
|
|
|
(110
|
)
|
|
|
1
|
|
|
|
72
|
|
|
|
|
|
|
|
16
|
|
|
|
3
|
|
Capital expenditures
|
|
|
42
|
|
|
|
98
|
|
|
|
28
|
|
|
|
28
|
|
|
|
(14
|
)
|
|
|
3
|
|
|
|
185
|
|
179
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Proportional
|
|
|
Corporate
|
|
|
|
|
April 1, 2007 Through May 15, 2007
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Consolidation
|
|
|
and Other
|
|
|
Total
|
|
(Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (to third parties)
|
|
$
|
446
|
|
|
$
|
510
|
|
|
$
|
216
|
|
|
$
|
109
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,281
|
|
Intersegment sales
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
7
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
Segment Income (Loss)
|
|
|
(24
|
)
|
|
|
32
|
|
|
|
6
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Interest expense and amortization of debt issuance costs
|
|
|
9
|
|
|
|
4
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
12
|
|
|
|
27
|
|
Depreciation and amortization
|
|
|
7
|
|
|
|
11
|
|
|
|
7
|
|
|
|
5
|
|
|
|
(3
|
)
|
|
|
1
|
|
|
|
28
|
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Provision (benefit) for taxes on income (loss)
|
|
|
(19
|
)
|
|
|
10
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
4
|
|
Capital expenditures
|
|
|
4
|
|
|
|
8
|
|
|
|
4
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
1
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Proportional
|
|
|
Corporate
|
|
|
|
|
Three Months Ended March 31, 2007
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Consolidation
|
|
|
and Other
|
|
|
Total
|
|
(Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (to third parties)
|
|
$
|
925
|
|
|
$
|
1,057
|
|
|
$
|
413
|
|
|
$
|
235
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,630
|
|
Intersegment sales
|
|
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
12
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
Segment Income (Loss)
|
|
|
(17
|
)
|
|
|
85
|
|
|
|
16
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
Interest income
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(4
|
)
|
Interest expense and amortization of debt issuance costs
|
|
|
15
|
|
|
|
3
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
32
|
|
|
|
54
|
|
Depreciation and amortization
|
|
|
16
|
|
|
|
24
|
|
|
|
14
|
|
|
|
11
|
|
|
|
(8
|
)
|
|
|
1
|
|
|
|
58
|
|
Impairment charges on long-lived assets
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
Provision (benefit) for taxes on income (loss)
|
|
|
(10
|
)
|
|
|
6
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Capital expenditures
|
|
|
9
|
|
|
|
11
|
|
|
|
3
|
|
|
|
4
|
|
|
|
(4
|
)
|
|
|
1
|
|
|
|
24
|
|
180
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Proportional
|
|
|
Corporate
|
|
|
|
|
Year Ended December 31, 2006
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Consolidation
|
|
|
and Other
|
|
|
Total
|
|
(Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (to third parties)
|
|
$
|
3,691
|
|
|
$
|
3,620
|
|
|
$
|
1,692
|
|
|
$
|
863
|
|
|
$
|
(17
|
)
|
|
$
|
|
|
|
$
|
9,849
|
|
Intersegment sales
|
|
|
2
|
|
|
|
5
|
|
|
|
15
|
|
|
|
50
|
|
|
|
|
|
|
|
(72
|
)
|
|
|
|
|
Segment Income (Loss)
|
|
|
20
|
|
|
|
245
|
|
|
|
82
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
512
|
|
Interest income
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
(15
|
)
|
Interest expense and amortization of debt issuance costs
|
|
|
50
|
|
|
|
11
|
|
|
|
10
|
|
|
|
6
|
|
|
|
|
|
|
|
144
|
|
|
|
221
|
|
Depreciation and amortization
|
|
|
70
|
|
|
|
92
|
|
|
|
55
|
|
|
|
44
|
|
|
|
(32
|
)
|
|
|
4
|
|
|
|
233
|
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
Provision (benefit) for taxes on income (loss)
|
|
|
(111
|
)
|
|
|
29
|
|
|
|
11
|
|
|
|
63
|
|
|
|
(5
|
)
|
|
|
9
|
|
|
|
(4
|
)
|
Capital expenditures
|
|
|
39
|
|
|
|
45
|
|
|
|
21
|
|
|
|
26
|
|
|
|
(18
|
)
|
|
|
3
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Proportional
|
|
|
Corporate
|
|
|
|
|
Year Ended December 31, 2005
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Consolidation
|
|
|
and Other
|
|
|
Total
|
|
(Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (to third parties)
|
|
$
|
3,265
|
|
|
$
|
3,093
|
|
|
$
|
1,391
|
|
|
$
|
630
|
|
|
$
|
(16
|
)
|
|
$
|
|
|
|
$
|
8,363
|
|
Intersegment sales
|
|
|
2
|
|
|
|
31
|
|
|
|
8
|
|
|
|
41
|
|
|
|
|
|
|
|
(82
|
)
|
|
|
|
|
Segment Income (Loss)
|
|
|
193
|
|
|
|
195
|
|
|
|
106
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
606
|
|
Interest income
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(9
|
)
|
Interest expense and amortization of debt issuance costs
|
|
|
44
|
|
|
|
10
|
|
|
|
11
|
|
|
|
3
|
|
|
|
|
|
|
|
135
|
|
|
|
203
|
|
Depreciation and amortization
|
|
|
72
|
|
|
|
96
|
|
|
|
51
|
|
|
|
44
|
|
|
|
(34
|
)
|
|
|
1
|
|
|
|
230
|
|
Impairment charges on long-lived assets
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Provision (benefit) for taxes on income (loss)
|
|
|
33
|
|
|
|
59
|
|
|
|
(8
|
)
|
|
|
26
|
|
|
|
(4
|
)
|
|
|
1
|
|
|
|
107
|
|
Capital expenditures
|
|
|
61
|
|
|
|
80
|
|
|
|
21
|
|
|
|
24
|
|
|
|
(20
|
)
|
|
|
12
|
|
|
|
178
|
|
181
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The following table shows the reconciliation from Total Segment
Income to Net income (loss) (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Total Segment Income
|
|
$
|
696
|
|
|
|
$
|
32
|
|
|
$
|
141
|
|
|
$
|
512
|
|
|
$
|
606
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
(173
|
)
|
|
|
|
(26
|
)
|
|
|
(50
|
)
|
|
|
(206
|
)
|
|
|
(194
|
)
|
Unrealized gains (losses) on change in fair value of derivative
instruments net(A)
|
|
|
(8
|
)
|
|
|
|
5
|
|
|
|
(1
|
)
|
|
|
(151
|
)
|
|
|
141
|
|
Realized gains (losses) on corporate derivative
instruments net
|
|
|
16
|
|
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
(35
|
)
|
|
|
45
|
|
Depreciation and amortization
|
|
|
(367
|
)
|
|
|
|
(28
|
)
|
|
|
(58
|
)
|
|
|
(233
|
)
|
|
|
(230
|
)
|
Impairment charges on long-lived assets
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(7
|
)
|
Minority interests share
|
|
|
(5
|
)
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(21
|
)
|
Adjustment to eliminate proportional consolidation(B)
|
|
|
(65
|
)
|
|
|
|
(7
|
)
|
|
|
(9
|
)
|
|
|
(35
|
)
|
|
|
(36
|
)
|
Restructuring charges net
|
|
|
(6
|
)
|
|
|
|
(1
|
)
|
|
|
(9
|
)
|
|
|
(19
|
)
|
|
|
(10
|
)
|
Gain (loss) on disposals of property, plant, and equipment and
businesses net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
17
|
|
Corporate selling, general and administrative expenses
|
|
|
(55
|
)
|
|
|
|
(35
|
)
|
|
|
(26
|
)
|
|
|
(128
|
)
|
|
|
(78
|
)
|
Other costs net(C)
|
|
|
(1
|
)
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
37
|
|
|
|
10
|
|
Litigation settlement net of insurance recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
Sale transaction fees
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
Benefit (provision) for taxes on income (loss)
|
|
|
(3
|
)
|
|
|
|
(4
|
)
|
|
|
(7
|
)
|
|
|
4
|
|
|
|
(107
|
)
|
Cumulative effect of accounting change net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
28
|
|
|
|
$
|
(97
|
)
|
|
$
|
(64
|
)
|
|
$
|
(275
|
)
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Unrealized gains (losses) on change in fair value of derivative
instruments net represents the portion of gains
(losses) that were not settled in cash during the period. Total
realized and unrealized gains (losses) are shown in the table
below and are included in the aggregate each period in (Gain)
loss on change in fair value of derivative instruments
net on our consolidated and combined
statements of operations. |
182
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
April 1, 2007
|
|
Three Months
|
|
|
|
|
|
|
Through
|
|
|
Through
|
|
Ended
|
|
Year Ended December 31,
|
|
|
March 31, 2008
|
|
|
May 15, 2007
|
|
March 31, 2007
|
|
2006
|
|
2005
|
|
|
Successor
|
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
|
Predecessor
|
(Gains) losses on change in fair value of derivative
instruments net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized and included in Segment Income
|
|
$
|
(14
|
)
|
|
|
$
|
(18
|
)
|
|
$
|
(33
|
)
|
|
$
|
(249
|
)
|
|
$
|
(83
|
)
|
Realized on corporate derivative instruments
|
|
|
(16
|
)
|
|
|
|
3
|
|
|
|
2
|
|
|
|
35
|
|
|
|
(45
|
)
|
Unrealized
|
|
|
8
|
|
|
|
|
(5
|
)
|
|
|
1
|
|
|
|
151
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gains) losses on change in fair value of derivative
instruments net
|
|
$
|
(22
|
)
|
|
|
$
|
(20
|
)
|
|
$
|
(30
|
)
|
|
$
|
(63
|
)
|
|
$
|
(269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(B) |
|
Our financial information for our segments (including Segment
Income) includes the results of our non-consolidated affiliates
on a proportionately consolidated basis, which is consistent
with the way we manage our business segments. However, under
GAAP, these non-consolidated affiliates are accounted for using
the equity method of accounting. Therefore, in order to
reconcile Total Segment Income to Net income (loss), the
proportional Segment Income of these non-consolidated affiliates
is removed from Total Segment Income, net of our share of their
net after-tax results, which is reported as Equity in net
(income) loss of non-consolidated affiliates on our
consolidated and combined statements of operations. See
Note 8 Investment in and Advances to
Non-Consolidated Affiliates and Related Party Transactions for
further information about these non-consolidated affiliates. |
|
(C) |
|
Other costs net includes a gain on sale of equity
interest in non-consolidated affiliates and a gain on sale of
rights to develop and operate hydroelectric power plants,
recognized in the three months ended December 31, 2006 (see
Note 17 Other (Income) Expenses
net). |
183
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
Geographical
Area Information
We had 33 operating facilities in 11 countries as of
March 31, 2008. The tables below present Net sales and
Long-lived assets by geographical area (in millions). Net sales
are attributed to geographical areas based on the origin of the
sale. Long-lived assets are attributed to geographical areas
based on asset location and exclude investments in and advances
to our non-consolidated affiliates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
3,419
|
|
|
|
$
|
427
|
|
|
$
|
870
|
|
|
$
|
3,474
|
|
|
$
|
3,029
|
|
Asia and Other Pacific
|
|
|
1,602
|
|
|
|
|
216
|
|
|
|
413
|
|
|
|
1,691
|
|
|
|
1,391
|
|
Brazil
|
|
|
880
|
|
|
|
|
109
|
|
|
|
235
|
|
|
|
847
|
|
|
|
616
|
|
Canada
|
|
|
236
|
|
|
|
|
19
|
|
|
|
55
|
|
|
|
217
|
|
|
|
234
|
|
Germany
|
|
|
2,508
|
|
|
|
|
212
|
|
|
|
651
|
|
|
|
2,263
|
|
|
|
1,850
|
|
United Kingdom
|
|
|
445
|
|
|
|
|
79
|
|
|
|
136
|
|
|
|
428
|
|
|
|
339
|
|
Other Europe
|
|
|
875
|
|
|
|
|
219
|
|
|
|
270
|
|
|
|
929
|
|
|
|
904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net sales
|
|
$
|
9,965
|
|
|
|
$
|
1,281
|
|
|
$
|
2,630
|
|
|
$
|
9,849
|
|
|
$
|
8,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,513
|
|
|
|
$
|
415
|
|
Asia and Other Pacific
|
|
|
566
|
|
|
|
|
601
|
|
Brazil
|
|
|
967
|
|
|
|
|
440
|
|
Canada
|
|
|
515
|
|
|
|
|
101
|
|
Germany
|
|
|
248
|
|
|
|
|
210
|
|
United Kingdom
|
|
|
170
|
|
|
|
|
162
|
|
Other Europe
|
|
|
1,431
|
|
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
6,410
|
|
|
|
$
|
2,365
|
|
|
|
|
|
|
|
|
|
|
|
Major
Customer Information
All of our operating segments had Net sales to Rexam Plc
(Rexam), our largest customer. The table below shows our net
sales to Rexam as a percentage of total Net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Year Ended December 31,
|
|
|
|
March 31, 2008
|
|
|
|
May 15, 2007
|
|
|
March 31, 2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
Net sales to Rexam as a percentage of total net sales
|
|
|
15.3
|
%
|
|
|
|
13.5
|
%
|
|
|
15.5
|
%
|
|
|
14.1
|
%
|
|
|
12.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The following tables present selected operating results (in
millions) and dividends per common share information. Certain
reclassifications of prior period quarterly amounts have been
made to conform to the presentation adopted for the current year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
Quarter Ended
|
|
|
|
April 1, 2007
|
|
|
|
May 16, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Through
|
|
|
|
Through
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
May 15, 2007
|
|
|
|
June 30, 2007(A)
|
|
|
2007(A)
|
|
|
2007(A)
|
|
|
2008(A)
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
Net sales
|
|
$
|
1,281
|
|
|
|
$
|
1,547
|
|
|
$
|
2,821
|
|
|
$
|
2,735
|
|
|
$
|
2,862
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
1,205
|
|
|
|
|
1,436
|
|
|
|
2,555
|
|
|
|
2,475
|
|
|
|
2,576
|
|
Selling, general and administrative expenses
|
|
|
95
|
|
|
|
|
42
|
|
|
|
88
|
|
|
|
99
|
|
|
|
90
|
|
Depreciation and amortization
|
|
|
28
|
|
|
|
|
53
|
|
|
|
102
|
|
|
|
105
|
|
|
|
107
|
|
Research and development expenses
|
|
|
6
|
|
|
|
|
13
|
|
|
|
10
|
|
|
|
11
|
|
|
|
12
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
26
|
|
|
|
|
25
|
|
|
|
56
|
|
|
|
47
|
|
|
|
45
|
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
(20
|
)
|
|
|
|
(14
|
)
|
|
|
36
|
|
|
|
50
|
|
|
|
(94
|
)
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
(1
|
)
|
|
|
|
1
|
|
|
|
4
|
|
|
|
4
|
|
|
|
(5
|
)
|
Sale transaction fees
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expenses net
|
|
|
4
|
|
|
|
|
11
|
|
|
|
(7
|
)
|
|
|
(11
|
)
|
|
|
7
|
|
Provision (benefit) for taxes on income (loss)
|
|
|
4
|
|
|
|
|
36
|
|
|
|
(36
|
)
|
|
|
4
|
|
|
|
(1
|
)
|
Minority interests share
|
|
|
(1
|
)
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(97
|
)
|
|
|
$
|
(54
|
)
|
|
$
|
13
|
|
|
$
|
(49
|
)
|
|
$
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$
|
0.00
|
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
185
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
|
Predecessor
|
|
|
Net sales
|
|
$
|
2,630
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
2,447
|
|
Selling, general and administrative expenses
|
|
|
99
|
|
Depreciation and amortization
|
|
|
58
|
|
Research and development expenses
|
|
|
8
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
50
|
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
(30
|
)
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
(3
|
)
|
Sale transaction fees
|
|
|
32
|
|
Other (income) expenses net
|
|
|
24
|
|
Provision (benefit) for taxes on income (loss)
|
|
|
7
|
|
Minority interests share
|
|
|
2
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(64
|
)
|
|
|
|
|
|
Dividends per common share
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Net sales
|
|
$
|
2,319
|
|
|
$
|
2,564
|
|
|
$
|
2,494
|
|
|
$
|
2,472
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
2,135
|
|
|
|
2,407
|
|
|
|
2,389
|
|
|
|
2,386
|
|
Selling, general and administrative expenses
|
|
|
92
|
|
|
|
98
|
|
|
|
103
|
|
|
|
117
|
|
Depreciation and amortization
|
|
|
58
|
|
|
|
59
|
|
|
|
57
|
|
|
|
59
|
|
Research and development expenses
|
|
|
9
|
|
|
|
10
|
|
|
|
10
|
|
|
|
11
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
48
|
|
|
|
49
|
|
|
|
52
|
|
|
|
57
|
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
(54
|
)
|
|
|
(41
|
)
|
|
|
37
|
|
|
|
(5
|
)
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
(4
|
)
|
Other (income) expenses net
|
|
|
6
|
|
|
|
(4
|
)
|
|
|
7
|
|
|
|
(9
|
)
|
Provision (benefit) for taxes on income (loss)
|
|
|
102
|
|
|
|
(20
|
)
|
|
|
(52
|
)
|
|
|
(34
|
)
|
Minority interests share
|
|
|
|
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(74
|
)
|
|
$
|
6
|
|
|
$
|
(102
|
)
|
|
$
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.
|
SUPPLEMENTAL
GUARANTOR INFORMATION
|
In connection with the issuance of our Senior Notes, certain of
our wholly-owned subsidiaries provided guarantees of the Senior
Notes. These guarantees are full and unconditional as well as
joint and several. The guarantor subsidiaries (the Guarantors)
comprise the majority of our businesses in Canada, the U.S., the
U.K., Brazil and Switzerland, as well as certain businesses in
Germany. Certain Guarantors may be subject to restrictions on
their ability to distribute earnings to Novelis Inc. (the
Parent). The remaining subsidiaries (the Non-Guarantors) of the
Parent are not guarantors of the Senior Notes.
186
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
The following information presents consolidating and combining
statements of operations, consolidating balance sheets and
condensed consolidating and combining statements of cash flows
of the Parent, the Guarantors and the Non-Guarantors.
Investments include investment in and advances to
non-consolidated affiliates as well as investments in net assets
of divisions included in the Parent, and have been presented
using the equity method of accounting.
NOVELIS
INC.
CONSOLIDATING
STATEMENT OF OPERATIONS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007 Through March 31, 2008
Successor
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,300
|
|
|
$
|
8,266
|
|
|
$
|
2,701
|
|
|
$
|
(2,302
|
)
|
|
$
|
9,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
1,294
|
|
|
|
7,504
|
|
|
|
2,546
|
|
|
|
(2,302
|
)
|
|
|
9,042
|
|
Selling, general and administrative expenses
|
|
|
40
|
|
|
|
210
|
|
|
|
69
|
|
|
|
|
|
|
|
319
|
|
Depreciation and amortization
|
|
|
19
|
|
|
|
289
|
|
|
|
59
|
|
|
|
|
|
|
|
367
|
|
Research and development expenses
|
|
|
27
|
|
|
|
17
|
|
|
|
2
|
|
|
|
|
|
|
|
46
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
34
|
|
|
|
118
|
|
|
|
21
|
|
|
|
|
|
|
|
173
|
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
8
|
|
|
|
(13
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
(22
|
)
|
Equity in net (income) loss of affiliates
|
|
|
(130
|
)
|
|
|
4
|
|
|
|
|
|
|
|
130
|
|
|
|
4
|
|
Other (income) expenses net
|
|
|
(33
|
)
|
|
|
8
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,259
|
|
|
|
8,137
|
|
|
|
2,705
|
|
|
|
(2,172
|
)
|
|
|
9,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for taxes on income
(loss) and minority interests share
|
|
|
41
|
|
|
|
129
|
|
|
|
(4
|
)
|
|
|
(130
|
)
|
|
|
36
|
|
Provision (benefit) for taxes on income (loss)
|
|
|
13
|
|
|
|
(16
|
)
|
|
|
6
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests share
|
|
|
28
|
|
|
|
145
|
|
|
|
(10
|
)
|
|
|
(130
|
)
|
|
|
33
|
|
Minority interests share
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
28
|
|
|
$
|
145
|
|
|
$
|
(15
|
)
|
|
$
|
(130
|
)
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
NOVELIS
INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2007 Through May 15, 2007
Predecessor
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
129
|
|
|
$
|
1,020
|
|
|
$
|
359
|
|
|
$
|
(227
|
)
|
|
$
|
1,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
131
|
|
|
|
961
|
|
|
|
340
|
|
|
|
(227
|
)
|
|
|
1,205
|
|
Selling, general and administrative expenses
|
|
|
29
|
|
|
|
51
|
|
|
|
15
|
|
|
|
|
|
|
|
95
|
|
Depreciation and amortization
|
|
|
2
|
|
|
|
18
|
|
|
|
8
|
|
|
|
|
|
|
|
28
|
|
Research and development expenses
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
3
|
|
|
|
20
|
|
|
|
3
|
|
|
|
|
|
|
|
26
|
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
(2
|
)
|
|
|
(19
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(20
|
)
|
Equity in net (income) loss of affiliates
|
|
|
29
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(29
|
)
|
|
|
(1
|
)
|
Sale transaction fees
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Other (income) expenses net
|
|
|
(3
|
)
|
|
|
9
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226
|
|
|
|
1,040
|
|
|
|
365
|
|
|
|
(256
|
)
|
|
|
1,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for taxes on income
(loss) and minority interests share
|
|
|
(97
|
)
|
|
|
(20
|
)
|
|
|
(6
|
)
|
|
|
29
|
|
|
|
(94
|
)
|
Provision (benefit) for taxes on income (loss)
|
|
|
|
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests share
|
|
|
(97
|
)
|
|
|
(23
|
)
|
|
|
(7
|
)
|
|
|
29
|
|
|
|
(98
|
)
|
Minority interests share
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(97
|
)
|
|
$
|
(23
|
)
|
|
$
|
(6
|
)
|
|
$
|
29
|
|
|
$
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
NOVELIS
INC.
CONSOLIDATING
STATEMENT OF OPERATIONS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2007
Predecessor
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
378
|
|
|
$
|
2,228
|
|
|
$
|
723
|
|
|
$
|
(699
|
)
|
|
$
|
2,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
374
|
|
|
|
2,094
|
|
|
|
675
|
|
|
|
(696
|
)
|
|
|
2,447
|
|
Selling, general and administrative expenses
|
|
|
10
|
|
|
|
69
|
|
|
|
20
|
|
|
|
|
|
|
|
99
|
|
Depreciation and amortization
|
|
|
3
|
|
|
|
38
|
|
|
|
17
|
|
|
|
|
|
|
|
58
|
|
Research and development expenses
|
|
|
5
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
8
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
7
|
|
|
|
39
|
|
|
|
4
|
|
|
|
|
|
|
|
50
|
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
2
|
|
|
|
(29
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(30
|
)
|
Equity in net (income) loss of affiliates
|
|
|
14
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(14
|
)
|
|
|
(3
|
)
|
Sale transaction fees
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Other (income) expenses net
|
|
|
(5
|
)
|
|
|
26
|
|
|
|
3
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
442
|
|
|
|
2,236
|
|
|
|
717
|
|
|
|
(710
|
)
|
|
|
2,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for taxes on income
(loss) and minority interests share
|
|
|
(64
|
)
|
|
|
(8
|
)
|
|
|
6
|
|
|
|
11
|
|
|
|
(55
|
)
|
Provision (benefit) for taxes on income (loss)
|
|
|
|
|
|
|
5
|
|
|
|
2
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests share
|
|
|
(64
|
)
|
|
|
(13
|
)
|
|
|
4
|
|
|
|
11
|
|
|
|
(62
|
)
|
Minority interests share
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(64
|
)
|
|
$
|
(13
|
)
|
|
$
|
2
|
|
|
$
|
11
|
|
|
$
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
NOVELIS
INC.
CONSOLIDATING
STATEMENT OF OPERATIONS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
Predecessor
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,572
|
|
|
$
|
8,340
|
|
|
$
|
2,822
|
|
|
$
|
(2,885
|
)
|
|
$
|
9,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
1,522
|
|
|
|
8,010
|
|
|
|
2,670
|
|
|
|
(2,885
|
)
|
|
|
9,317
|
|
Selling, general and administrative expenses
|
|
|
72
|
|
|
|
269
|
|
|
|
69
|
|
|
|
|
|
|
|
410
|
|
Depreciation and amortization
|
|
|
15
|
|
|
|
153
|
|
|
|
65
|
|
|
|
|
|
|
|
233
|
|
Research and development expenses
|
|
|
28
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
48
|
|
|
|
140
|
|
|
|
18
|
|
|
|
|
|
|
|
206
|
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
49
|
|
|
|
(128
|
)
|
|
|
16
|
|
|
|
|
|
|
|
(63
|
)
|
Equity in net (income) loss of affiliates
|
|
|
115
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
(115
|
)
|
|
|
(16
|
)
|
Other (income) expenses net
|
|
|
(11
|
)
|
|
|
20
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,838
|
|
|
|
8,460
|
|
|
|
2,829
|
|
|
|
(3,000
|
)
|
|
|
10,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for taxes on income
(loss) and minority interests share
|
|
|
(266
|
)
|
|
|
(120
|
)
|
|
|
(7
|
)
|
|
|
115
|
|
|
|
(278
|
)
|
Provision (benefit) for taxes on income (loss)
|
|
|
9
|
|
|
|
(28
|
)
|
|
|
15
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests share
|
|
|
(275
|
)
|
|
|
(92
|
)
|
|
|
(22
|
)
|
|
|
115
|
|
|
|
(274
|
)
|
Minority interests share
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(275
|
)
|
|
$
|
(92
|
)
|
|
$
|
(23
|
)
|
|
$
|
115
|
|
|
$
|
(275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
NOVELIS
INC.
CONSOLIDATING
AND COMBINING STATEMENT OF OPERATIONS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
Predecessor
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,284
|
|
|
$
|
6,872
|
|
|
$
|
2,479
|
|
|
$
|
(2,272
|
)
|
|
$
|
8,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
1,245
|
|
|
|
6,283
|
|
|
|
2,314
|
|
|
|
(2,272
|
)
|
|
|
7,570
|
|
Selling, general and administrative expenses
|
|
|
43
|
|
|
|
242
|
|
|
|
67
|
|
|
|
|
|
|
|
352
|
|
Depreciation and amortization
|
|
|
11
|
|
|
|
158
|
|
|
|
61
|
|
|
|
|
|
|
|
230
|
|
Research and development expenses
|
|
|
28
|
|
|
|
12
|
|
|
|
1
|
|
|
|
|
|
|
|
41
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
55
|
|
|
|
119
|
|
|
|
20
|
|
|
|
|
|
|
|
194
|
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
(29
|
)
|
|
|
(229
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
(269
|
)
|
Equity in net (income) loss of affiliates
|
|
|
(139
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
139
|
|
|
|
(6
|
)
|
Litigation settlement net of insurance recoveries
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Other (income) expenses net
|
|
|
(29
|
)
|
|
|
7
|
|
|
|
9
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,185
|
|
|
|
6,626
|
|
|
|
2,461
|
|
|
|
(2,133
|
)
|
|
|
8,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for taxes on income
(loss), minority interests share and cumulative effect of
accounting change
|
|
|
99
|
|
|
|
246
|
|
|
|
18
|
|
|
|
(139
|
)
|
|
|
224
|
|
Provision (benefit) for taxes on income (loss)
|
|
|
3
|
|
|
|
107
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests share and cumulative
effect of accounting change
|
|
|
96
|
|
|
|
139
|
|
|
|
21
|
|
|
|
(139
|
)
|
|
|
117
|
|
Minority interests share
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before cumulative effect of accounting change
|
|
|
96
|
|
|
|
139
|
|
|
|
|
|
|
|
(139
|
)
|
|
|
96
|
|
Cumulative effect of accounting change net of tax
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
6
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
90
|
|
|
$
|
133
|
|
|
$
|
|
|
|
$
|
(133
|
)
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
NOVELIS
INC.
CONSOLIDATING
BALANCE SHEET
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008 Successor
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12
|
|
|
$
|
177
|
|
|
$
|
137
|
|
|
$
|
|
|
|
$
|
326
|
|
Accounts receivable net of allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
38
|
|
|
|
818
|
|
|
|
392
|
|
|
|
|
|
|
|
1,248
|
|
related parties
|
|
|
518
|
|
|
|
289
|
|
|
|
34
|
|
|
|
(810
|
)
|
|
|
31
|
|
Inventories
|
|
|
57
|
|
|
|
993
|
|
|
|
405
|
|
|
|
|
|
|
|
1,455
|
|
Prepaid expenses and other current assets
|
|
|
4
|
|
|
|
35
|
|
|
|
19
|
|
|
|
|
|
|
|
58
|
|
Current portion of fair value of derivative instruments
|
|
|
|
|
|
|
186
|
|
|
|
30
|
|
|
|
(13
|
)
|
|
|
203
|
|
Deferred income tax assets
|
|
|
|
|
|
|
121
|
|
|
|
4
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
629
|
|
|
|
2,619
|
|
|
|
1,021
|
|
|
|
(823
|
)
|
|
|
3,446
|
|
Property, plant and equipment net
|
|
|
178
|
|
|
|
2,462
|
|
|
|
725
|
|
|
|
|
|
|
|
3,365
|
|
Goodwill
|
|
|
|
|
|
|
1,968
|
|
|
|
189
|
|
|
|
|
|
|
|
2,157
|
|
Intangible assets net
|
|
|
|
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
|
888
|
|
Investments
|
|
|
3,641
|
|
|
|
915
|
|
|
|
2
|
|
|
|
(3,641
|
)
|
|
|
917
|
|
Fair value of derivative instruments net of current
portion
|
|
|
|
|
|
|
18
|
|
|
|
3
|
|
|
|
|
|
|
|
21
|
|
Deferred income tax assets
|
|
|
7
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
9
|
|
Other long-term assets
|
|
|
1,328
|
|
|
|
160
|
|
|
|
135
|
|
|
|
(1,480
|
)
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,783
|
|
|
$
|
9,030
|
|
|
$
|
2,077
|
|
|
$
|
(5,944
|
)
|
|
$
|
10,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
3
|
|
|
$
|
11
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
15
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
70
|
|
|
|
45
|
|
|
|
|
|
|
|
115
|
|
related parties
|
|
|
5
|
|
|
|
370
|
|
|
|
25
|
|
|
|
(400
|
)
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
84
|
|
|
|
925
|
|
|
|
573
|
|
|
|
|
|
|
|
1,582
|
|
related parties
|
|
|
110
|
|
|
|
233
|
|
|
|
88
|
|
|
|
(376
|
)
|
|
|
55
|
|
Accrued expenses and other current liabilities
|
|
|
39
|
|
|
|
699
|
|
|
|
129
|
|
|
|
(17
|
)
|
|
|
850
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
241
|
|
|
|
2,347
|
|
|
|
861
|
|
|
|
(793
|
)
|
|
|
2,656
|
|
Long-term debt net of current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1,761
|
|
|
|
698
|
|
|
|
101
|
|
|
|
|
|
|
|
2,560
|
|
related parties
|
|
|
|
|
|
|
1,206
|
|
|
|
304
|
|
|
|
(1,510
|
)
|
|
|
|
|
Deferred income tax liabilities
|
|
|
1
|
|
|
|
930
|
|
|
|
21
|
|
|
|
|
|
|
|
952
|
|
Accrued postretirement benefits
|
|
|
23
|
|
|
|
297
|
|
|
|
101
|
|
|
|
|
|
|
|
421
|
|
Other long-term liabilities
|
|
|
219
|
|
|
|
432
|
|
|
|
19
|
|
|
|
|
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,245
|
|
|
|
5,910
|
|
|
|
1,407
|
|
|
|
(2,303
|
)
|
|
|
7,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests in equity of consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
3,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,497
|
|
Retained earnings/(accumulated deficit)/owners net
investment
|
|
|
28
|
|
|
|
3,119
|
|
|
|
565
|
|
|
|
(3,684
|
)
|
|
|
28
|
|
Accumulated other comprehensive income (loss)
|
|
|
13
|
|
|
|
1
|
|
|
|
(44
|
)
|
|
|
43
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
3,538
|
|
|
|
3,120
|
|
|
|
521
|
|
|
|
(3,641
|
)
|
|
|
3,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
5,783
|
|
|
$
|
9,030
|
|
|
$
|
2,077
|
|
|
$
|
(5,944
|
)
|
|
$
|
10,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
NOVELIS
INC.
CONSOLIDATING
BALANCE SHEET
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2007 Predecessor
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6
|
|
|
$
|
71
|
|
|
$
|
51
|
|
|
$
|
|
|
|
$
|
128
|
|
Accounts receivable net of allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
36
|
|
|
|
903
|
|
|
|
411
|
|
|
|
|
|
|
|
1,350
|
|
related parties
|
|
|
416
|
|
|
|
500
|
|
|
|
58
|
|
|
|
(949
|
)
|
|
|
25
|
|
Inventories
|
|
|
65
|
|
|
|
1,008
|
|
|
|
421
|
|
|
|
(3
|
)
|
|
|
1,491
|
|
Prepaid expenses and other current assets
|
|
|
3
|
|
|
|
26
|
|
|
|
10
|
|
|
|
|
|
|
|
39
|
|
Current portion of fair value of derivative instruments
|
|
|
|
|
|
|
88
|
|
|
|
4
|
|
|
|
|
|
|
|
92
|
|
Deferred income tax assets
|
|
|
3
|
|
|
|
12
|
|
|
|
4
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
529
|
|
|
|
2,608
|
|
|
|
959
|
|
|
|
(952
|
)
|
|
|
3,144
|
|
Property, plant and equipment net
|
|
|
112
|
|
|
|
1,225
|
|
|
|
761
|
|
|
|
|
|
|
|
2,098
|
|
Goodwill
|
|
|
|
|
|
|
29
|
|
|
|
210
|
|
|
|
|
|
|
|
239
|
|
Intangible assets net
|
|
|
|
|
|
|
18
|
|
|
|
2
|
|
|
|
|
|
|
|
20
|
|
Investments
|
|
|
362
|
|
|
|
153
|
|
|
|
|
|
|
|
(362
|
)
|
|
|
153
|
|
Fair value of derivative instruments net of current
portion
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
Deferred income tax assets
|
|
|
1
|
|
|
|
66
|
|
|
|
35
|
|
|
|
|
|
|
|
102
|
|
Other long-term assets
|
|
|
1,231
|
|
|
|
160
|
|
|
|
132
|
|
|
|
(1,364
|
)
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,235
|
|
|
$
|
4,314
|
|
|
$
|
2,099
|
|
|
$
|
(2,678
|
)
|
|
$
|
5,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
140
|
|
|
$
|
|
|
|
$
|
143
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
241
|
|
|
|
4
|
|
|
|
|
|
|
|
245
|
|
related parties
|
|
|
15
|
|
|
|
529
|
|
|
|
61
|
|
|
|
(605
|
)
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
116
|
|
|
|
938
|
|
|
|
560
|
|
|
|
|
|
|
|
1,614
|
|
related parties
|
|
|
69
|
|
|
|
240
|
|
|
|
84
|
|
|
|
(344
|
)
|
|
|
49
|
|
Accrued expenses and other current liabilities
|
|
|
63
|
|
|
|
317
|
|
|
|
100
|
|
|
|
|
|
|
|
480
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
263
|
|
|
|
2,341
|
|
|
|
949
|
|
|
|
(949
|
)
|
|
|
2,604
|
|
Long-term debt net of current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1,659
|
|
|
|
496
|
|
|
|
2
|
|
|
|
|
|
|
|
2,157
|
|
related parties
|
|
|
|
|
|
|
1,116
|
|
|
|
248
|
|
|
|
(1,364
|
)
|
|
|
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
89
|
|
|
|
14
|
|
|
|
|
|
|
|
103
|
|
Accrued postretirement benefits
|
|
|
19
|
|
|
|
293
|
|
|
|
115
|
|
|
|
|
|
|
|
427
|
|
Other long-term liabilities
|
|
|
119
|
|
|
|
214
|
|
|
|
19
|
|
|
|
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,060
|
|
|
|
4,549
|
|
|
|
1,347
|
|
|
|
(2,313
|
)
|
|
|
5,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests in equity of consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
152
|
|
|
|
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
428
|
|
Retained earnings/(accumulated deficit)/owners net
investment
|
|
|
(263
|
)
|
|
|
(458
|
)
|
|
|
575
|
|
|
|
(117
|
)
|
|
|
(263
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
10
|
|
|
|
223
|
|
|
|
25
|
|
|
|
(248
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
175
|
|
|
|
(235
|
)
|
|
|
600
|
|
|
|
(365
|
)
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
2,235
|
|
|
$
|
4,314
|
|
|
$
|
2,099
|
|
|
$
|
(2,678
|
)
|
|
$
|
5,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
NOVELIS
INC.
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007 Through March 31, 2008
Successor
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
88
|
|
|
$
|
363
|
|
|
$
|
144
|
|
|
$
|
(190
|
)
|
|
$
|
405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(11
|
)
|
|
|
(143
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
(185
|
)
|
Proceeds from sale of assets
|
|
|
5
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
8
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
(40
|
)
|
|
|
25
|
|
|
|
(1
|
)
|
|
|
40
|
|
|
|
24
|
|
Proceeds from loans receivable net
related parties
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Net proceeds from settlement of derivative instruments
|
|
|
12
|
|
|
|
32
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(34
|
)
|
|
|
(66
|
)
|
|
|
(38
|
)
|
|
|
40
|
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
92
|
|
|
|
40
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
92
|
|
Proceeds from issuance of debt
|
|
|
300
|
|
|
|
659
|
|
|
|
141
|
|
|
|
|
|
|
|
1,100
|
|
Principal repayments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(261
|
)
|
|
|
(608
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
(1,009
|
)
|
related parties
|
|
|
|
|
|
|
(189
|
)
|
|
|
31
|
|
|
|
158
|
|
|
|
|
|
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(45
|
)
|
|
|
(188
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
(241
|
)
|
related parties
|
|
|
(99
|
)
|
|
|
81
|
|
|
|
(14
|
)
|
|
|
32
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
minority interests
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Debt issuance costs
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(50
|
)
|
|
|
(205
|
)
|
|
|
9
|
|
|
|
150
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
4
|
|
|
|
92
|
|
|
|
115
|
|
|
|
|
|
|
|
211
|
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
|
|
|
|
11
|
|
|
|
2
|
|
|
|
|
|
|
|
13
|
|
Cash and cash equivalents beginning of period
|
|
|
8
|
|
|
|
74
|
|
|
|
20
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
12
|
|
|
$
|
177
|
|
|
$
|
137
|
|
|
$
|
|
|
|
$
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
NOVELIS
INC.
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2007 Through May 15, 2007
Predecessor
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(21
|
)
|
|
$
|
(181
|
)
|
|
$
|
(28
|
)
|
|
$
|
|
|
|
$
|
(230
|
)
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1
|
)
|
|
|
(10
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
(17
|
)
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Net proceeds from settlement of derivative instruments
|
|
|
(5
|
)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(6
|
)
|
|
|
14
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
Principal repayments
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
45
|
|
|
|
9
|
|
|
|
6
|
|
|
|
|
|
|
|
60
|
|
related parties
|
|
|
(15
|
)
|
|
|
11
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
minority interests
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
Debt issuance costs
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Proceeds from the exercise of stock options
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
29
|
|
|
|
169
|
|
|
|
3
|
|
|
|
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2
|
|
|
|
2
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
(27
|
)
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Cash and cash equivalents beginning of period
|
|
|
6
|
|
|
|
71
|
|
|
|
51
|
|
|
|
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
8
|
|
|
$
|
74
|
|
|
$
|
20
|
|
|
$
|
|
|
|
$
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
NOVELIS
INC.
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2007
Predecessor
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(30
|
)
|
|
$
|
(55
|
)
|
|
$
|
50
|
|
|
$
|
(52
|
)
|
|
$
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2
|
)
|
|
|
(16
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
(24
|
)
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Proceeds from loans receivable net
related parties
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Net proceeds from settlement of derivative instruments
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(2
|
)
|
|
|
10
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
113
|
|
related parties
|
|
|
7
|
|
|
|
5
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common shareholders
|
|
|
|
|
|
|
(38
|
)
|
|
|
(14
|
)
|
|
|
52
|
|
|
|
|
|
Proceeds from the exercise of employee stock options
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
Windfall tax benefit on share-based compensation
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
35
|
|
|
|
79
|
|
|
|
(26
|
)
|
|
|
52
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
3
|
|
|
|
34
|
|
|
|
18
|
|
|
|
|
|
|
|
55
|
|
Cash and cash equivalents beginning of period
|
|
|
3
|
|
|
|
37
|
|
|
|
33
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
6
|
|
|
$
|
71
|
|
|
$
|
51
|
|
|
$
|
|
|
|
$
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
NOVELIS
INC.
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
Predecessor
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
104
|
|
|
$
|
(9
|
)
|
|
$
|
87
|
|
|
$
|
(166
|
)
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(8
|
)
|
|
|
(72
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
(116
|
)
|
Disposal of business net
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
Proceeds from sales of assets
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Proceeds from (advances on) loans receivable net
related parties
|
|
|
48
|
|
|
|
(60
|
)
|
|
|
(28
|
)
|
|
|
77
|
|
|
|
37
|
|
Premiums paid to purchase derivative instruments
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Net proceeds from settlement of derivative instruments
|
|
|
(34
|
)
|
|
|
283
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(1
|
)
|
|
|
188
|
|
|
|
(71
|
)
|
|
|
77
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
41
|
|
related parties
|
|
|
|
|
|
|
1,300
|
|
|
|
460
|
|
|
|
(1,760
|
)
|
|
|
|
|
Principal repayments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(83
|
)
|
|
|
(147
|
)
|
|
|
(123
|
)
|
|
|
|
|
|
|
(353
|
)
|
related parties
|
|
|
|
|
|
|
(1,247
|
)
|
|
|
(397
|
)
|
|
|
1,644
|
|
|
|
|
|
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
preference shares
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
12
|
|
|
|
|
|
common shareholders
|
|
|
(15
|
)
|
|
|
(175
|
)
|
|
|
(18
|
)
|
|
|
193
|
|
|
|
(15
|
)
|
minority interests
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
(15
|
)
|
Net receipts from Alcan
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Debt issuance costs
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
Proceeds from the exercise of stock options
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(102
|
)
|
|
|
(178
|
)
|
|
|
(52
|
)
|
|
|
89
|
|
|
|
(243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1
|
|
|
|
1
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
(34
|
)
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
|
|
|
|
2
|
|
|
|
5
|
|
|
|
|
|
|
|
7
|
|
Cash and cash equivalents beginning of period
|
|
|
2
|
|
|
|
34
|
|
|
|
64
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
3
|
|
|
$
|
37
|
|
|
$
|
33
|
|
|
$
|
|
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197
Novelis
Inc.
NOTES TO
THE CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS (Continued)
NOVELIS
INC.
CONDENSED
CONSOLIDATING AND COMBINING STATEMENT OF CASH FLOWS
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
Predecessor
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
181
|
|
|
$
|
407
|
|
|
$
|
39
|
|
|
$
|
(178
|
)
|
|
$
|
449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(19
|
)
|
|
|
(120
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
(178
|
)
|
Proceeds from sales of assets
|
|
|
|
|
|
|
10
|
|
|
|
9
|
|
|
|
|
|
|
|
19
|
|
Proceeds from (advances on) loans receivable net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
4
|
|
|
|
15
|
|
|
|
|
|
|
|
19
|
|
related parties
|
|
|
(1,171
|
)
|
|
|
(156
|
)
|
|
|
(118
|
)
|
|
|
1,819
|
|
|
|
374
|
|
Share repurchase intercompany
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
(400
|
)
|
|
|
|
|
Premiums paid to purchase derivative instruments
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
Net proceeds from settlement of derivative instruments
|
|
|
45
|
|
|
|
94
|
|
|
|
9
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(745
|
)
|
|
|
(225
|
)
|
|
|
(124
|
)
|
|
|
1,419
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1,875
|
|
|
|
825
|
|
|
|
79
|
|
|
|
|
|
|
|
2,779
|
|
related parties
|
|
|
40
|
|
|
|
1,526
|
|
|
|
253
|
|
|
|
(1,819
|
)
|
|
|
|
|
Principal repayments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(1,153
|
)
|
|
|
(574
|
)
|
|
|
(95
|
)
|
|
|
|
|
|
|
(1,822
|
)
|
related parties
|
|
|
(192
|
)
|
|
|
(988
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,180
|
)
|
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
2
|
|
|
|
(47
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
(145
|
)
|
related parties
|
|
|
(30
|
)
|
|
|
(281
|
)
|
|
|
9
|
|
|
|
|
|
|
|
(302
|
)
|
Share repurchase intercompany
|
|
|
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
400
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common shareholders
|
|
|
(27
|
)
|
|
|
(176
|
)
|
|
|
(2
|
)
|
|
|
178
|
|
|
|
(27
|
)
|
minority interests
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
Net receipts from (payments to) Alcan
|
|
|
100
|
|
|
|
(21
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
72
|
|
Debt issuance costs
|
|
|
(49
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
566
|
|
|
|
(158
|
)
|
|
|
130
|
|
|
|
(1,241
|
)
|
|
|
(703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
2
|
|
|
|
24
|
|
|
|
45
|
|
|
|
|
|
|
|
71
|
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Cash and cash equivalents beginning of period
|
|
|
|
|
|
|
12
|
|
|
|
19
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
2
|
|
|
$
|
34
|
|
|
$
|
64
|
|
|
$
|
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
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198
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Item 9.
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Changes
In and Disagreements with Accountants on Accounting and
Financial Disclosure
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None.
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Item 9A.
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Controls
and Procedures
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Evaluation
of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other
procedures that are designed to provide reasonable assurance
that the information required to be disclosed in reports filed
or submitted under the Securities Exchange Act of 1934, as
amended (Exchange Act), is (1) recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commissions (SECs) rules and
forms and (2) accumulated and communicated to management,
including the Principal Executive Officer and Principal
Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
In connection with the preparation of this Annual Report on
Form 10-K,
members of management, at the direction (and with the
participation) of our Principal Executive Officer and Principal
Financial Officer, performed an evaluation of the effectiveness
of the design and operation of our disclosure controls and
procedures (as defined in
Rule 13a-15(e)
under the Exchange Act), as of March 31, 2008. Based on
that evaluation, the Principal Executive Officer and Principal
Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level as
of March 31, 2008.
Remediation
of Previously Disclosed Material Weaknesses
As reported in the annual report on
Form 10-K
for the year ended December 31, 2006, management previously
concluded that a material weakness existed related to our
accounting for income taxes. Management concluded that as of
March 31, 2008, the previously reported material weakness
has been remediated. The actions taken to remediate the
previously reported material weakness included the following:
1. Accounting for income taxes.
a. On October 1, 2007, we hired Michael Pashos as Vice
President of Global Tax. Additionally, during February 2008, we
hired a Director and two Managers of Tax who will assist
Mr. Pashos with tax planning, accounting and support. These
individuals posses the requisite technical accounting and tax
experience to effectively manage the accounting for income taxes.
b. As outlined in our plan to remediate the material
weakness in accounting for income taxes in Item 9A of our
Annual Report on
Form 10-K
for the year ended December 31, 2006, we continue to engage
outside experts, supervised by the newly hired Tax Department
management personnel named above to supplement our team,
specifically in the areas of income tax reporting.
c. As outlined in our plan to remediate the material
weakness in accounting for income taxes in Item 9A of our
Annual Report on
Form 10-K
for the year ended December 31, 2006, we continue to hold
training sessions covering several topics, including but not
limited to, SFAS 109, FIN 18, APB 23 and
FIN 48.
Changes
in Internal Control Over Financial Reporting
During February 2008, the Company hired a Director and two
Managers of Tax who will assist Mr. Pashos with tax
planning, accounting and audit support.
This represents a change in our internal control over financial
reporting (as defined in
Rule 13a-15(f)
under the Exchange Act) during the quarter ended March 31,
2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Managements
Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rule 13a-15(f)
under the Exchange Act, as amended. The Companys internal
control
199
over financial reporting is designed to provide reasonable
assurance as to the reliability of the Companys financial
reporting and the preparation of financial statements in
accordance with GAAP. Our internal control over financial
reporting includes those policies and procedures that:
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Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the Company;
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Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company, and
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Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
Companys consolidated financial statements.
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Internal control over financial reporting, no matter how well
designed, has inherent limitations. Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, internal control
over financial reporting determined to be effective can provide
only reasonable assurance with respect to financial statement
preparation and may not prevent or detect all misstatements.
Moreover, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Companys
internal control over financial reporting as of March 31,
2008. In making this assessment, management used the criteria
established by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control
Integrated Framework.
Based on the Companys processes and assessment, as
described above, management has concluded that, as of
March 31, 2008, the Companys internal control over
financial reporting was effective.
The effectiveness of the Companys internal control over
financial reporting as of March 31, 2008 has been audited
by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
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Item 9B.
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Other
Information
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None.
200
PART III
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Item 10.
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Directors,
Executive Officers and Corporate Governance
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Our
Directors
Our Board of Directors is currently comprised of
5 directors. Our directors terms will expire at each
annual shareholders meeting provided that if an election of
directors is not held at an annual meeting of the shareholders,
the directors then in office shall continue in office or until
their successors shall be elected. Biographical details for each
of our directors are set forth below.
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Name
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Director Since
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Age
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Position
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Kumar Mangalam Birla
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May 15, 2007
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40
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Chairman of the Board
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Askaran Agarwala(2)
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May 15, 2007
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74
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Director
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Debnarayan Bhattacharya(1)(2)
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May 15, 2007
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59
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Director and Vice Chairman of the Board
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Clarence J. Chandran(1)(2)
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January 6, 2005
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59
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Director
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Donald A. Stewart(1)
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January 6, 2005
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61
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Director
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(1) |
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Member of our Audit Committee. |
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(2) |
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Member of our Compensation Committee. |
Kumar Mangalam Birla was elected as the Chairman of the
Board of Directors of Novelis on May 15, 2007.
Mr. Birla is the Chairman of the Aditya Birla Group, which
is among Indias largest business houses, and includes such
companies as Grasim, Hindalco, UltraTech Cement, Aditya Birla
Nuvo and Idea Cellular and globally Novelis, Minacs,
Aditya Birla Minerals, Aditya Birla Chemicals, and its joint
venture, Birla Sun Life Insurance Company Limited.
Mr. Birla serves as Chairman of all of the Aditya Birla
Groups blue-chip companies in India. He also serves as
Chairman and director on the board of the Groups
international companies spanning Thailand, Indonesia,
Philippines, Egypt, and Canada. Additionally, Mr. Birla
serves on the board of the G.D. Birla Medical
Research & Education Foundation, and is a Member of
the Board of Governors of the Birla Institute of
Technology & Science, Pilani. He is a member of the
London Business Schools Asia Pacific Advisory Board.
Askaran Agarwala is a Director and Former President of
Hindalco and currently Chairman of the Business Review Council
of the Aditya Birla Group. Mr. Agarwala serves on the
Compensation Committee of the Novelis Board of Directors.
Mr. Agarwala also serves as a director of several other
companies including Udyog Services Ltd., Bihar
Caustic & Chemicals Ltd., Tanfac Industries Ltd., and
Birla Insurance Advisory Services Limited. He is a Trustee of
G.D. Birla Medical Research and Education Foundation, Vaibhav
Medical and Education Foundation and Aditya Vikram Birla
Memorial Trust. Mr. Agarwala has held the post of President
of Aluminum Association of India in the past.
Debnarayan Bhattacharya is Managing Director of Hindalco
and serves as a Director of Aditya Birla Management Corporation
Limited. Mr. Bhattacharya is Vice Chairman of Novelis and
serves on the Audit and Compensation Committees of the Novelis
Board of Directors. He is the Chairman of Utkal Alumina
International Limited and of Aditya Birla Minerals Limited, in
Australia. Mr. Bhattacharya also serves as a Director of
Birla Management Centre Services Limited; Dahej Harbour and
Infrastructure Limited (a wholly-owned subsidiary of Hindalco),
Minerals & Minerals Limited and Aditya Birla Power
Company Limited. Other positions held by Mr. Bhattacharya
include Hon. President Aluminium Association of
India (AAI); Director The Fertiliser Association of
India (FAI).
Clarence J. Chandran has been a director of the Company
since 2005 and also serves as Chairman of the Chandran Family
Foundation Inc. Mr. Chandran serves on the Compensation and
Audit Committees of the Novelis Board of Directors, and acts as
the Chairman of the Compensation Committee. Mr. Chandran
serves as Chairman of the Chandran Family Foundation Inc.
(healthcare research and education). He is a director of Marfort
Deep Sea Technologies Inc. and is a past director of Alcan Inc.
and MDS Inc. He retired as President, Business Process Services,
of CGI Group Inc. (information technology) in 2004 and retired
as Chief Operating
201
Officer of Nortel Networks Corporation (communications) in 2001.
Mr. Chandran is a member of the Duke University Board of
Visitors and the Strategic Plan Executive Committee of the Pratt
School of Engineering at Duke University.
Donald A. Stewart is Chief Executive Officer and a
Director of Sun Life Financial Inc. and Sun Life Assurance
Company of Canada. Mr. Stewart serves on the Audit
Committee of the Novelis Board of Directors and serves as its
Chairman. From 1987 to 1992, Mr. Stewart held overall
responsibility for Sun Life Financial Inc.s information
technology function. He was appointed Chief Executive Officer of
Sun Life Trust Company in September 1992. In 1996, he was
appointed President and Chief Operating Officer, and in 1998
Chief Executive Officer. Mr. Stewart also serves a director
of the American Council of Life Insurers, and is a trustee of CI
Financial Income Fund.
Our
Executive Officers
The information required as to executive officers is set forth
in Part I, Item 1. Business Our Executive
Officers, in this Annual Report on
Form 10-K.
Board of
Directors and Corporate Governance Matters
We are committed to our corporate governance practices, which we
believe are essential to our success and to the enhancement of
shareholder value. Our Senior Notes are publicly traded in the
U.S., and, accordingly, we make required filings with
U.S. securities regulators. We make these filings available
on our website at www.novelis.com as soon as reasonably
practicable after they are electronically filed. We are subject
to a variety of corporate governance and disclosure
requirements. Our corporate governance practices meet applicable
regulatory requirements to ensure transparency and effective
governance of the Company.
Our Board of Directors annually reviews 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.
Novelis
Board of Directors
Our Board of Directors has the responsibility for stewardship of
Novelis Inc., including the responsibility to ensure that we are
managed in the interest of our sole shareholder, 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) our articles of incorporation and
bylaws; (2) the charters of its committees and
(3) other applicable legislation and company policies.
Our corporate governance practices require that, in addition to
certain statutory duties, the following matters be subject to
our Board of Directors 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 by-laws and
(4) any matter which may have the potential for substantial
impact on our Company. Our Board of Directors reviews the
composition and size of our Board of Directors once a year.
Senior management makes regular presentations to our Board of
Directors on the main areas of our business.
Corporate
Governance
Holders of our Senior Notes and other interested parties may
communicate with the Board of Directors, a committee or an
individual director by writing to Novelis Inc., 3399 Peachtree
Road NE, Suite 1500, Atlanta, GA 30326, Attention:
Corporate Secretary Board Communication. All such
communications will be compiled by the Corporate Secretary and
submitted to the appropriate director or board committee. The
Corporate Secretary will reply or take other actions in
accordance with instructions from the applicable board contact.
202
Committees
of Our Board of Directors
Our Board of Directors has established two standing committees:
the Audit Committee and the Compensation Committee. Each
committee is governed by its own charter.
According to their authority as set out in their charters, our
board and each of its committees may engage outside advisors at
the expense of Novelis.
Audit
Committee and Financial Experts
Our Board of Directors has a separately-designated standing
Audit Committee. Messrs. Stewart, Bhattacharya and Chandran
are the members of the Audit Committee. Mr. Stewart has
been identified as an audit committee financial
expert as that term is defined in the rules and
regulations of the SEC.
Our Audit Committees main objective is to assist our Board
of Directors in fulfilling its oversight responsibilities for
the integrity of our financial statements, our compliance with
legal and regulatory requirements, the qualifications and
independence of our independent registered public accounting
firm and the performance of both our internal audit function and
our independent registered public accounting firm. Under the
Audit Committee charter, the Audit Committee is responsible for,
among other matters:
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evaluating and compensating our independent registered public
accounting firm;
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making recommendations to the Board of Directors and
shareholders relating to the appointment, retention and
termination of our independent registered public accounting firm;
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discussing with our independent registered public accounting
firm their qualifications and independence from management;
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reviewing with our independent registered public accounting firm
the scope and results of their audit;
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pre-approving all audit and permissible non-audit services to be
performed by our independent registered public accounting firm;
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review areas of potential significant financial risk and the
steps taken to monitor and manage such exposures;
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overseeing the financial reporting process and discussing with
management and our independent registered public accounting firm
the interim and annual financial statements that we file with
the SEC and
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reviewing and monitoring our accounting principles, accounting
policies and disclosure, internal control over financial
reporting and disclosure controls and procedures.
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Compensation
Committee
Our Compensation Committee establishes our general compensation
philosophy and oversees the development and implementation of
compensation policies and programs. It also reviews and approves
the level of
and/or
changes in the compensation of individual executive officers
taking into consideration individual performance and competitive
compensation practices. The committees specific roles and
responsibilities are set out in its charter. Our Compensation
Committee periodically reviews the effectiveness of our overall
management organization structure and succession planning for
senior management, reviews recommendations for the appointment
of executive officers, and reviews annually the development
process for high potential employees.
Code
of Conduct and Guidelines for Ethical Behavior
Novelis has adopted a Code of Conduct for the Board of Directors
and Senior Managers that applies to our senior financial
officers including our principal executive officer, principal
financial officer, principal accounting officer, or persons
performing similar functions. We also maintain a Code of Conduct
that governs all of our employees. Copies of the Code of Conduct
for the Board of Directors and Senior Managers and the
203
employee Guidelines for Ethical Behavior are available on our
website at www.novelis.com. We will promptly disclose any future
amendments to these codes on our website as well as any waivers
from these codes for executive officers and directors. Copies of
these codes are also available in print from our Corporate
Secretary upon request.
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Item 11.
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Executive
Compensation
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The following discussion of executive compensation contains
descriptions of various employee benefit plans and
employment-related agreements. These descriptions are qualified
in their entirety by reference to the full text or detailed
descriptions of the plans and agreements, which are filed as
exhibits to, or incorporated by reference into, this Annual
Report on
Form 10-K.
Compensation
Discussion and Analysis
Background:
Acquisition by Hindalco.
Following the acquisition of the Companys common shares by
Hindalco on May 15, 2007, Novelis became an indirect,
wholly-owned subsidiary of Hindalco. The change in control of
our common shares has not affected our overall compensation
programs and philosophy from when we were an independent,
publicly traded company. While certain of the Companys
incentive and equity compensation plans were cancelled and
settled in cash at the closing of the acquisition pursuant to
the Arrangement Agreement with Hindalco, our new board of
directors and Compensation Committee have replaced these plans
with new plans that follow a similar compensation philosophy.
Also, Hindalco has elected to retain our director who formerly
chaired our Human Resources Committee before the acquisition,
Clarence Chandran, and appointed him to serve as a director and
chair of our Compensation Committee following the acquisition.
Accordingly, the information provided below describes our
post-acquisition compensation programs and philosophy, which is
materially unchanged from our pre-acquisition compensation
programs and philosophy.
Introduction
This section provides a discussion of the background and
objectives of our compensation programs for senior management,
as well as a discussion of all material elements of the
compensation of each of the named executive officers for the
fiscal year ended March 31, 2008 identified in the
following table. The named executive officers are determined in
accordance with SEC rules, and include (1) the persons that
served as our principal executive officer and principal
financial officer during any part of fiscal 2008, (2) the
four other highest paid executive officers that were employed on
March 31, 2008, and (3) one other former executive
officer who was no longer employed on March 31, 2008.
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Name
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Title
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Edward Blechschmidt
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Former Acting Chief Executive Officer
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Martha Finn Brooks
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President and Chief Operating Officer
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Rick Dobson
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Former Senior Vice President and Chief Financial Officer
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Steven Fisher
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Chief Financial Officer
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Arnaud de Weert
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Senior Vice President and President Europe
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Kevin Greenawalt
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Senior Vice President and President North America
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Thomas Walpole
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Senior Vice President and President Asia
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Antonio Tadeu Coehlo Nardocci
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Senior Vice President and President South America
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David Godsell
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Former Vice President Human Resources and Environment, Health
and Safety
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Compensation
Committee and Role of Management
The compensation committee of our board of directors (the
Committee) has the responsibility for approving the compensation
programs for our named executive officers and making decisions
regarding
204
specific compensation to be paid or awarded to them. The
Committee acts pursuant to a charter approved by our board,
which is reviewed annually.
Our Vice President Human Resources serves as the management
liaison officer for the Committee. Our human resources and legal
departments provide assistance to the Committee in connection
with administration of the Committees responsibilities.
Our named executive officers have no direct role in setting
their own compensation. The Committee, however, normally meets
with our President and Chief Operating Officer to evaluate
performance against pre-established goals and the President and
Chief Operating Officer makes recommendations to the board
regarding budgets, which affect certain goals. Our President and
Chief Operating Officer also makes recommendations regarding
compensation matters related to other named executive officers
and provides input regarding executive compensation programs and
policies generally.
Management also assists the Committee by providing information
needed or requested by the Committee or its compensation
consultant (such as our performance against budget and
objectives, historic compensation, compensation expense, our
policies and programs, and peer companies) and by providing
input and advice regarding compensation programs and policies
and their impact on the Company and its executives.
Objectives
and Design of Our Compensation Program
Our executive compensation program is designed to attract,
retain, and reward talented executives who can contribute to our
long-term success and thereby build value for our shareholder.
The program is organized around three fundamental principles:
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Provide Total Direct Compensation Opportunities That Are
Competitive with Similar Positions at Comparable
Companies: To enable us to attract, motivate and
retain qualified executives, total direct compensation
opportunities for each executive (base pay, short-term (annual)
incentives and long-term incentives) are targeted at levels to
be competitive with similar positions at comparable companies.
The Committee strives to create a total direct compensation
package that is at the median of the peer companies described
below.
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A Substantial Portion Of Total Direct Compensation Should Be
At Risk Because It Is Performance-Based: We
believe executives should be rewarded for their performance.
Consequently, a substantial portion of an executives total
direct compensation should be at risk, with amounts actually
paid dependent on performance against pre-established objectives
for the individual and us. The proportion of an
individuals total direct compensation that is based upon
these performance objectives should increase as the
individuals business responsibilities increase.
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A Substantial Portion of Total Direct Compensation Should Be
Delivered in the Form of Long-Term Performance Based
Awards: We believe a long-term stake in the
sustained performance of Novelis effectively aligns executive
and shareholder interests and provides motivation for enhancing
shareholder value. As a result, we may provide long-term
performance based awards, which are generally paid in cash.
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The Committee recognizes that the engagement of strong talent in
critical functions may entail recruiting new executives at times
and involve negotiations with individual candidates. As a
result, the Committee may determine in a particular situation
that it is in our best interests to negotiate compensation
packages that deviate from the principles set forth above.
Independent
Compensation Consultant
In fiscal 2008, the Committee and the Board, in their review and
determination of executive compensation levels, have utilized
the services of James F. Reda and Associates, a compensation
consulting firm (JRA), as their independent consultant. There
have been no other engagements of JRA for the performance of any
other services to us in fiscal 2008. Any other engagements of
JRA by management are
205
required to be disclosed to the Committee so the Committee may
consider any possible impact on the independence of JRA. There
were no other compensation consultants engaged in fiscal 2008.
Market
Data and Peer Group
To determine fiscal 2008 compensation levels, the Committee and
Board relied on market data provided by JRA. This data consisted
of compensation information for the named executive officers of
the following peer group of companies: Air Products, Ashland
Inc., Ball Corporation, Bemis, Coca Cola Enterprises Inc.,
Commercial Metals Company, Crown Holdings, Cummins Inc., Eastman
Chemical, Ecolab Inc., MeadWestvaco, Monsanto, Newell
Rubbermaid, Nucor Corp., Owens Illinois, Pactiv Corp.,
Parker-Hannifin, Phelps Dodge, PPG Industries, Praxair Inc.,
Rohm and Haas, Smurfit-Stone Container, Temple-Inland and
Worthington Industries. We also routinely review data from
several compensation surveys published by leading global
compensation firms.
Elements
of Our Compensation Program
Our compensation program consists of the following key elements:
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Base Pay
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Short-Term (Annual) Incentives
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Long-Term Incentives
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Employee Benefits
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The Committee periodically compares the competitiveness of these
key elements to that of companies in our peer group. Our general
goal is to be at or near the 50th percentile among our peer
group. In fiscal 2008, this review revealed that the total
direct compensation opportunity for our executive officers was
at our target, without significant variation by position and by
element of compensation.
Base Pay. Based on market practices, the
Committee believes it is appropriate that some portion of total
direct compensation (generally 20% to 40%) be provided in a form
that is fixed and liquid. Base salary for our named executive
officers is generally reviewed by the Committee in the first
quarter of each fiscal year and any increases are effective on
July 1. In setting base salary, the Committee is mindful of
its overall goal for allocation of total compensation to this
element and the median base salary for comparable positions at
companies in our peer group.
Short-Term (Annual) Incentives. We believe
having an annual incentive opportunity is necessary to attract,
retain and reward key management. Our general philosophy is that
annual cash incentives should be tied to both company-wide and
business unit goals as well as individual performance. Annual
incentives should be consistent with the strategic goals set by
the board, and the performance benchmarks should be sufficiently
ambitious so as to provide meaningful incentive to our executive
officers. In the normal circumstances, we would expect that
approximately 20% of an executive officers total direct
compensation would be attributable to short-term incentives.
2007
Short-Term Incentive Plan
The short-term incentive plan in place at the time of the
Hindalco acquisition was the 2007 short-term incentive plan,
which was approved by our former board of directors. The 2007
short-term incentive plan began on April 1, 2007 and was to
originally remain effective through March 31, 2008.
However, as part of the acquisition by Hindalco, pro-rated
short-term incentive plan payments were made to employees at the
time of the closing of the acquisition, and thereafter, the 2007
plan terminated by operation of contract. The pro-rated
short-term incentive plan payments made on or about May 15,
2007 were paid at 100% of target and covered the period
April 1, 2007 through May 15, 2007, which was the date
the acquisition closed.
206
The named executive officers received bonus payments upon the
acquisition at the target level of the period beginning
April 1, 2007 and ending May 15, 2007. The table below
summarizes the targets and payments for the period April 1,
2007 through May 15, 2007:
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2007
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2007
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Prorated
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Prorated
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Target
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Actual
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Martha Finn Brooks
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$
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73,688
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$
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73,688
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Rick Dobson
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$
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42,188
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$
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42,188
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Steven Fisher
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$
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14,906
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$
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14,906
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Arnaud de Weert
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$
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49,375
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$
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49,375
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Kevin Greenawalt
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$
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23,250
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$
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23,250
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Thomas Walpole
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$
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18,563
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$
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18,563
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Antonio Tadeu Coehlo Nardocci
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$
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23,233
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$
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23,233
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David Godsell
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$
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21,313
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$
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21,313
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The board approved discretionary and incentive awards totaling
$792,500 for Mr. Blechschmidt based on his efforts while
serving as our Acting Chief Executive Officer through
May 15, 2007.
Annual
Incentive Plan 2007 - 2008
Following the termination of the 2007 short-term incentive plan
and change in fiscal year end to March 31, our Committee
and board consulted with management and approved the Annual
Incentive Plan (AIP) 2007 - 2008 to provide
short-term incentives for the period from May 16, 2007
through March 31, 2008. The performance benchmarks for the
year were tied to three key components: (1) operating
Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) performance; (2) operating free cash flow
performance; and (3) satisfaction of certain Environment,
Health and Safety (EHS) targets. The specific weightings among
these three components were 45% for operating EBITDA
performance; 45% for operating free cash flow performance; and
10% for EHS targets. For Ms. Brooks and Mr. Fisher,
the incentive benchmarks are tied to company-wide performance.
For the other named executive officers, the incentive benchmarks
are based on the specific region for which they are responsible.
The potential payout attributable to operating EBITDA could have
ranged from (1) 0% of target if fiscal 2008 performance did
not exceed the performance threshold, (2) 100% of target if
fiscal 2008 results met the business plan target and (3) up
to a maximum of 200% of target if fiscal 2008 results met or
exceeded the high end business plan target. The potential payout
attributable to operating free cash flow could have ranged from
(1) 0% of target if fiscal 2008 performance did not exceed
the performance threshold, (2) 100% of target if fiscal
2008 results met the business plan target and (3) up to
200% of target if fiscal 2008 results met or exceeded the high
end business plan target. The potential payout attributable to
EHS objectives also ranged from 0% to 200% of target and was
measured against continuous improvement targets for recordable
cases and lost time injuries and illness as well as the
completion of strategic EHS initiatives.
The table below summarizes the targets and payments for the
fiscal 2008 short-term incentive plan covering the period from
May 16, 2007 through March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2008
|
|
Name
|
|
Target
|
|
|
Actual
|
|
|
Martha Finn Brooks
|
|
$
|
590,625
|
|
|
$
|
728,241
|
|
Steven Fisher
|
|
$
|
229,688
|
|
|
$
|
283,205
|
|
Arnaud de Weert
|
|
$
|
358,586
|
|
|
$
|
488,604
|
|
Kevin Greenawalt
|
|
$
|
178,500
|
|
|
$
|
194,404
|
|
Thomas Walpole
|
|
$
|
129,938
|
|
|
$
|
146,781
|
|
Antonio Tadeu Coehlo Nardocci
|
|
$
|
184,432
|
|
|
$
|
287,622
|
|
207
Long-Term Incentives. The Committee believes
that a substantial portion of each executives total direct
compensation opportunity (generally 40% to 60%) should be based
on long-term performance and should be in the form of
performance based long-term opportunity. The awards should align
the interests of our executives and our shareholder. The
opportunity to receive long-term incentive compensation by an
executive in a given year is generally determined by reference
to the market for long-term incentive compensation among our
peer group companies. The Committee is also mindful of long-term
incentive awards made in prior years and takes such awards into
account in determining the amount of current-year awards.
2006
Incentive Plan
The equity-based incentive plan in place at the time of the
Hindalco acquisition was the 2006 Incentive Plan (the 2006
Incentive Plan), which was approved by our former board of
directors and our shareholders on October 26, 2006. The
2006 Incentive Plan authorized awards in the form of stock
options, restricted stock, restricted stock units, performance
shares and stock appreciation rights (as well as other awards
paid in cash or equity).
On October 26, 2006, our named executive officers received
100% of their equity awards in the form of stock options, or
stock appreciation rights (SARs) in the case of Mr. de Weert and
Mr. Nardocci, each with an exercise price of $25.53 per
share, the closing price for our common shares on the NYSE on
the grant date. Pursuant to the Arrangement Agreement between
Hindalco and Novelis, the options and SARs issued under the 2006
Incentive Plan were cashed out at a price of $44.93 per share,
and, thereafter, the 2006 Incentive Plan terminated by operation
of contract.
Long-term
Incentive Plan (LTIP) FY 2008 - FY
2010
The Committee considered the use of various forms of long-term
awards, but ultimately determined for fiscal 2008 to issue
awards that are cash-based awards, 80% of which is based on
economic profit performance and 20% of which is based on EBITDA
performance related to innovation projects, which currently
provides the best link between the interests of executives and
our shareholder. For future long-term awards, the Committee will
consider all types of awards and will determine at the time of
each award the appropriate form of award and performance
measures to use.
The Committee met during the first quarter of fiscal year 2009
to evaluate and approve fiscal 2008 payout for the LTIP FY 2008
- FY2010 for Messrs. de Weert, Greenawalt, Walpole and
Nardocci. The Committee also evaluated and recommended for
approval by the Board the LTIP FY 2008 - FY2010 for
Ms. Brooks and Mr. Fisher. Messrs. Blechschmidt,
Dobson and Godsell, former executives who departed during fiscal
2008, did not participate in the LTIP program. One-tenth of the
total LTIP Approved Grant was eligible for payout based on
improvement in Economic Profit, which we define as Net Operating
Profit After Tax, less capital charges, in fiscal 2008. Based on
the Companys performance, the Committee and board approved
the LTIP payouts at the 70.07% level for fiscal 2008 as set
forth in the table below. Payouts were made in the first quarter
of fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eligible for
|
|
|
|
|
|
|
|
|
|
2008-2010
|
|
|
Payout
|
|
|
|
|
|
|
|
|
|
LTIP
|
|
|
Based on
|
|
|
2008 LTIP
|
|
|
2008 LTIP
|
|
|
|
Approved
|
|
|
2008
|
|
|
Approved
|
|
|
Approved
|
|
Name
|
|
Grant
|
|
|
Results
|
|
|
Level
|
|
|
Payout
|
|
|
Martha Finn Brooks
|
|
$
|
2,100,000
|
|
|
$
|
210,000
|
|
|
|
70.07
|
%
|
|
$
|
147,147
|
|
Steven Fisher
|
|
$
|
450,000
|
|
|
$
|
45,000
|
|
|
|
70.07
|
%
|
|
$
|
31,532
|
|
Arnaud de Weert
|
|
$
|
450,000
|
|
|
$
|
45,000
|
|
|
|
70.07
|
%
|
|
$
|
31,532
|
|
Kevin Greenawalt
|
|
$
|
450,000
|
|
|
$
|
45,000
|
|
|
|
70.07
|
%
|
|
$
|
31,532
|
|
Thomas Walpole
|
|
$
|
325,000
|
|
|
$
|
32,500
|
|
|
|
70.07
|
%
|
|
$
|
22,773
|
|
Antonio Tadeu Coehlo Nardocci
|
|
$
|
325,000
|
|
|
$
|
32,500
|
|
|
|
70.07
|
%
|
|
$
|
22,773
|
|
208
Employee
Benefits
Effective January 1, 2006, we adopted the Novelis Pension
Plan and the Novelis Supplemental Executive Retirement Plan (the
Novelis SERP), which provide benefits identical to the benefits
provided under the Alcancorp plans. Executives who were
participants in the Alcancorp Pension Plan will participate in
the Novelis Pension Plan and Novelis SERP (collectively referred
to as the U.S. Pension Plan). Executives who were not
participants in the Alcancorp Pension Plan or who were hired on
or after January 1, 2005 will not participate in the
U.S. Pension Plan.
Messrs. Greenawalt, Walpole and Godsell and Ms. Brooks
are all participants in the U.S. Pension Plan.
|
|
|
|
|
Swiss Pension Schemes: Since our spin-off from
Alcan, we continued to participate in Alcans two pension
schemes in Switzerland: (1) the Pensionskasse Alcan Schweiz
(a defined benefit plan) and (2) the Erganzungskasse Alcan
Schweiz (a defined contribution plan). The defined benefit plan
is computed based on a participants final annual earnings
(up to a limit and less a coordination amount) and service up to
45 years. The defined contribution plan only recognizes
earnings in excess of the defined benefit earnings limit. Mr. de
Weert was the only named executive officer eligible for the
Swiss pension schemes in 2008.
|
|
|
|
Brazil Defined Contribution Pension
Plan: Novelis sponsors a defined contribution
pension plan for all employees in Brazil with a fixed employer
contribution and voluntary employee contributions. Employees can
contribute up to 12% of base pay. The company contributes 0.7%
of pay up to 1 plan unit ($1,379 in 2008) and 10% (14% for
employees active on June 30, 2003) of pay in excess of
1 plan unit. The sole investment option is a fixed income fund.
Mr. Nardocci is a participant in the Brazil Pension Plan.
|
|
|
|
Additional Pension Benefits: In addition to
her participation in the U.S. Pension Plan described above,
Ms. 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 her prior employers pension plan until her
separation or retirement from Novelis, over the sum of her
pension from the U.S. Pension Plan and the pension rights
actually accrued with her previous employer.
|
|
|
|
Savings Plan and Non-Qualified Defined Contribution
Plan: All U.S. based executives are eligible
to participate in our tax qualified savings plan. We match up to
4.5% of pay (up to the IRS compensation limit; $230,000 for
calendar year 2008) for participants who contribute 6% of
pay or more to the savings plan. In addition, U.S. based
executives hired on or after January 1, 2005 are eligible
to share in our discretionary contributions. Discretionary
contributions are first made to the qualified plan (up to the
IRS compensation limit) and any excess amounts are made to our
non-qualified defined contribution plan. For fiscal 2008, we
made a discretionary contribution equal to 5% of pay.
Messrs. Dobson and Fisher were the only named executive
officers eligible for a discretionary contribution for the
period. Mr. Dobson and Mr. Godsell received
contributions in the non-qualified plan in accordance with the
terms in their termination agreements.
|
|
|
|
Health & Welfare
Benefits: Executives are entitled to participate
in our employee benefit plans (including medical, dental, and
life insurance benefits) on the same basis as other employees.
|
|
|
|
Perquisites: As noted in our Summary
Compensation Table, we provide our officers with certain
perquisites consistent with market practice. We do not view
perquisites as a significant element of our comprehensive
compensation structure.
|
Employment-Related
Agreements
Each of our named executive officers during fiscal 2008 was
covered by an employment or letter agreement setting forth the
general terms of his or her employment as well as various other
employment related agreements. See Employment-Related Agreements
and Certain Employee Benefit Plans for a discussion of these
agreements.
209
Timing of
Compensation Decisions
The Committee develops an annual agenda to assist it in
fulfilling its responsibilities. Generally, in the first quarter
of each fiscal year, the Committee (1) reviews prior year
performance and authorizes the distribution of short-term
incentive pay-outs, if any, for the prior year,
(2) establishes performance criteria for the current year
short-term incentive program, (3) reviews base pay and
annual short-term incentive targets for executives, and
(4) recommends to the board of directors the form of award
and performance criteria for the current cycle of the long-term
incentive program.
Long-term incentive awards are generally considered and approved
by the Committee during the first quarter of each fiscal year,
although the Committee may deviate from this practice when
appropriate under the circumstances.
Compensation
Committee Report
The Committee has reviewed and discussed the foregoing
Compensation Discussion and Analysis with management. Based on
the Committees review of and discussions with management,
the Committee recommended to the board of directors that the
Compensation Discussion and Analysis be included in this Annual
Report on
Form 10-K.
The foregoing report is provided by the following directors, who
constitute the Committee:
Mr. Clarence J. Chandran, Chairman
Mr. Debnarayan Bhattacharya
Mr. Askaran Agarwala
Compensation
Payments as Part of Acquisition
The aggregate amount of compensatory payments and benefits that
the named executive officers received as a result of the
acquisition by Hindalco and the underlying Company plans with
respect to the cancellation of their outstanding equity awards
was $26,458,128.
Treatment
of Stock Options
Immediately prior to the acquisition, there were
925,781 shares of our common stock subject to stock options
granted under certain of our equity incentive plans to all of
our named executive officers except for Mr. Blechschmidt,
who did not receive stock options, and Mr. de Weert, who only
held Stock Appreciation Rights which are described below.
Pursuant to the Arrangement Agreement, each outstanding stock
option that was unexercised prior to the acquisition, whether or
not the option was vested or exercisable, was canceled, and the
holder of each such stock option received a cash payment equal
to the product of:
|
|
|
|
|
the number of shares of our common stock subject to the option
as of the effective time of the acquisition; and
|
|
|
|
the excess of $44.93 over the exercise price per share of common
stock subject to such option.
|
210
The table below summarizes the options held by our named
executive officers prior to the acquisition, as well as the
consideration that each of them received pursuant to the
acquisition in connection with the cancellation of their options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Weighted
|
|
|
Actual
|
|
|
|
Underlying
|
|
|
Average
|
|
|
Consideration
|
|
Name
|
|
Options
|
|
|
Exercise Price
|
|
|
Received(1)
|
|
|
Edward Blechschmidt
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Martha Finn Brooks
|
|
|
551,311
|
|
|
$
|
23.66
|
|
|
$
|
11,724,157
|
|
Rick Dobson
|
|
|
92,500
|
|
|
$
|
25.53
|
|
|
$
|
1,794,500
|
|
Steven Fisher
|
|
|
21,770
|
|
|
$
|
25.53
|
|
|
$
|
422,338
|
|
Arnaud de Weert
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Kevin Greenawalt
|
|
|
92,080
|
|
|
$
|
23.62
|
|
|
$
|
1,962,229
|
|
Thomas Walpole
|
|
|
52,690
|
|
|
$
|
23.24
|
|
|
$
|
1,142,909
|
|
Antonio Tadeu Coehlo Nardocci
|
|
|
36,117
|
|
|
$
|
21.78
|
|
|
$
|
836,095
|
|
David Godsell
|
|
|
79,313
|
|
|
$
|
23.05
|
|
|
$
|
1,735,559
|
|
|
|
|
(1) |
|
The amounts set forth in this Actual Consideration
Received column are calculated based on the actual
exercise prices underlying the related options, as opposed to
the weighted average exercise price per share. |
Treatment
of Performance Share Units
Certain executive officers and other employees of the Company,
including all of our named executive officers except
Messrs. Blechschmidt, Dobson, Fisher and de Weert who were
not employees when the grant was made, were granted performance
units in 2005 under the Novelis Founders Performance Award Plan.
Participants earned performance share units (PSUs) if our share
price improvement targets were achieved within prescribed time
periods. The Founders Plan identified three relevant performance
periods. The first performance period ran from March 24,
2005 to March 23, 2008, the second performance period was
to run from March 24, 2006 to March 23, 2008 and the
third performance period was to run from March 24, 2007 to
March 23, 2008. The share price improvement targets for
these three tranches were $23.57, $25.31 and $27.28,
respectively. An equal amount of PSUs could have been earned
during each performance period if the applicable share price
improvement target was achieved during such period.
If earned, a particular tranche was to be paid in cash on a
specified payment date, which is defined as the later of six
months from the date the specific share price improvement target
is achieved or twelve months after the start of the applicable
performance period. The value of a PSU equaled the average of
the daily closing price of our common shares as reported on the
New York Stock Exchange for the last five trading days prior to
the payment date. On March 14, 2006, the board of directors
amended the Founders Plan in order to clarify when PSUs could be
earned under the second and third tranches of the Founders Plan
for periods beginning in 2006 and 2007, respectively.
In February 2007, our board of directors recognized that the
applicable share price threshold had been (or would likely be)
met with respect to the second tranche and would probably be met
for the third tranche, but in light of the possibility of a
change in control transaction, our executives were subject to a
trading blackout. Moreover, it was unlikely that a 15 day
open trading window under the Novelis disclosure and insider
trading policies would arise prior to the consummation of the
Arrangement. Accordingly, on February 10, 2007, our board
of directors further amended the PSUs in order to provide that
the applicable threshold for (a) the second tranche was to
be met as of February 28, 2007 and (b) the third
tranche was to be met as of March 26, 2007, for purposes of
PSUs to be awarded.
As a result of the Arrangement, the second and third tranches
were settled in cash using the $44.93 purchase price per common
share paid by Hindalco in the transaction. These PSUs were paid
on May 15, 2007 and each holder of such units received
consideration for such cancellation an amount in cash equal to
$44.93 multiplied by their respective number of units.
211
The table below summarizes the PSUs held by our named executive
officers at the time of the acquisition, as well as the total
consideration that each of them received in May 2007 for the
remaining two tranches.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Total Actual
|
|
|
|
Tranche 2
|
|
|
Tranche 3
|
|
|
Consideration
|
|
Name
|
|
PSUs
|
|
|
PSUs
|
|
|
Received
|
|
|
Edward Blechschmidt
|
|
|
|
|
|
|
|
|
|
|
|
|
Martha Finn Brooks
|
|
|
23,750
|
|
|
|
23,750
|
|
|
$
|
2,134,175
|
|
Rick Dobson
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven Fisher
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnaud de Weert
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin Greenawalt
|
|
|
7,200
|
|
|
|
7,200
|
|
|
$
|
646,992
|
|
Thomas Walpole
|
|
|
3,950
|
|
|
|
3,950
|
|
|
$
|
354,947
|
|
Antonio Tadeu Coehlo Nardocci
|
|
|
7,200
|
|
|
|
7,200
|
|
|
$
|
646,992
|
|
David Godsell
|
|
|
6,000
|
|
|
|
6,000
|
|
|
$
|
539,160
|
|
Treatment
of Stock Appreciation Rights (SARs)
We granted SARs to Mr. de Weert and Mr. Nardocci on
October 26, 2006 pursuant to the 2006 Incentive Plan. No
other named executive officers received SARs as part of the 2006
Incentive Plan as they received stock options, except for Mr.
Blechschmidt who did not receive a grant. The terms of the stock
options and SARs were identical in all material respects, except
that the incremental increase in the value of the SARs were to
be paid in cash rather than our common shares at the time of
exercise. However, as described above, all 2006 Incentive Plan
payments were made in cash pursuant to the Arrangement Agreement
with Hindalco.
The table below summarizes the SARs held by Mr. de Weert and
Mr. Nardocci at the time of the acquisition as well as the
consideration received in May, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Number of
|
|
Exercise
|
|
Consideration
|
Name
|
|
SARs
|
|
Price
|
|
Received
|
|
Arnaud de Weert
|
|
|
43,530
|
|
|
$
|
25.53
|
|
|
$
|
844,482
|
|
Antonio Tadeu Coehlo Nardocci
|
|
|
32,650
|
|
|
$
|
25.53
|
|
|
$
|
633,410
|
|
Treatment
of Stock Price Appreciation Units
Prior to the spin-off, certain Alcan employees, including
Messrs. Greenawalt and Walpole, who later transferred to
Novelis, held Alcan stock price appreciation units (SPAUs).
These units entitled them to receive cash equal to the excess of
the market value of an Alcan common share on the exercise date
of a SPAU over the market value of an Alcan common share on its
grant date. On January 6, 2005, these employees received
Novelis SPAUs to replace their Alcan SPAUs at a weighted average
exercise price of $22.04. All converted SPAUs that were vested
at the spin-off date continued to be vested. Unvested SPAUs were
to vest in four equal annual installments beginning on
January 6, 2006, the first anniversary of the spin-off date.
The table below summarizes the vested and unvested SPAUs held by
Messrs. Greenawalt and Walpole prior to the acquisition by
Hindalco, as well as the consideration that each of them
received pursuant to the acquisition in connection with the
cancellation of their SPAUs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Actual
|
|
|
|
Number of
|
|
|
Average
|
|
|
Consideration
|
|
Name
|
|
SPAUs
|
|
|
Exercise Price
|
|
|
Received(1)
|
|
|
Kevin Greenawalt
|
|
|
22,952
|
|
|
$
|
19.95
|
|
|
$
|
573,431
|
|
Thomas Walpole
|
|
|
22,027
|
|
|
$
|
23.74
|
|
|
$
|
466,752
|
|
(1) The amounts set forth in this Actual Consideration
Received column are calculated based on the actual
exercise prices underlying the related SPAUs, as opposed to the
weighted average exercise price per unit.
212
Summary
Compensation Table
The table below sets forth information regarding compensation
for our named executive officers for the fiscal year ended
March 31, 2008 (2008), the three month transition period
ended March 31, 2007 (J-M 2007) and twelve month
period ended December 31, 2006 (2006).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
Plan
|
|
Pension
|
|
All Other
|
|
|
|
|
|
|
Salary
|
|
Bonus
|
|
Stock
|
|
Awards
|
|
Compensation
|
|
Value
|
|
Compensation
|
|
Total
|
Name and Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
Awards ($)
|
|
($)
|
|
($)(1)
|
|
($)(2)
|
|
($)(3)
|
|
($)
|
|
Edward Blechschmidt,
|
|
|
2008
|
|
|
|
292,500
|
|
|
|
792,500
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,649
|
(5)
|
|
|
1,285,649
|
|
Former Acting Chief Executive Officer
|
|
|
J-M 2007
|
|
|
|
195,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,000
|
(6)
|
|
|
335,000
|
|
Martha Finn Brooks,
|
|
|
2008
|
|
|
|
672,572
|
|
|
|
|
|
|
|
896,739
|
|
|
|
10,466,761
|
|
|
|
1,096,223
|
|
|
|
97,640
|
|
|
|
92,991
|
|
|
|
13,322,926
|
|
President and Chief Operating
|
|
|
J-M 2007
|
|
|
|
163,750
|
|
|
|
|
|
|
|
1,692,965
|
|
|
|
264,377
|
|
|
|
147,375
|
|
|
|
97,363
|
|
|
|
12,707
|
|
|
|
2,378,537
|
|
Officer
|
|
|
2006
|
|
|
|
655,000
|
|
|
|
|
|
|
|
784,197
|
|
|
|
552,181
|
|
|
|
475,000
|
|
|
|
139,903
|
|
|
|
132,535
|
|
|
|
2,738,816
|
|
Rick Dobson,
|
|
|
2008
|
|
|
|
168,750
|
|
|
|
125,000
|
(7)
|
|
|
202,411
|
|
|
|
1,644,039
|
|
|
|
42,188
|
|
|
|
|
|
|
|
3,111,453
|
|
|
|
5,293,841
|
|
Former Senior Vice
|
|
|
J-M 2007
|
|
|
|
112,500
|
|
|
|
|
|
|
|
69,443
|
|
|
|
87,364
|
|
|
|
84,375
|
|
|
|
|
|
|
|
16,034
|
|
|
|
369,716
|
|
President & Chief Financial Officer
|
|
|
2006
|
|
|
|
202,679
|
|
|
|
125,000
|
(7)
|
|
|
74,073
|
|
|
|
63,096
|
|
|
|
200,000
|
|
|
|
|
|
|
|
56,890
|
|
|
|
721,738
|
|
Steven Fisher ,
|
|
|
2008
|
|
|
|
334,538
|
|
|
|
40,000
|
(8)
|
|
|
171,780
|
|
|
|
386,927
|
|
|
|
361,175
|
|
|
|
|
|
|
|
63,732
|
|
|
|
1,358,152
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnaud de Weert
|
|
|
2008
|
|
|
|
674,280
|
|
|
|
|
|
|
|
247,123
|
|
|
|
670,448
|
|
|
|
601,043
|
|
|
|
24,801
|
|
|
|
114,236
|
|
|
|
2,331,931
|
|
Senior Vice President and
|
|
|
J-M 2007
|
|
|
|
158,000
|
|
|
|
|
|
|
|
29,202
|
|
|
|
140,621
|
|
|
|
98.750
|
|
|
|
4,219
|
|
|
|
20,203
|
|
|
|
450,995
|
|
President Europe
|
|
|
2006
|
|
|
|
340,631
|
|
|
|
160,927
|
|
|
|
31,149
|
|
|
|
33,413
|
|
|
|
300,000
|
|
|
|
9,428
|
|
|
|
110,487
|
|
|
|
986,035
|
|
Kevin Greenawalt,
|
|
|
2008
|
|
|
|
332,500
|
|
|
|
|
|
|
|
259,507
|
|
|
|
1,718,327
|
|
|
|
280,718
|
|
|
|
80,281
|
|
|
|
30,504
|
|
|
|
2,701,837
|
|
Former Senior Vice President
|
|
|
J-M 2007
|
|
|
|
77,500
|
|
|
|
|
|
|
|
511,777
|
|
|
|
412,630
|
|
|
|
46,500
|
|
|
|
114,707
|
|
|
|
7,054
|
|
|
|
1,170,168
|
|
and President North America
|
|
|
2006
|
|
|
|
310,000
|
|
|
|
|
|
|
|
232,896
|
|
|
|
293,949
|
|
|
|
150,000
|
|
|
|
219,749
|
|
|
|
36,730
|
|
|
|
1,243,324
|
|
Thomas Walpole,
|
|
|
2008
|
|
|
|
270,000
|
|
|
|
|
|
|
|
217,752
|
|
|
|
981,865
|
|
|
|
210,890
|
|
|
|
59,765
|
|
|
|
607,032
|
|
|
|
2,347,304
|
|
Senior Vice President and President Asia
|
|
|
J-M 2007
|
|
|
|
66,458
|
|
|
|
|
|
|
|
289,674
|
|
|
|
278,790
|
|
|
|
34,406
|
|
|
|
73,616
|
|
|
|
3,866
|
|
|
|
746,811
|
|
Antonio Tadeu Coehlo Nardocci,
|
|
|
2008
|
|
|
|
359,732
|
|
|
|
|
|
|
|
211,288
|
|
|
|
1,154,909
|
|
|
|
373,919
|
|
|
|
|
|
|
|
103,105
|
|
|
|
2,202,953
|
|
Senior Vice President and President South America
|
|
|
J-M 2007
|
|
|
|
81,416
|
|
|
|
|
|
|
|
506,079
|
|
|
|
105,474
|
|
|
|
46,466
|
|
|
|
|
|
|
|
25,777
|
|
|
|
765,212
|
|
David Godsell,
|
|
|
2008
|
|
|
|
77,500
|
|
|
|
|
|
|
|
95,437
|
|
|
|
1,482,825
|
|
|
|
21,313
|
|
|
|
676,736
|
|
|
|
2,346,512
|
|
|
|
4,700,323
|
|
Former Vice President Human Resources and Environment, Health
and Safety
|
|
|
J-M 2007
|
|
|
|
77,500
|
|
|
|
|
|
|
|
431,348
|
|
|
|
32,439
|
|
|
|
42,625
|
|
|
|
164,257
|
|
|
|
6,344
|
|
|
|
754,513
|
|
|
|
|
(1) |
|
Represents awards earned under the short-term incentive plan for
the period April 1, 2007 through May 15, 2007 and
under the Novelis Annual Incentive Plan (AIP) for the period
May 16, 2007 though March 31, 2008. |
|
(2) |
|
Represents the aggregate change in actuarial present value of
the named executive officers accumulated benefit under our
qualified and non-qualified defined benefit pension plans during
fiscal 2008. Assumptions used in the calculation of these
amounts are included in Note 14 to our audited financial
statements for the fiscal year ended March 31, 2008. |
213
|
|
|
(3) |
|
With the exception of Mr. Blechschmidt (see footnote
(6) below), the amounts for 2008 shown in the All
Other Compensation Column reflect the values from the table
below. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Severance
|
|
|
Defined
|
|
|
|
|
|
Relocation and
|
|
|
|
|
|
Perquisites and
|
|
|
|
|
|
|
Related
|
|
|
Contribution
|
|
|
Group Life
|
|
|
Hosing Related
|
|
|
Child Tuition
|
|
|
Personal
|
|
|
|
|
|
|
Payments
|
|
|
Plans
|
|
|
Insurance
|
|
|
Payments
|
|
|
Reimbursement
|
|
|
Benefits
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
($)(a)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Martha Finn Brooks
|
|
|
|
|
|
|
8,588
|
|
|
|
2,106
|
|
|
|
6,281
|
|
|
|
48,741
|
|
|
|
27,275
|
(b)
|
|
|
92,991
|
|
Rick Dobson
|
|
|
2,923,021
|
(c)
|
|
|
148,471
|
|
|
|
810
|
|
|
|
35,194
|
|
|
|
|
|
|
|
3,957
|
(d)
|
|
|
3,111,453
|
|
Steven Fisher
|
|
|
|
|
|
|
35,510
|
|
|
|
286
|
|
|
|
7,927
|
|
|
|
|
|
|
|
20,009
|
(b)
|
|
|
63,732
|
|
Arnaud de Weert
|
|
|
|
|
|
|
87,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,458
|
(d)
|
|
|
114,236
|
|
Kevin Greenawalt
|
|
|
|
|
|
|
10,463
|
|
|
|
1,408
|
|
|
|
|
|
|
|
|
|
|
|
18,633
|
(b)
|
|
|
30,504
|
|
Thomas Walpole
|
|
|
|
|
|
|
10,172
|
|
|
|
1,024
|
|
|
|
592,895
|
(e)
|
|
|
|
|
|
|
2,941
|
(f)
|
|
|
607,032
|
|
Antonio Tadeu Coehlo Nardocci
|
|
|
|
|
|
|
85,909
|
|
|
|
2,063
|
|
|
|
|
|
|
|
|
|
|
|
15,134
|
(g)
|
|
|
103,106
|
|
David Godsell
|
|
|
2,283,578
|
(h)
|
|
|
26,888
|
|
|
|
1,317
|
|
|
|
19,011
|
|
|
|
|
|
|
|
15,718
|
(b)
|
|
|
2,346,512
|
|
|
|
|
|
(a)
|
Represents matching contribution (and discretionary
contributions in the case of Messrs. Fisher, Dobson and
Godsell) made to our tax qualified and non-qualified defined
contribution plans.
|
|
|
|
(b) |
|
Includes executive flex allowance, car allowance, and home
security, each of which individually had an aggregate
incremental cost less than $25,000. |
|
(c) |
|
Represents payments due to a change in control, $1,575,000 for
change in control payment, $53,976 in lieu of health care
coverage, tax gross ups for Internal Revenue Code
Section 280G consideration in the amount of $1,294,045. |
|
(d) |
|
Includes executive flex allowance and car allowance, each of
which individually had an aggregate incremental cost less than
$25,000. |
|
(e) |
|
Includes (i) an Expatriate Premium of $158,044;
(ii) Employer paid Korean Tax Deposit of $240,670;
(iii) Employer provided housing of $99,466;
(iv) Employer paid car/driver for Korean assignment of
$52,248; (v) travel reimbursement of $3,651; and
(vi) relocation allowance of $38,816 pursuant to expatriate
agreement. |
|
(f) |
|
Includes car allowance, and tax advice, each of which
individually had an aggregate incremental cost less than $25,000. |
|
(g) |
|
Includes car allowance, home security and medical cost
reimbursement, each of which individually had an aggregate
incremental cost less than $25,000. |
|
(h) |
|
Represents payments due to a change in control, $961,000 for
change in control payment, $50,000 one time payment, tax gross
ups for 280G consideration in the amount of $1,272,578. |
|
|
|
(4) |
|
The board approved discretionary and incentive awards totaling
$792,500 for Mr. Blechschmidt based on his efforts as our
Acting Chief Executive Officer. |
|
(5) |
|
Represents the final payout of the Director Deferred Share Unit
(DDSU) plan following the transaction with Hindalco. The payout
includes amounts earned while a director in fiscal year 2008. |
|
(6) |
|
Represents supplemental compensation paid to
Mr. Blechschmidt for his board service. |
|
(7) |
|
Mr. Dobson received these payments as the two installments
of his signing bonus when he joined Novelis in 2006. |
|
(8) |
|
Mr. Fisher received a discretionary, exceptional
achievement award for his service during fiscal year 2008. |
214
Grants of
Plan-Based Awards in Fiscal 2008
The table below sets forth information regarding grants of
plan-based awards made to our named executive officers during
fiscal 2008, except for Mr. Blechschmidt who was awarded a
discretionary bonus in lieu of participating in our incentive
plans during the portion of fiscal 2008 in which he was employed
with the company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payout
|
|
|
|
|
Under Non-Equity
|
|
|
|
|
Incentive Plan Awards(1)
|
Name
|
|
Grant Date
|
|
Target ($)
|
|
Maximum ($)
|
|
Martha Finn Brooks
|
|
|
4/01/07
|
(2)
|
|
|
73,688
|
|
|
|
147,376
|
|
|
|
|
5/15/07
|
(3)
|
|
|
590,625
|
|
|
|
1,181,250
|
|
|
|
|
01/11/08
|
(4)
|
|
|
2,100,000
|
|
|
|
4,200,000
|
|
|
|
Rick Dobson
|
|
|
4/01/07
|
(2)
|
|
|
42,188
|
|
|
|
84,376
|
|
|
|
Steven Fisher
|
|
|
4/01/07
|
(2)
|
|
|
14,906
|
|
|
|
29,812
|
|
|
|
|
5/15/07
|
(3)
|
|
|
229,688
|
|
|
|
459,376
|
|
|
|
|
01/11/08
|
(4)
|
|
|
450,000
|
|
|
|
900,000
|
|
|
|
Arnaud de Weert
|
|
|
4/01/07
|
(2)
|
|
|
49,375
|
|
|
|
98,750
|
|
|
|
|
5/15/07
|
(3)
|
|
|
358,586
|
|
|
|
717,172
|
|
|
|
|
01/11/08
|
(4)
|
|
|
450,000
|
|
|
|
900,000
|
|
|
|
Kevin Greenawalt
|
|
|
4/01/07
|
(2)
|
|
|
23,250
|
|
|
|
46,500
|
|
|
|
|
5/15/07
|
(3)
|
|
|
178,500
|
|
|
|
357,000
|
|
|
|
|
01/11/08
|
(4)
|
|
|
450,000
|
|
|
|
900,000
|
|
|
|
Thomas Walpole
|
|
|
4/01/07
|
(2)
|
|
|
18,563
|
|
|
|
37,126
|
|
|
|
|
5/15/07
|
(3)
|
|
|
129,938
|
|
|
|
259,876
|
|
|
|
|
01/11/08
|
(4)
|
|
|
325,000
|
|
|
|
650,000
|
|
|
|
Antonio Tadeu Coehlo Nardocci
|
|
|
4/01/07
|
(2)
|
|
|
23,233
|
|
|
|
46,466
|
|
|
|
|
5/15/07
|
(3)
|
|
|
184,432
|
|
|
|
368,864
|
|
|
|
|
01/11/08
|
(4)
|
|
|
325,000
|
|
|
|
650,000
|
|
|
|
David Godsell
|
|
|
4/01/07
|
(2)
|
|
|
21,313
|
|
|
|
42,626
|
|
|
|
|
(1) |
|
This information pertains to grants under our annual
(short-term) and long-term incentive plans. |
|
(2) |
|
This grant was made under the 2007 short-term incentive plan
covering the period April 1, 2007 through May 15, 2007. |
|
(3) |
|
This grant was made under the Novelis Annual Incentive Plan
(AIP) and covered the period May 16, 2007 through
March 31, 2008. |
|
(4) |
|
This grant was made under the Novelis Long-Term Incentive Plan
(LTIP) FY 2008 FY 2010. |
Employment-Related
Agreements and Certain Employee Benefit Plans
Each of our named executive officers was subject to an
employment or letter agreement during fiscal 2008. The terms of
each such agreement is summarized below.
Agreement
with Edward Blechschmidt
We entered into a letter agreement with Mr. Blechschmidt on
December 29, 2006. Mr. Blechschmidt served as our
Acting Chief Executive Officer during the period January 1,
2007 and ending May 15, 2007. During this period, he
received a base salary of $65,000 per month plus reimbursement
for reasonable business expenses. Mr. Blechschmidt was also
entitled to incentive compensation in the sole and exclusive
discretion of the board of directors.
Mr. Blechschmidts salary and potential incentive
compensation was in addition to the fees Mr. Blechschmidt
received for serving as a member of our Board.
Mr. Blechschmidt was not entitled to long-term incentives,
employment-related benefits, or severance-related pay during or
following
215
his tenure as Acting Chief Executive Officer. At the election of
the Board, Mr. Blechschmidt was awarded two discretionary
bonuses, one equal to his salary of $292,500 as well as another
discretionary bonus of $500,000 at the completion of the sale to
Hindalco.
Agreement
with Martha Finn Brooks
We entered into an employment agreement with Ms. Brooks
dated November 8, 2004. Pursuant to this agreement, she
serves as our President and Chief Operating Officer with a base
salary of $675,000 in fiscal 2008. Ms. Brooks is eligible
for all of our executive long-term and short-term incentive
plans and is entitled to certain executive perquisites. She is
also eligible for our broad-based employee benefit and health
plans. We also agreed to reimburse Ms. Brooks for certain
expenses that she may incur in connection with private school
tuition costs for her children in grades one through twelve. As
part of her May 2, 2002 employment agreement with Alcan, we
guaranteed that the total combined qualified and non-qualified
pension benefits Ms. Brooks receives under the Novelis,
Alcan and Cummins (her former employer) pension plans will not
be less than the pension benefit that she would have received if
she remained covered by the Cummins Pension Plan from
October 16, 1986, until her retirement/termination with us.
Any severance payments that Ms. Brooks receives under her
employment agreement would offset any severance benefits she
would be entitled to receive under her recognition agreement or
change in control agreement, described below.
Agreement
with Rick Dobson
We entered into an employment agreement with Mr. Dobson
dated July 19, 2006. Mr. Dobson served as our Senior
Vice President and Chief Financial Officer during the period
July 19, 2006 to May 15, 2007. During this period, he
received an annual base salary of $450,000 and participated in
all of our executive benefits including our non-qualified
pension plans, long-term and short-term incentive plans, and
executive perquisites. He was also eligible for our broad-based
employee benefit and health plans other than our qualified
pension plan.
Mr. Dobsons employment was terminated on
August 15, 2007. Pursuant to his change in control
agreement dated September 25, 2006, we were obligated to
pay Mr. Dobson a lump sum amount equal to $1,575,000
(24 months of his base salary and short-term cash
incentives at target). Pursuant to his change in control
agreement, Mr. Dobson also received continued life
insurance coverage for 24 months, additional credit,
contributions and vesting under the companys qualified and
non-qualified pension and savings plans, payment in lieu of
continuation in health care plans, and a tax reimbursement
gross-up
payment. In exchange for the foregoing, Mr. Dobson executed
a release and waiver of any and all employment-related claims.
Agreement
with Steven Fisher
We entered into an employment agreement with Mr. Fisher
dated January 17, 2006. He currently serves as our Chief
Financial Officer (effective May 16, 2007) with a base
salary of $350,000 in fiscal 2008. Mr. Fisher is eligible
for all of our executive long-term and short-term incentive
plans and is entitled to certain executive perquisites. He is
also eligible for our broad-based employee benefit and health
plans. Any severance payments that Mr. Fisher receives
under his employment agreement would offset any severance
benefits he would be entitled to receive under his recognition
agreement or change in control agreement, described below.
Agreement
with Arnaud de Weert
Mr. de Weert became our Senior Vice President and President of
Europe effective May 1, 2006. Pursuant to his employment
agreement, he is entitled to a base salary of $655,700 in fiscal
2008 (415,000 Euros converted to U.S. Dollars at the
March 31, 2008 exchange rate of 1.58 U.S. Dollars per
Euro) and is eligible for short-term and long-term incentives.
Mr. de Weert also participates in our broad-based employee
benefit and health programs and receives other executive
perquisites. We also agreed to reimburse Mr. de Weert for
certain expenses that he may incur in connection with his
relocation to Zurich. Mr. de Weerts agreement also
provides for a minimum of twelve months severance upon his
involuntary termination of employment. Any severance payments
that Mr. de Weert receives under his employment agreement would
offset any severance benefits he would be entitled to receive
under his recognition agreement or change in control agreements,
described below.
216
Agreement
with Kevin Greenawalt
We entered into an employment agreement with Mr. Greenawalt
dated November 8, 2004. Pursuant to this agreement, he
served as our Senior Vice President and President North America
with a base salary of $340,000 in fiscal 2008.
Mr. Greenawalt was eligible for all of our executive
long-term and short-term incentive plans and is entitled to
certain executive perquisites. He was also eligible for our
broad-based employee benefit and health plans.
Mr. Greenawalt recently retired from the Company, effective
May 31, 2008.
Agreement
with Thomas Walpole
We entered into an employment agreement with Mr. Walpole
effective as of February 1, 2007, pursuant to which he
serves as our Senior Vice President and President of Novelis
Asia with a base salary of $270,000 in fiscal 2008. Under his
agreement, Mr. Walpole is entitled to an expatriate premium
and relocation allowance, each in amount equal to 10% of his
base salary (net after tax). Mr. Walpole is also eligible
for our executive long-term and short-term incentive plans and
certain executive perquisites as well as our broad-based
employee benefit and health plans. During the term of his Korean
assignment, Mr. Walpole is provided with a fully furnished
home which is paid for by Novelis Korea Limited and is entitled
to be reimbursed for one personal trip to the United States
during the year for himself and his family members.
Agreement
with Antonio Tadeu Coehlo Nardocci
We entered into an employment agreement with Mr. Nardocci
dated November 8, 2004. Pursuant to this agreement, he
serves as our Senior Vice President and President South America
with a base salary of $351,299 (610,000 Reais converted to U.S.
dollars at the March 31, 2008 exchange rate of .5759 U.S.
dollars per Reais) in fiscal 2008. Mr. Nardocci is eligible
for all of our executive long-term and short-term incentive
plans and is entitled to certain executive perquisites. He is
also eligible for our broad-based employee benefit and health
plans. Any severance payments that Mr. Nardocci receives
under his employment agreement would offset any severance
benefits he would be entitled to receive under his recognition
agreement or change in control agreement, described below.
Agreement
with David Godsell
We entered into an employment agreement with Mr. Godsell
dated November 8, 2004. Mr. Godsell served as our Vice
President Human Resources and EH&S during the period
January 1, 2005 to February 23, 2007. During this
period, he received an annual base salary of $310,000 and
participated in all of our executive benefits including our
non-qualified pension plans, long-term and short-term incentive
plans, and executive perquisites. He was also eligible for our
broad-based employee benefit and health plans other than our
qualified pension plan.
Mr. Godsell ceased providing services to Novelis on
July 1, 2007. Mr. Godsells employment was
formally terminated on November 19, 2007. Pursuant to his
change in control agreement dated September 25, 2006, we
were obligated to pay Mr. Godsell a lump sum amount equal
to $961,000 (24 months of his base salary and short-term
cash incentives at target). We also agreed to make a one-time
payment to Mr. Godsell in the amount of $50,000 in lieu of
participation in the short-term incentive plan for fiscal 2008
and for other issues related to the execution of his change in
control agreement. Pursuant to the terms of
Mr. Godsells change in control agreement, he also
received continued life insurance coverage for 24 months,
additional credit and contributions under the companys
qualified and non-qualified pension and savings plans, tax
preparation services and a tax reimbursement
gross-up
payment. In exchange for the foregoing, Mr. Godsell
executed a release and waiver of any and all employment-related
claims.
Change
in Control Agreements
We entered into change in control agreements on
September 25, 2006 with certain of our executives,
including Ms. Brooks and Messrs. Dobson, Fisher, de
Weert, Greenawalt, Walpole, Nardocci, and Godsell. These new
agreements replaced the change in control agreements entered
into with the executives (other than Messrs. Dobson,
Fisher, de Weert and Walpole) prior to our spin-off from Alcan.
217
The new change in control agreements will terminate on
May 15, 2009. Each named executive officer is entitled to
payment if we terminate his or her employment other than for
cause, or if the executive resigns for good reason, before
May 15, 2009. Such payments will not be made if the
executives employment terminates because of death,
disability, or retirement.
In conjunction with the acquisition by Hindalco,
Messrs. Dobson and Godsell were terminated by the Company.
As a result, each of them received severance benefits according
to their change in control agreements.
The terms change in control, good
reason, and disability are defined in the
relevant agreements, each of which is filed as an exhibit to
this
Form 10-K.
The benefits under the change in control agreements include the
following:
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|
a lump sum cash amount equal to two times the sum of the
executives base salary and target short-term incentive
opportunity, minus the amount of retention-related and severance
payments, if any, paid or payable to the executive other than
pursuant to
his/her
change in control agreement in order to avoid duplication of
payments;
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all short-term and long-term incentive awards pursuant to the
terms of the incentive plan with respect to which such awards
were issued;
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if the executive is not eligible for retiree medical benefits
and is covered under our group health plan at the time of
termination, we will pay an additional lump sum cash amount
(generally equal to the COBRA premium for 24 months grossed
up for taxes) in order to assist the executive with the cost of
post-employment medical continuation coverage;
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continued coverage under our group life plan for 24 months;
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|
an additional two-years credit for benefit accrual and
contribution allocation purposes under our qualified and
non-qualified pension, savings or other retirement plans;
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100% vesting under our qualified and non-qualified retirement
pension, savings and other retirement plans; and
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a gross-up
reimbursement for any excise tax liability imposed by
Section 4999 of the Internal Revenue Code.
|
Recognition
Agreements
On September 25, 2006, we entered into recognition
agreements with certain of our executives, including
Ms. Brooks and Messrs. Dobson, Fisher, de Weert,
Greenawalt, Walpole, Nardocci and Godsell. Mr. Blechschmidt
did not receive a Recognition Agreement. These agreements
generally provide that the executive will receive a fixed number
of our common shares if he or she remains employed through
December 31, 2007 and December 31, 2008. The number of
our common shares payable to each named executive officer on
each applicable vesting date is as follows:
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Recognition
|
|
|
Recognition
|
|
|
|
Shares
|
|
|
Shares
|
|
|
|
Payable on
|
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Payable on
|
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|
|
December 31,
|
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|
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
Name
|
|
(#)
|
|
|
(#)
|
|
|
Martha Finn Brooks
|
|
|
14,200
|
|
|
|
14,200
|
|
Steven Fisher
|
|
|
2,850
|
|
|
|
2,850
|
|
Arnaud de Weert
|
|
|
4,100
|
|
|
|
4,100
|
|
Kevin Greenawalt
|
|
|
4,100
|
|
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|
4,100
|
|
Thomas Walpole
|
|
|
3,500
|
|
|
|
3,500
|
|
Antonio Tadeu Coehlo Nardocci
|
|
|
3,300
|
|
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|
3,300
|
|
218
The recognition agreements also provide for severance payments
in the event an executives employment is terminated by us
other than for cause on or before December 31, 2008. The
severance payments are equal to the greater of (i) the
amount of severance the executive would receive from our
standard severance program or (ii) an amount equal to 150%
of annual base salary, in each case payable in cash in a single
lump sum. Our standard severance plan generally provides for a
benefit equal to one-half months pay multiplied by years
of service up to 19 years, plus one months pay
multiplied by years of service in excess of 19. For this
purpose, years of service includes service with us and Alcan.
Any retention or severance payments under the recognition
agreements reduce, dollar for dollar, any other
severance-related benefits to which the executive would
otherwise be entitled under his or her change in control
agreement in order to avoid duplication of benefits.
On February 10, 2007, our board of directors adopted
resolutions to amend the recognition agreements for certain of
our executives including Ms. Brooks and
Messrs. Dobson, Fisher, de Weert, Greenawalt, Walpole,
Nardocci and Godsell. Under the amended recognition agreements,
if the executive remains continuously employed by Novelis
through the vesting dates of December 31, 2007 and
December 31, 2008, the executive will be entitled to a
recognition award payable in either, at the option of the
executive, (i) Hindalco Industries Limited (Hindalco)
common shares in certain circumstances or (ii) an amount in
cash, in each case equivalent to the value of Novelis common
shares determined at the effective date of the arrangement under
section 192 of the Canada Business Corporations Act
involving Novelis, its shareholder and other security holders,
Hindalco and AV Aluminum Inc. (Acquisition Sub), a subsidiary of
Hindalco, involving, among other things, the acquisition by
Acquisition Sub of all of the outstanding common shares of
Novelis for $44.93 in cash for each common share. Payment for
the Recognition Shares vesting on December 31, 2007 was
made in January 2008 for Ms. Brooks and
Messrs. Fisher, de Weert, Greenawalt and Walpole and
Nardocci and is reflected in the table below.
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Recognition
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Consideration
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Name
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Shares (#)
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Received ($)
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Martha Finn Brooks
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14,200
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638,006
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Steven Fisher
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2,850
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128,051
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Arnaud de Weert
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4,100
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184,213
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Kevin Greenawalt
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4,100
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184,213
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Thomas Walpole
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|
3,500
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157,255
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Antonio Tadeu Coehlo Nardocci
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3,300
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148,269
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Annual
Incentive Plan 2007 - 2008
The board approved the Novelis Annual Incentive Plan (AIP) 2007
- 2008 on August 6, 2007. The AIP is designed to provide an
annual incentive opportunity to our key management group. Our
general philosophy is that annual cash incentives should be tied
to both company-wide and business unit goals as well as
individual performance. Annual incentives should be consistent
with the strategic goals set by the board, and the performance
benchmarks should be sufficiently ambitious so as to provide
meaningful incentive to our executive officers. In the normal
circumstances, we would expect that approximately 20% of an
executive officers total direct compensation would be
attributable to short-term incentives.
The performance benchmarks for the AIP are tied to three key
components: (1) operating EBITDA performance;
(2) operating free cash flow performance; and
(3) satisfaction of certain Environment, Health and Safety
(EHS) targets. The specific weightings among these three
components are 45% for operating EBITDA performance; 45% for
operating free cash flow performance; and 10% for EHS targets. A
named executive officers incentive opportunity is further
weighted to reflect the region or regions for which he or she is
primarily responsible.
If an executive retires during the course of the year, the
executive will be eligible to receive a payout under the plan on
a pro-rata basis. Such payout, if any, will be made at the time
that it is done for all other employees. If an executive
terminates as the result of a company initiated separation that
is the result of a position elimination that is not performance
related (for example, a layoff, plant closure, restructuring or
sale),
219
the employee will be eligible for prorated incentive
consideration at the time that consideration is being given to
all other employees. In the event of separation on account of
resignation (initiated by the employee) or company initiated
separation during the performance year, the concerned individual
will not be entitled to any AIP for the year unless the
separation occurs after the performance year, but before the
timing of payout, in which case the executive shall be entitled
to consideration at the time that consideration is being given
to all other employees, subject to individual performance.
Long-term
Incentive Plan (LTIP) FY 2008 - FY
2010
At its meeting on November 6, 2007, the board approved, in
principle, the Novelis Long-Term Incentive Plan
(LTIP) FY 2008 FY 2010. On
January 11, 2008, the board gave its unanimous written
consent to the approval of the LTIP. The LTIP is designed to
provide a substantial portion of each executives total
direct compensation opportunity (generally 40% to 60%).
Participation in the LTIP aligns the interests of our executives
and our shareholder. The opportunity to receive long-term
incentive compensation by an executive in a given year is
generally determined by reference to the market for long-term
incentive compensation among our peer group companies. The
Committee is also mindful of long-term incentive awards made in
prior years and takes such awards into account in determining
the amount of current-year awards.
The Committee considered the use of various forms of long-term
awards, but ultimately determined for fiscal year 2008 to issue
awards that are cash based awards, which are 80% based on
economic profit performance and 20% based on innovation EBITDA
performance, currently provided the best link between the
interests of executives and our shareholder. For future
long-term awards, the Committee will consider all types of
awards and will determine at the time of each award the
appropriate form of award and performance measures to use.
An executive will be entitled to participate in the LTIP if
actively employed no later than March 31, 2008. Employees
hired during fiscal 2008, may at the discretion of management
and subject to Committee review, participate at a full or
prorated level of opportunity. Employees hired after that date
will be eligible to participate in any future LTIP plans.
In the event of retirement, death or disability, any earned but
unpaid LTIP tranches will be paid at the same time as everyone
else receives payment. All unearned amounts will lapse. If an
executive is terminated pursuant to a company- initiated
separation that is the result of a position elimination that is
not performance related (for example a layoff, plant closure,
restructuring or sale), if not offered a comparable position
that does not require a relocation of 50 miles or more, any
earned but unpaid LTIP tranches will be paid at the same time as
everyone else receives payment. All unearned amounts will lapse.
In the event of separation on account of resignation initiated
by the employee, any LTIP amounts earned but not yet paid will
lapse and all unearned amounts will lapse.
Outstanding
Equity Awards at 2008 Fiscal Year-End
There were no outstanding equity awards at the end of fiscal
year-end 2008.
220
Option
Exercises and Stock Vested in 2008
The table below sets forth the information regarding stock
options that were exercised or were cancelled and paid out
during fiscal 2008 and stock awards that vested or were
cancelled and paid out during fiscal 2008.
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Option Awards(1)
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Stock Awards(2)
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Number of
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Number of
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Shares
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Shares
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Acquired
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Value Realized
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Acquired
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Value Realized
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on Exercise or
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on Exercise or
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on Vesting or
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on Vesting or
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|
Cancellation
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|
Cancellation
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|
Cancellation
|
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Cancellation
|
|
Name
|
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(#)
|
|
|
($)
|
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(#)
|
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($)
|
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Edward Blechschmidt
|
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Martha Finn Brooks
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551,311
|
(3)
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11,724,157
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61,700
|
(4)
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|
2,772,181
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|
Rick Dobson
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92,500
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(5)
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1,794,500
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Steven Fisher
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21,770
|
(6)
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422,338
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2,850
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(7)
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128,051
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Arnaud de Weert
|
|
|
43,530
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(8)
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844,482
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4,100
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(9)
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184,213
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|
Kevin Greenawalt
|
|
|
115,032
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(10)
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2,535,660
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18,500
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(11)
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831,205
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|
Thomas Walpole
|
|
|
74,717
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(12)
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|
1,609,661
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|
|
|
11,400
|
(13)
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|
|
512,202
|
|
Antonio Tadeu Coehlo Nardocci
|
|
|
68,767
|
(14)
|
|
|
1,469,505
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|
|
|
17,700
|
(15)
|
|
|
795,261
|
|
David Godsell
|
|
|
79,313
|
(16)
|
|
|
1,735,559
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|
|
|
12,000
|
(17)
|
|
|
539,160
|
|
|
|
|
(1) |
|
Includes Stock Options, Stock Price Appreciation Units and Stock
Appreciation Rights. The value received on Stock Options, Stock
Price Appreciation Units and Stock Appreciation Rights was
computed at $44.93 per share less the actual exercise price
underlying the related option award. |
|
(2) |
|
Includes Performance Share Units and Recognition Shares. All
Performance Shares Units and Recognition Shares were settled in
cash at $44.93 per share. |
|
(3) |
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Represents 551,311 Stock Options. |
|
(4) |
|
Represents 47,500 Performance Share Units and 14,200 Recognition
Shares. |
|
(5) |
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Represents 92,500 Stock Options. |
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(6) |
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Represents 21,770 Stock Options. |
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(7) |
|
Represents 2,850 Recognition Shares. |
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(8) |
|
Represents 43,530 Stock Price Appreciation Rights. |
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(9) |
|
Represents 4,100 Recognition Shares. |
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(10) |
|
Represents 92,080 Stock Options and 22,952 Stock Price
Appreciation Units. |
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(11) |
|
Represents 14,400 Performance Share Units and 4,100 Recognition
Shares. |
|
(12) |
|
Represents 52,690 Stock Options and 22,027 Stock Price
Appreciation Units. |
|
(13) |
|
Represents 7,900 Performance Share Units and 3,500 Recognition
Shares. |
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(14) |
|
Represents 36,117 Stock Options and 32,650 Stock Appreciation
Rights. |
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(15) |
|
Represents 14,400 Performance Share Units and 3,300 Recognition
Shares. |
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(16) |
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Represents 79,313 Stock Options. |
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(17) |
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Represents 12,000 Performance Share Units. |
221
Pension
Benefits in Fiscal 2008
The table below sets forth information regarding the present
value as of March 31, 2008 of the accumulated benefits of
our named executive officers under our defined benefit pension
plans (both qualified and non-qualified). U.S. executives
who were hired on or after January 1, 2005 are not eligible
to participate in our defined benefit pension plans.
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|
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|
Number of
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Present
|
|
|
Payments
|
|
|
|
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|
Years
|
|
|
Value of
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During
|
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|
|
|
|
Credited
|
|
|
Accumulated
|
|
|
Last
|
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|
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|
|
Service
|
|
|
Benefit
|
|
|
Fiscal Year
|
|
Name
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Plan Name(1)
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|
(#)
|
|
|
($)(2)
|
|
|
($)
|
|
|
Martha Finn Brooks
|
|
Novelis Pension Plan
|
|
|
5.667
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|
|
|
98,171
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|
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|
|
|
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|
Novelis SERP
|
|
|
5.667
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|
|
|
427,612
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|
|
|
|
|
Rick Dobson
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|
Not eligible
|
|
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|
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|
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|
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|
Steven Fisher
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|
Not eligible
|
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|
|
|
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|
|
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Arnaud de Weert
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|
Pensionskasse Alcan Schweiz
|
|
|
1.917
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|
|
|
38,453
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|
|
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|
|
Kevin Greenawalt
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|
Novelis Pension Plan
|
|
|
24.75
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|
|
|
513,851
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|
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|
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|
Novelis SERP
|
|
|
24.75
|
|
|
|
629,473
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|
|
|
|
|
Thomas Walpole
|
|
Novelis Pension Plan
|
|
|
28.833
|
|
|
|
681,903
|
|
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|
|
|
|
|
Novelis SERP
|
|
|
28.833
|
|
|
|
456,045
|
|
|
|
|
|
Antonio Tadeu Coehlo Nardocci
|
|
Not eligible
|
|
|
|
|
|
|
|
|
|
|
|
|
David Godsell
|
|
Novelis Pension Plan
|
|
|
27.500
|
|
|
|
496,233
|
|
|
|
9,027
|
|
|
|
Novelis SERP
|
|
|
27.500
|
|
|
|
1,248,911
|
|
|
|
22,719
|
|
|
|
|
(1) |
|
See Compensation Discussion and Analysis Elements of
Our Compensation, Employee Benefits for a discussion of these
plans. |
|
(2) |
|
See Note 15 to our audited financial statements for the
fiscal year ended March 31, 2008, for a discussion of the
assumptions used in the calculation of these amounts. |
The following table shows estimated retirement benefits,
expressed as a percentage of eligible earnings, payable upon
normal retirement at age 65:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years of Service
|
|
|
10
|
|
15
|
|
20
|
|
25
|
|
30
|
|
35
|
|
U.S. Pension Plan
|
|
|
17
|
%
|
|
|
25
|
%
|
|
|
34
|
%
|
|
|
42
|
%
|
|
|
51
|
%
|
|
|
59
|
%
|
Swiss Pension Scheme
|
|
|
18
|
%
|
|
|
27
|
%
|
|
|
36
|
%
|
|
|
45
|
%
|
|
|
54
|
%
|
|
|
63
|
%
|
222
Potential
Payments Upon Termination or Change in Control
This section provides an estimate of the payments and benefits
that would be paid to certain of our named executive officers,
at March 31, 2008, upon voluntary or involuntary
termination of employment. This section, however, does not
reflect any payments or benefits that would be paid to our
salaried employees generally, including for example accrued
salary and vacation pay; regular pension benefits under our
qualified and non-qualified defined benefit plans; normal
distribution of account balances under our qualified and
non-qualified defined contribution plans; or normal retirement,
death or disability benefits.
Messrs. Dobson and Godsell are not shown below because they
were not serving as one of our executive officers at the end of
fiscal 2008. In lieu of benefits to which they might otherwise
have been entitled, they received payments in accordance with
the terms of their respective separation agreements described
above. In addition, Mr. Blechschmidt is not shown below
because he ceased serving as our Acting Chief Executive Officer
effective May 15, 2007, and was not entitled to receive any
severance-related payment following his resignation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martha Finn Brooks(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
us Without
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cause or by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Good Reason in
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
Termination by
|
|
|
Connection with
|
|
|
|
|
|
|
Termination by
|
|
|
Termination by
|
|
|
us Without
|
|
|
Change in
|
|
|
Death or
|
|
|
|
Executive
|
|
|
us for Cause
|
|
|
Cause
|
|
|
Control
|
|
|
Disability
|
|
Type of Payment
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Short-Term Incentive Pay
|
|
|
590,625
|
(2)
|
|
|
|
|
|
|
590,625
|
(2)
|
|
|
590,625
|
(2)
|
|
|
590,625
|
(2)
|
Long-Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
294,294
|
(3)
|
|
|
294,294
|
(3)
|
|
|
294,294
|
(3)
|
Severance
|
|
|
|
|
|
|
|
|
|
|
1,012,500
|
(4)
|
|
|
2,700,000
|
(5)
|
|
|
|
|
Retirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295,366
|
(6)
|
|
|
|
|
Lump sum cash payment for continuation of health coverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,420
|
(7)
|
|
|
|
|
Continued group life insurance coverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,212
|
(8)
|
|
|
|
|
Change in control tax
gross-up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
590,625
|
|
|
|
|
|
|
|
1,897,419
|
|
|
|
3,930,917
|
|
|
|
884,919
|
|
|
|
|
(1) |
|
In addition to the estimated payments set forth in this table,
the executive would be eligible for payments or benefits that
would be paid to our salaried employees generally upon
termination of employment (including, for example, earned but
unpaid base salary and accrued vacation (approximately $51,923
at March 31, 2008). Ms. Brooks was not eligible for
retirement on March 31, 2008. |
(2) |
|
This amount represents 100% of the executives target
short-term incentive opportunity for fiscal 2008 prorated for
the period following the acquisition or May 16, 2007
through March 31, 2008. |
(3) |
|
This amount represents the amount of Long-Term Incentive Plan
(LTIP) that would have been earned as of March 31, 2008. |
(4) |
|
This amount is equal to 150% of executives annual base
salary and would be paid pursuant to the executives
Recognition Agreement. |
(5) |
|
This amount is equal to two times the sum of executives
base salary and target short-term incentive and would be paid
pursuant to the executives Change in Control Agreement. |
(6) |
|
This amount is equal to the present value of two additional
years of benefit accrual under our qualified and non-qualified
retirement plans and is payable pursuant to the executives
Change in Control Agreement. See the Pension Benefits table for
pension benefits accrued as of March 31, 2008. |
(7) |
|
Pursuant to the executives Change in Control Agreement,
this amount is intended to assist the executive in paying
post-employment health coverage and is equal to 24 months
times the COBRA premium rate in effect at March 31, 2008,
grossed up for applicable taxes using an assumed tax rate of 40%. |
223
|
|
|
(8) |
|
The executives Change in Control Agreement provides that
the executive will be entitled to two additional years of
coverage under our group life insurance plan. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven Fisher(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
us Without
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cause or by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Good Reason in
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
Termination by
|
|
|
Connection with
|
|
|
|
|
|
|
Termination by
|
|
|
Termination by
|
|
|
us Without
|
|
|
Change in
|
|
|
Death or
|
|
|
|
Executive
|
|
|
us for Cause
|
|
|
Cause
|
|
|
Control
|
|
|
Disability
|
|
Type of Payment
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Short-Term Incentive Pay
|
|
|
229,688
|
(2)
|
|
|
|
|
|
|
229,688
|
(2)
|
|
|
229,688
|
(2)
|
|
|
229,688
|
(2)
|
Long-Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
63,064
|
(3)
|
|
|
63,064
|
(3)
|
|
|
63,064
|
(3)
|
Severance
|
|
|
|
|
|
|
|
|
|
|
525,000
|
(4)
|
|
|
1,225,000
|
(5)
|
|
|
|
|
Retirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,950
|
(6)
|
|
|
|
|
Lump sum cash payment for continuation of health coverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,420
|
(7)
|
|
|
|
|
Continued group life insurance coverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
914
|
(8)
|
|
|
|
|
Change in control tax
gross-up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
229,688
|
|
|
|
|
|
|
|
817,752
|
|
|
|
1,647,036
|
|
|
|
292,752
|
|
|
|
|
(1) |
|
In addition to the estimated payments set forth in this table,
the executive would be eligible for payments or benefits that
would be paid to our salaried employees generally upon
termination of employment (including, for example, earned but
unpaid base salary and accrued vacation (approximately $26,923
at March 31, 2008). Mr. Fisher was not eligible for
retirement on March 31, 2008. |
|
(2) |
|
This amount represents 100% of the executives target
short-term incentive opportunity for fiscal 2008 prorated for
the period following the acquisition or May 16, 2007
through March 31, 2008. |
|
(3) |
|
This amount represents the amount of Long-Term Incentive Plan
(LTIP) that would have been earned as of March 31, 2008. |
|
(4) |
|
This amount is equal to 150% of executives annual base
salary and would be paid pursuant to the executives
Recognition Agreement. |
|
(5) |
|
This amount is equal to two times the sum of executives
base salary and target short-term incentive and would be paid
pursuant to the executives Change in Control Agreement. |
|
(6) |
|
This amount is equal to the present value of two additional
years of benefit accrual under our qualified and non-qualified
retirement plans and is payable pursuant to the executives
Change in Control Agreement. |
|
(7) |
|
Pursuant to the executives Change in Control Agreement,
this amount is intended to assist the executive in paying
post-employment health coverage and is equal to 24 months
times the COBRA premium rate in effect at March 31, 2008,
grossed up for applicable taxes using an assumed tax rate of 40%. |
|
(8) |
|
The executives Change in Control Agreement provides that
the executive will be entitled to two additional years of
coverage under our group life insurance plan. |
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnaud de Weert(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
us Without
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cause or by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Good Reason in
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
Termination by
|
|
|
Connection with
|
|
|
|
|
|
|
Termination by
|
|
|
Termination by
|
|
|
us Without
|
|
|
Change in
|
|
|
Death or
|
|
|
|
Executive
|
|
|
us for Cause
|
|
|
Cause
|
|
|
Control
|
|
|
Disability
|
|
Type of Payment
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Short-Term Incentive Pay
|
|
|
358,586
|
(2)
|
|
|
|
|
|
|
358,586
|
(2)
|
|
|
358,586
|
(2)
|
|
|
358,586
|
(2)
|
Long-Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
63,064
|
(3)
|
|
|
63,064
|
(3)
|
|
|
63,064
|
(3)
|
Severance
|
|
|
|
|
|
|
|
|
|
|
983,550
|
(4)
|
|
|
2,131,025
|
(5)
|
|
|
|
|
Retirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,125
|
(6)
|
|
|
|
|
Lump sum cash payment for continuation of health coverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,420
|
(7)
|
|
|
|
|
Change in control tax
gross-up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
358,586
|
|
|
|
|
|
|
|
1,405,200
|
|
|
|
2,639,220
|
|
|
|
421,650
|
|
|
|
|
(1) |
|
In addition to the estimated payments set forth in this table,
the executive would be eligible for payments or benefits that
would be paid to our salaried employees generally upon
termination of employment (including, for example, earned but
unpaid base salary and accrued vacation (approximately $50,438
at March 31, 2008). Mr. de Weert was not eligible for
retirement on March 31, 2008. |
(2) |
|
This amount represents 100% of the executives target
short-term incentive opportunity for fiscal 2008 prorated for
the period following the acquisition or May 16, 2007
through March 31, 2008. |
(3) |
|
This amount represents the amount of Long-Term Incentive Plan
(LTIP) that would have been earned as of March 31, 2008. |
(4) |
|
This amount is equal to 150% of executives annual base
salary and would be paid pursuant to the executives
Recognition Agreement. |
(5) |
|
This amount is equal to two times the sum of executives
base salary and target short-term incentive and would be paid
pursuant to the executives Change in Control Agreement. |
(6) |
|
This amount is equal to the present value of two additional
years of benefit accrual under our qualified and non-qualified
retirement plans and is payable pursuant to the executives
Change in Control Agreement. See the Pension Benefits table for
pension benefits accrued as of March 31, 2008. |
(7) |
|
Pursuant to the executives Change in Control Agreement,
this amount is intended to assist the executive in paying
post-employment health coverage and is equal to 24 months
times the COBRA premium rate in effect at March 31, 2008,
grossed up for applicable taxes using an assumed tax rate of 40%. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin Greenawalt(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
us Without
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cause or by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Good Reason in
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
Termination by
|
|
|
Connection with
|
|
|
Retirement
|
|
|
|
Termination by
|
|
|
Termination by
|
|
|
us Without
|
|
|
Change in
|
|
|
Death or
|
|
|
|
Executive
|
|
|
us for Cause
|
|
|
Cause
|
|
|
Control
|
|
|
Disability
|
|
Type of Payment
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Short-Term Incentive Pay
|
|
|
178,500
|
(2)
|
|
|
|
|
|
|
178,500
|
(2)
|
|
|
178,500
|
(2)
|
|
|
178,500
|
(2)
|
Long-Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
63,064
|
(3)
|
|
|
63,064
|
(3)
|
|
|
63,064
|
(3)
|
Severance
|
|
|
|
|
|
|
|
|
|
|
510,000
|
(4)
|
|
|
1,088,000
|
(5)
|
|
|
|
|
Retirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258,619
|
(6)
|
|
|
|
|
Continued group life insurance coverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,815
|
(7)
|
|
|
|
|
Change in control tax
gross-up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
178,500
|
|
|
|
|
|
|
|
751,564
|
|
|
|
1,590,998
|
|
|
|
241,564
|
|
225
|
|
|
(1) |
|
In addition to the estimated payments set forth in this table,
the executive would be eligible for payments or benefits that
would be paid to our salaried employees generally upon
termination of employment (including, for example, earned but
unpaid base salary and accrued vacation (approximately $26,154
at March 31, 2008). Mr. Greenawalt was eligible for
retirement on March 31, 2008. |
|
(2) |
|
This amount represents 100% of the executives target
short-term incentive opportunity for fiscal 2008 prorated for
the period following the acquisition or May 16, 2007
through March 31, 2008. |
(3) |
|
This amount represents the amount of Long-Term Incentive Plan
(LTIP) that would have been earned as of March 31, 2008. |
(4) |
|
This amount is equal to 150% of executives annual base
salary and would be paid pursuant to the executives
Recognition Agreement. |
(5) |
|
This amount is equal to two times the sum of executives
base salary and target short-term incentive and would be paid
pursuant to the executives Change in Control Agreement. |
(6) |
|
This amount is equal to the present value of two additional
years of benefit accrual under our qualified and non-qualified
retirement plans and is payable pursuant to the executives
Change in Control Agreement. See the Pension Benefits table for
pension benefits accrued as of March 31, 2008. |
(7) |
|
The executives Change in Control Agreement provides that
the executive will be entitled to two additional years of
coverage under our group life insurance plan. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Walpole(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
us Without
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cause or by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Good Reason in
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
Termination by
|
|
|
Connection with
|
|
|
Retirement
|
|
|
|
Termination by
|
|
|
Termination by
|
|
|
us Without
|
|
|
Change in
|
|
|
Death or
|
|
|
|
Executive
|
|
|
us for Cause
|
|
|
Cause
|
|
|
Control
|
|
|
Disability
|
|
Type of Payment
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Short-Term Incentive Pay
|
|
|
129,938
|
(2)
|
|
|
|
|
|
|
129,938
|
(2)
|
|
|
129,938
|
(2)
|
|
|
129,938
|
(2)
|
Long-Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
45,546
|
(3)
|
|
|
45,546
|
(3)
|
|
|
45,546
|
(3)
|
Severance
|
|
|
|
|
|
|
|
|
|
|
405,000
|
(4)
|
|
|
837,000
|
(5)
|
|
|
|
|
Retirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,350
|
(6)
|
|
|
|
|
Continued group life insurance coverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,048
|
(7)
|
|
|
|
|
Change in control tax
gross-up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
129,938
|
|
|
|
|
|
|
|
580,484
|
|
|
|
1,250,882
|
|
|
|
175,484
|
|
|
|
|
(1) |
|
In addition to the estimated payments set forth in this table,
the executive would be eligible for payments or benefits that
would be paid to our salaried employees generally upon
termination of employment (including, for example, earned but
unpaid base salary and accrued vacation (approximately $20,769
at March 31, 2008). Mr. Walpole was eligible for
retirement on March 31, 2008. |
|
(2) |
|
This amount represents 100% of the executives target
short-term incentive opportunity for fiscal 2008 prorated for
the period following the acquisition or May 16, 2007
through March 31, 2008. |
|
(3) |
|
This amount represents the amount of Long-Term Incentive Plan
(LTIP) that would have been earned as of March 31, 2008. |
|
(4) |
|
This amount is equal to 150% of executives annual base
salary and would be paid pursuant to the executives
Recognition Agreement. |
|
(5) |
|
This amount is equal to two times the sum of executives
base salary and target short-term incentive and would be paid
pursuant to the executives Change in Control Agreement. |
|
(6) |
|
This amount is equal to the present value of two additional
years of benefit accrual under our qualified and non-qualified
retirement plans and is payable pursuant to the executives
Change in Control Agreement. See the Pension Benefits table for
pension benefits accrued as of March 31, 2008. |
226
|
|
|
(7) |
|
The executives Change in Control Agreement provides that
the executive will be entitled to two additional years of
coverage under our group life insurance plan. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antonio Tadeu Coehlo Nardocci(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
us Without
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cause or by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Good Reason in
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
Termination by
|
|
|
Connection with
|
|
|
Retirement
|
|
|
|
Termination by
|
|
|
Termination by
|
|
|
us Without
|
|
|
Change in
|
|
|
Death or
|
|
|
|
Executive
|
|
|
us for Cause
|
|
|
Cause
|
|
|
Control
|
|
|
Disability
|
|
Type of Payment
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Short-Term Incentive Pay
|
|
|
184,432
|
(2)
|
|
|
|
|
|
|
184,432
|
(2)
|
|
|
184,432
|
(2)
|
|
|
184,432
|
(2)
|
Long-Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
45,546
|
(3)
|
|
|
45,546
|
(3)
|
|
|
45,546
|
(3)
|
Severance
|
|
|
|
|
|
|
|
|
|
|
526,949
|
(4)
|
|
|
1,124,157
|
(5)
|
|
|
|
|
Retirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,818
|
(6)
|
|
|
|
|
Continued group life insurance coverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,126
|
(7)
|
|
|
|
|
Change in control tax
gross-up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
184,432
|
|
|
|
|
|
|
|
756,927
|
|
|
|
1,530,079
|
|
|
|
229,978
|
|
|
|
|
(1) |
|
In addition to the estimated payments set forth in this table,
the executive would be eligible for payments or benefits that
would be paid to our salaried employees generally upon
termination of employment (including, for example, earned but
unpaid base salary and accrued vacation (approximately $27,023
at March 31, 2008). Mr. Nardocci was eligible for
retirement on March 31, 2008. |
|
(2) |
|
This amount represents 100% of the executives target
short-term incentive opportunity for fiscal 2008 prorated for
the period following the acquisition or May 16, 2007
through March 31, 2008. |
|
(3) |
|
This amount represents the amount of Long-Term Incentive Plan
(LTIP) that would have been earned as of March 31, 2008. |
|
(4) |
|
This amount is equal to 150% of executives annual base
salary and would be paid pursuant to the executives
Recognition Agreement. |
|
(5) |
|
This amount is equal to two times the sum of executives
base salary and target short-term incentive and would be paid
pursuant to the executives Change in Control Agreement. |
|
(6) |
|
This amount is equal to the present value of two additional
years of benefit accrual under our qualified and non-qualified
retirement plans and is payable pursuant to the executives
Change in Control Agreement. |
|
(7) |
|
Pursuant to the executives Change in Control Agreement,
this amount is intended to assist the executive in paying
post-employment health coverage and is equal to 24 months
times the COBRA premium rate in effect at March 31, 2008,
grossed up for applicable taxes using an assumed tax rate of 40%. |
Director
Compensation for Directors for the Period
April 1, 2007 through May 15, 2007
Prior to the closing of the Hindalco acquisition of our shares
on May 15, 2007, our board of directors consisted of the
directors identified below. Concurrent with the closing, each of
these directors tendered his or her resignation, with the
exception of J. Chandran. Prior to closing, the Chairman of our
board of directors was entitled to receive compensation equal to
$250,000 per year, and the Chair of our Audit Committee was
entitled to receive $175,000 per year. Each of our other
non-executive directors was entitled to receive compensation
equal to $150,000 per year, plus an additional $5,000 if he is a
member of our Audit Committee. Directors fees were paid in
quarterly installments.
Because at least one half of our non-executive directors
compensation was paid in Director Deferred Share Units (DDSUs),
our non-executive directors are not required to own a specific
amount of our shares. A
227
director could not redeem the accumulated DDSUs until he or she
ceased to be a member of our board of directors.
Our board of directors believed that compensation in the form of
DDSUs, together with the requirement that our non-executive
directors retain all DDSUs until they cease to be a director,
helped to align the interests of our non-executive directors
with those of our shareholders.
The number of DDSUs that were credited to the account of a
non-executive director each quarter was determined by dividing
the quarterly amount payable in DDSUs, by the average closing
prices of our common shares on the Toronto (adjusted for the
noon exchange rate) and New York stock exchanges on the last
five trading days of the quarter. Additional DDSUs were credited
to each non-executive director in an amount equal to the
dividends declared on our common shares. The DDSUs were
redeemable in cash, our common shares or a combination thereof,
at the election of the director. The amount to be paid by us
upon redemption was calculated by multiplying the accumulated
balance of DDSUs by the average closing prices of our common
shares on the Toronto (adjusted for the noon exchange rate) and
New York stock exchanges on the last five trading days prior to
the redemption date.
Our non-executive directors were also entitled to reimbursement
for transportation, lodging 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 director compensation.
The table below sets forth the compensation received by our
non-employee directors during April 1, 2007 through
May 15, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
|
|
|
|
|
|
|
|
|
|
|
or Paid
|
|
|
Stock
|
|
|
All Other
|
|
|
|
|
|
|
in Cash
|
|
|
Awards
|
|
|
Compensation
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
(#)
|
|
|
($)
|
|
|
($)
|
|
|
Edward A. Blechschmidt
|
|
|
|
|
|
|
418.3064
|
|
|
|
|
|
|
|
18,750
|
|
Charles G. Cavell
|
|
|
9,375
|
|
|
|
209.1532
|
|
|
|
|
|
|
|
18,750
|
|
Clarence J. Chandran
|
|
|
|
|
|
|
418.3064
|
|
|
|
|
|
|
|
18,750
|
|
C. Roberto Cordaro
|
|
|
9,688
|
|
|
|
216.1250
|
|
|
|
|
|
|
|
19,375
|
|
Helmut Eschwey
|
|
|
9,375
|
|
|
|
209.1532
|
|
|
|
|
|
|
|
18,750
|
|
David J. Fitzpatrick
|
|
|
9,688
|
|
|
|
216.1250
|
|
|
|
|
|
|
|
19,375
|
|
Suzanne Labarge
|
|
|
10,938
|
|
|
|
244.0121
|
|
|
|
|
|
|
|
21,875
|
|
Patrick J. Monahan
|
|
|
9,375
|
|
|
|
209.1532
|
|
|
|
|
|
|
|
18,750
|
|
William T. Monahan
|
|
|
15,625
|
|
|
|
348.5887
|
|
|
|
|
|
|
|
31,250
|
|
Sheldon Plener
|
|
|
9,375
|
|
|
|
209.1532
|
|
|
|
|
|
|
|
18,750
|
|
Rudolf Rupprecht
|
|
|
9,375
|
|
|
|
209.1532
|
|
|
|
|
|
|
|
18,750
|
|
Kevin Twomey
|
|
|
9,688
|
|
|
|
216.1250
|
|
|
|
|
|
|
|
19,375
|
|
Edward V. Yang
|
|
|
9,375
|
|
|
|
209.1532
|
|
|
|
|
|
|
|
18,750
|
|
228
The table below summarizes the consideration that each of our
directors received for their DDSUs pursuant to the acquisition
in connection with the cancellation of their DDSUs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1
|
|
|
|
|
|
|
|
|
|
to May 15,
|
|
|
|
|
|
|
|
|
|
2007 Deferred
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
|
Share Unit
|
|
|
Deferred
|
|
|
Deferred
|
|
|
|
Awards
|
|
|
Share Units
|
|
|
Share Units
|
|
Name
|
|
(#)
|
|
|
(#)
|
|
|
($)
|
|
|
Edward A. Blechschmidt
|
|
|
418.3064
|
|
|
|
4,465.8225
|
|
|
|
200,649
|
|
Charles G. Cavell
|
|
|
209.1532
|
|
|
|
7,543.4209
|
|
|
|
338,926
|
|
Clarence J. Chandran
|
|
|
418.3064
|
|
|
|
14,711.8938
|
|
|
|
661,005
|
|
C. Roberto Cordaro
|
|
|
216.1250
|
|
|
|
7,377.0961
|
|
|
|
331,453
|
|
Helmut Eschwey
|
|
|
209.1532
|
|
|
|
7,355.9473
|
|
|
|
330,503
|
|
David J. Fitzpatrick
|
|
|
216.1250
|
|
|
|
6,994.3002
|
|
|
|
314,254
|
|
Suzanne Labarge
|
|
|
244.0121
|
|
|
|
8,581.9382
|
|
|
|
385,586
|
|
Patrick J. Monahan
|
|
|
209.1532
|
|
|
|
776.2344
|
|
|
|
34,876
|
|
William T. Monahan
|
|
|
348.5887
|
|
|
|
9,160.9806
|
|
|
|
411,603
|
|
Sheldon Plener
|
|
|
209.1532
|
|
|
|
776.2344
|
|
|
|
34,876
|
|
Rudolf Rupprecht
|
|
|
209.1532
|
|
|
|
7,543.4209
|
|
|
|
338,926
|
|
Kevin Twomey
|
|
|
216.1250
|
|
|
|
2,547.3637
|
|
|
|
114,453
|
|
Edward V. Yang
|
|
|
209.1532
|
|
|
|
7,543.4209
|
|
|
|
338,926
|
|
Director
Compensation for Directors for the Period
May 16, 2007 through March 31, 2008
Following the closing of the Hindalco acquisition, Hindalco
appointed a new board of directors, effective immediately
following the closing on May 15, 2007. The Chair of our
Board of Directors is entitled to receive compensation equal to
$250,000 per year, and the Chair of our Audit Committee is
entitled to receive $175,000 per year. Each of our other
directors is entitled to receive compensation equal to $150,000
per year, plus an additional $5,000 if he is a member of our
Audit Committee. Directors fees are paid in quarterly
installments.
The table below sets forth the total compensation received by
our non-employee directors during May 16, 2007 to
March 31, 2008.
|
|
|
|
|
|
|
Fees Earned
|
|
|
|
or Paid in Cash
|
|
Name
|
|
($)
|
|
|
Kumar Mangalam Birla
|
|
|
218,750
|
|
Debnarayan Bhattacharya
|
|
|
135,625
|
|
Askaran K. Agarwala
|
|
|
131,250
|
|
Clarence J. Chandran
|
|
|
135,625
|
|
Donald A. Stewart
|
|
|
153,125
|
|
Compensation
Committee Interlocks and Insider Participation
In fiscal 2008, only Independent Directors served on the
Committee. Clarence J. Chandran was the Chairman of the
Committee. The other Committee members during all or part of the
year were Mr. Debnarayan Bhattacharya and Mr. Askaran
Agarwala. No member of our Committee had any relationship with
us requiring disclosure under Item 404 of SEC
Regulation S-K.
During fiscal 2008, none of our executive officers served as:
|
|
|
|
|
a member of the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such
committee, the entire Board of Directors) of another entity, one
of whose executive officers served on our Committee;
|
229
|
|
|
|
|
a director of another entity, one of whose executive officers
served on our Committee; or
|
|
|
|
a member of the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one
of whose executive officers served as one of our directors.
|
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
On May 15, 2007, the Company was acquired by Hindalco
through its indirect wholly-owned subsidiary AV Metals Inc.
(Acquisition Sub) pursuant to a plan of arrangement (the
Arrangement) entered into on February 10, 2007 and approved
by the Ontario Superior Court of Justice on May 14, 2007
(see Note 2 Acquisition of Novelis Common Stock
to our accompanying consolidated and combined financial
statements).
Subsequent to completion of the Arrangement on May 15,
2007, all of our common shares were indirectly held by Hindalco.
|
|
Item 13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
In accordance with our Audit Committee charter, our Audit
Committee is responsible for reviewing the terms of our Code of
Conduct for the Board of Directors and Senior Managers, which
includes disclosure requirements applicable to our senior
managers and our directors relating to conflicts of interest.
Accordingly, the Audit Committee is responsible for reviewing
and approving the terms and conditions of all transactions that
involve the Company, one of our directors or executive officers
or any of their immediate family members. Although we have not
entered into any such transactions since January 1, 2007
that meet the requirements for disclosure in this Annual Report
on
Form 10-K,
if there were to be such a transaction, we would need the
approval of our Audit Committee prior to entering into such
transaction.
See Item 10. Directors, Executive Officers and
Corporate Governance Board of Directors and
Corporate Governance Matters for additional information
regarding the independence of our Board of Directors.
We maintain various policies and procedures that govern related
party transactions. First, pursuant to our Code of Conduct for
the Board of Directors and Senior Managers, senior managers and
directors of the Company (a) must avoid any action that
creates or appears to create, a conflict of interest between
their own interest and the interest of the Company,
(b) cannot usurp corporate opportunities, and (c) must
deal fairly with third parties. This policy is available on our
website at www.novelis.com. In addition, we have enacted
procedures to monitor related party transactions by
(x) identifying possible related parties through questions
in our director and officer questionnaires, (y) determining
whether we receive payments from or make payments to any of the
identified related parties, and (z) if we determine
payments are made or received, researching the nature of the
interactions between the Company and the related parties and
ensuring that the related person does not have an interest in
the transaction with the related party. Since January 1,
2007, none of our executive officers or directors has entered
into a related party transaction that required disclosure under
the SECs rules.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
PricewaterhouseCoopers LLP has served as our independent
registered public accounting firm since our spin-off from Alcan
on January 6, 2005.
The following fees were paid to PricewaterhouseCoopers LLP for
services rendered during the periods from
(1) January 1, 2007 through March 31, 2007;
(2) April 1, 2007 through May 15, 2007;
(3) May 16, 2007 through March 31, 2008 and
(4) the fiscal year ended December 31, 2006:
|
|
|
|
|
Audit fees: $8,203,000 (for the periods from
January 1, 2007 through March 31, 2007, April 1,
2007 through May 15, 2007, and May 16, 2007 through
March 31, 2008) and $13,597,000 (for the fiscal year
ended December 31, 2006) for professional services
rendered and expenses incurred for the audit
|
230
|
|
|
|
|
of the Companys annual financial statements, review of
financial statements included in the Companys Form
10-Qs and
services that are normally provided by PricewaterhouseCoopers
LLP in connection with statutory and regulatory filings or
engagements for those fiscal periods.
|
|
|
|
|
|
Audit-Related Fees: $176,000 (for the period
from May 15, 2007 through March 31, 2008) related
to consultations concerning anticipated transactions.
|
|
|
|
Tax Fees: $602,000 (for the period from
May 15, 2007 through March 31, 2008) related to a
transfer pricing study.
|
|
|
|
All Other Fees: $4,500 (for the periods from
January 1, 2007 through March 31, 2007, April 1,
2007 through May 15, 2007, and May 16, 2007 through
March 31, 2008) and $14,000 (for the fiscal year ended
December 31, 2006) for fees related to an on-line
research tool.
|
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
|
|
1.
|
Financial
Statement Schedules
|
None.
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
2
|
.1
|
|
Arrangement Agreement by and among Hindalco Industries Limited,
AV Aluminum Inc. and Novelis Inc., dated as of February 10,
2007 (incorporated by reference to Exhibit 2.1 to our
Current Report on
Form 8-K
filed on February 13, 2007)
|
|
3
|
.1
|
|
Restated Certificate and Articles of Incorporation of Novelis
Inc. (incorporated by reference to Exhibit 3.1 to our
Form 8-K
filed 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 our Form 10 filed on November 17,
2004 (File
No. 001-32312))
|
|
4
|
.1
|
|
Shareholder Rights Agreement between Novelis Inc. and CIBC
Mellon Trust Company (incorporated by reference to
Exhibit 4.1 to our
Form 10-K
filed on March 30, 2005 (File
No. 001-32312))
|
|
4
|
.2
|
|
First Amendment to the Shareholder Rights Agreement between
Novelis Inc. and CIBC Mellon Trust Company, dated as of
February 10, 2007 (incorporated by reference to
Exhibit 4.1 to our
Form 8-K
filed February 13, 2007 (File No. 001-32312))
|
|
4
|
.3
|
|
Specimen Certificate of Novelis Inc. Common Shares (incorporated
by reference to Exhibit 4.2 to our Form 10 filed on
December 27, 2004 (File
No. 001-32312))
|
|
4
|
.4
|
|
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
Form 8-K
filed on February 3, 2005 (File
No. 001-32312))
|
|
4
|
.5
|
|
Form of Note for 7
1/4% Senior
Notes due 2015 (incorporated by reference to Exhibit 4.1 to
our
Form S-4
filed on August 3, 2005 (File
No. 333-127139))
|
|
4
|
.6
|
|
Supplemental Indenture, between the Company, Novelis Finances
USA LLC, Novelis South America Holdings LLC, Aluminum Upstream
Holdings LLC and the Bank of New York Trust Company, N.A.
(incorporated by reference to Exhibit 4.6 to our
Post-Effective Amendment No. 1 to our
Form S-4
Registration Statement filed on December 1, 2006 (File
No. 333-127139))
|
231
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.1
|
|
$800 million asset-based lending credit facility (ABL
Facility) dated as of July 6, 2007 among Novelis
Inc., Novelis Corporation as U.S. Borrower, the other U.S.
Subsidiaries of Novelis Inc., Novelis UK Ltd, Novelis AG, AV
Aluminum Inc. as parent guarantor, the other guarantors party
thereto, with the lenders party thereto, ABN AMRO Bank N.V., as
U.S./European issuing bank, swingline lender and administrative
agent, LaSalle Business Credit, LLC, as collateral agent and
funding agent, UBS Securities LLC, as syndication agent, Bank of
America, N.A., National City Business Credit, Inc. and CIT
Business Credit Canada Inc., as documentation agents, ABN AMRO
Bank N.V. Canada Branch, as Canadian issuing bank, Canadian
funding agent and Canadian administrative agent, and ABN AMRO
Incorporated and UBS Securities LLC, as joint lead arrangers and
joint book managers (incorporated by reference to
Exhibit 10.1 to our Quarterly Report on
Form 10-Q
for the period ended September 30, 2007 filed on
November 9, 2007) (File
No. 001-32312)
|
|
10
|
.2
|
|
$960 million term loan facility (Term Loan
Facility) dated as of July 6, 2007 among Novelis
Inc., Novelis Corporation as U.S. Borrower, AV Aluminum Inc., As
Holdings, and the other guarantors party thereto, with the
lenders party thereto, UBS AG, Stamford Branch, as
administrative agent and as collateral agent, UBS Securities
LLC, as syndication agent, ABN AMRO Incorporated, as
documentation agent, and UBS Securities LLC and ABN AMRO
Incorporated as joint lead arrangers and joint book managers
(incorporated by reference to Exhibit 10.2 to our Quarterly
Report on
Form 10-Q
for the period ended September 30, 2007 filed on
November 9, 2007) (File
No. 001-32312)
|
|
10
|
.3
|
|
Intercreditor Agreement dated as of July 6, 2007 by and
among Novelis Inc., Novelis Corporation, Novelis PAE
Corporation, Novelis Finances USA LLC, Novelis South America
Holdings LLC, Aluminum Upstream Holdings LLC, Novelis UK Ltd,
Novelis AG, AV Aluminum Inc., and the subsidiary guarantors
party thereto, as grantors, ABN AMRO BANK N.V., as revolving
credit administrative agent ABN AMRO Bank N.A., acting through
its Canadian branch, as revolving credit Canadian administrative
agent and as revolving credit Canadian funding agent,
La Salle Business Credit, LLC, as revolving credit
collateral agent and as revolving credit funding agent, and UBS
AG, Stamford Branch, as Term Loan administrative agent, and Term
Loan collateral agent (incorporated by reference to
Exhibit 10.3 to our Quarterly Report on
Form 10-Q
for the period ended September 30, 2007 filed on
November 9, 2007) (File
No. 001-32312)
|
|
10
|
.4
|
|
Security Agreement made by Novelis Inc., as Canadian Borrower,
Novelis Corporation, as U.S. Borrower and the guarantors from
time to time party thereto in favor of UBS AG, Stamford branch,
as collateral agent dated as of July 6, 2007 (incorporated
by reference to Exhibit 10.4 to our Quarterly Report on
Form 10-Q
for the period ended September 30, 2007 filed on
November 9, 2007) (File
No. 001-32312)
|
|
10
|
.5
|
|
Security Agreement made by Novelis Inc., as Canadian Borrower,
Novelis Corporation, Novelis PAE Corporation, Novelis Finances
USA LLC, Novelis South America Holdings LLC, Aluminum Upstream
Holdings LLC, as U.S. Borrowers and the guarantors from time to
time party thereto in favor of La Salle Business Credit,
LLC, as collateral agent dated as of July 6, 2007
(incorporated by reference to Exhibit 10.5 to our Quarterly
Report on
Form 10-Q
for the period ended September 30, 2007 filed on
November 9, 2007) (File
No. 001-32312)
|
|
10
|
.6**
|
|
Amended and Restated Metal Supply Agreement between Novelis
Inc., as Purchaser, and Alcan Inc., as Supplier, for the supply
of re-melt aluminum ingot
|
|
10
|
.7**
|
|
Amended and Restated 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
|
|
10
|
.8**
|
|
Amended and Restated Metal Supply Agreement between Novelis
Inc., as Purchaser, and Alcan Inc., as Supplier, for the supply
of sheet ingot in North America
|
|
10
|
.9**
|
|
Amended and Restated Metal Supply Agreement between Novelis
Inc., as Purchaser, and Alcan Inc., as Supplier, for the supply
of sheet ingot in Europe
|
|
10
|
.10*
|
|
Letter Agreement between Novelis Inc. and Edward A. Blechschmidt
dated as of January 16, 2007 (incorporated by reference to
Exhibit 10.1 to our Form 8-K filed on January 19,
2007 (File No. 001-32312))
|
|
10
|
.11*
|
|
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))
|
232
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.12*
|
|
Employment Letter, dated June 23, 2006, by and between Rick
Dobson and Novelis Inc. (incorporated by reference to
Exhibit 10.50 to our Annual Report on Form
10-K filed
on August 25, 2006 (File No. 001-32312))
|
|
10
|
.13*
|
|
Addendum to Rick Dobson Offer Letter, dated June 20, 2006,
by and between Rick Dobson and Novelis Inc. (incorporated by
reference to Exhibit 10.51 to our Annual Report on
Form 10-K
filed on August 25, 2006 (File No. 001-32312))
|
|
10
|
.14*
|
|
Employment Arrangement between Steven Fisher and Novelis Inc. as
described in the
Form 8-K
and
Form 8-K/A
filed on May 21, 2007 and August 15, 2007,
respectively (incorporated by reference to our
Form 8-K
filed on May 21, 2007 and our
Form 8-K/A
filed on August 15, 2007 (File
No. 001-32312))
|
|
10
|
.15*
|
|
Letter Agreement, dated October 20, 2006, by and between
Novelis Inc. and Thomas Walpole (incorporated by reference to
Exhibit 10.1 to our
Form 8-K
filed on October 26, 2006 (File
No. 001-32312))
|
|
10
|
.16*
|
|
Employment Agreement of Antonio Tadeu Coelho Nardocci dated as
of November 8, 2004
|
|
10
|
.17*
|
|
Employment Agreement of Arnaud de Weert (incorporated by
reference to Exhibit 10.1 to our
Form 8-K
filed on April 3, 2006 (File
No. 001-32312))
|
|
10
|
.18*
|
|
Letter Agreement between Novelis Inc. and David Godsell dated as
of November 10, 2004 (incorporated by reference to
Exhibit 10.1 to our
Form 8-K
filed on October 26, 2006 (File
No. 001-32312))
|
|
10
|
.19*
|
|
Form of Change in Control Agreement between Novelis Inc. and
certain executive officers (incorporated by reference to
Exhibit 99.1 to our
Form 8-K
filed on September 27, 2006 (File
No. 001-32312))
|
|
10
|
.20*
|
|
Form of Change in Control Agreement between Novelis Inc. and
certain executive officers and key employees (incorporated by
reference to Exhibit 99.2 to our
Form 8-K
filed on September 27, 2006 (File
No. 001-32312))
|
|
10
|
.21*
|
|
Form of Recognition Agreement between Novelis Inc. and certain
executive officers and key employees (incorporated by reference
to Exhibit 99.3 to our
Form 8-K
filed on September 27, 2006 (File
No. 001-32312))
|
|
10
|
.22*
|
|
Form of Amendment to Recognition Agreements (incorporated by
reference to Exhibit 10.1 of our
Form 8-K/A
filed May 8, 2007 (File No. 001-32312))
|
|
10
|
.23*
|
|
Form of SAR Award (incorporated by reference to
Exhibit 10.3 to our
Form 8-K
filed on November 1, 2006 (File
No. 001-32312))
|
|
10
|
.24*
|
|
Novelis Inc. 2006 Incentive Plan, as amended (incorporated by
reference to Exhibit 10.1 to our
Form 8-K
filed on November 1, 2006 (File
No. 001-32312))
|
|
10
|
.25*
|
|
Form of Non-Qualified Stock Option Award (incorporated by
reference to Exhibit 10.2 to our
Form 8-K
filed on November 1, 2006 (File
No. 001-32312))
|
|
10
|
.26*
|
|
Form of Novelis Long-Term Incentive Plan for Fiscal
2008-2010
|
|
10
|
.27*
|
|
Separation and Release Agreement between Novelis Inc. and Rick
Dobson dated August 15, 2007
|
|
10
|
.28*
|
|
Agreement Regarding Termination of Employment between Novelis
Inc. and David Godsell dated as of November 12, 2007
|
|
10
|
.29*
|
|
Separation and Release Agreement between Novelis Inc. and David
Godsell dated November 12, 2007
|
|
10
|
.30
|
|
Form of Indemnity Agreement between Novelis Inc. and Members of
the Board of Directors of Novelis Inc. (incorporated by
reference to Exhibit 10.1 to our Current Report on
Form 8-K
filed on May 21, 2007)
|
|
10
|
.31
|
|
Form of Indemnity Agreement between Novelis Inc. and certain
executive officers dated as of June 27, 2007 (incorporated
by reference to Exhibit 10.1 to our Current Report on
Form 8-K
filed on June 28, 2007(File
No. 001-32312))
|
|
10
|
.32*
|
|
Form of Amended and Restated Novelis Founders Performance Awards
Plan dated March 14, 2006 (incorporated by reference to
Exhibit 10.7 to our
Form 8-K
filed on March 20, 2006
(File No. 001-32312))
|
233
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.33*
|
|
First Amendment to the Amended and Restated Novelis Founders
Performance Awards Plan (incorporated by reference to our
Form 8-K/A
filed May 8, 2007 (File
No. 001-32312))
|
|
10
|
.34*
|
|
Novelis Founders Performance Award Notification for Martha
Brooks dated March 31, 2005 (incorporated by reference to
Exhibit 10.2 to our
Form 8-K
filed on March 21, 2006 (File
No. 001-32312))
|
|
10
|
.35*
|
|
Novelis Founders Performance Award Notification for Kevin
Greenawalt dated March 31, 2005
|
|
10
|
.36*
|
|
Novelis Founders Performance Award Notification for Thomas
Walpole dated March 31, 2005
|
|
10
|
.37*
|
|
Novelis Founders Performance Award Notification for Tadeu
Nardocci dated March 31, 2005
|
|
10
|
.38*
|
|
Novelis Founders Performance Award Notification for David
Godsell dated March 31, 2005
|
|
10
|
.39*
|
|
Form of Novelis Annual Incentive Plan for 2007 2008
|
|
11
|
.1
|
|
Statement regarding computation of per share earnings
(incorporated by reference to Item 8. Financial Statements
and Supplementary Data Note 19
Earnings per Share to the Consolidated and Combined Financial
Statements. (File
No. 001-32312))
|
|
21
|
.1
|
|
List of subsidiaries of Novelis Inc.
|
|
31
|
.1
|
|
Section 302 Certification of Principal Executive Officer
|
|
31
|
.2
|
|
Section 302 Certification of Principal Financial Officer
|
|
32
|
.1
|
|
Section 906 Certification of Principal Executive Officer
|
|
32
|
.2
|
|
Section 906 Certification of Principal Financial Officer
|
|
|
|
* |
|
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. |
234
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NOVELIS INC.
|
|
|
|
By
|
/s/ Martha
Finn Brooks
|
Name: Martha Finn Brooks
|
|
|
|
Title:
|
President and Chief Operating Officer
|
Date: June 19, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Martha
Finn Brooks
Martha
Finn Brooks
|
|
(Principal Executive Officer)
|
|
Date: June 19, 2008
|
|
|
|
|
|
/s/ Steven
Fisher
Steven
Fisher
|
|
(Principal Financial Officer)
|
|
Date: June 19, 2008
|
|
|
|
|
|
/s/ Jeffrey
Schwaneke
Jeffrey
Schwaneke
|
|
(Principal Accounting Officer)
|
|
Date: June 19, 2008
|
|
|
|
|
|
/s/ Kumar
Mangalam Birla
Kumar
Mangalam Birla
|
|
(Chairman of the Board of Directors)
|
|
Date: June 19, 2008
|
|
|
|
|
|
/s/ Askaran
Agarwala
Askaran
Agarwala
|
|
(Director)
|
|
Date: June 19, 2008
|
|
|
|
|
|
/s/ Debnarayan
Bhattacharya
Debnarayan
Bhattacharya
|
|
(Director)
|
|
Date: June 19, 2008
|
|
|
|
|
|
/s/ Clarence
J. Chandran
Clarence
J. Chandran
|
|
(Director)
|
|
Date: June 19, 2008
|
|
|
|
|
|
/s/ Donald
A. Stewart
Donald
A. Stewart
|
|
(Director)
|
|
Date: June 19, 2008
|
235
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
2
|
.1
|
|
Arrangement Agreement by and among Hindalco Industries Limited,
AV Aluminum Inc. and Novelis Inc., dated as of February 10,
2007 (incorporated by reference to Exhibit 2.1 to our
Current Report on
Form 8-K
filed on February 13, 2007)
|
|
3
|
.1
|
|
Restated Certificate and Articles of Incorporation of Novelis
Inc. (incorporated by reference to Exhibit 3.1 to our
Form 8-K
filed 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 our Form 10 filed on November 17,
2004 (File
No. 001-32312))
|
|
4
|
.1
|
|
Shareholder Rights Agreement between Novelis Inc. and CIBC
Mellon Trust Company (incorporated by reference to
Exhibit 4.1 to our
Form 10-K
filed on March 30, 2005 (File
No. 001-32312))
|
|
4
|
.2
|
|
First Amendment to the Shareholder Rights Agreement between
Novelis Inc. and CIBC Mellon Trust Company, dated as of
February 10, 2007 (incorporated by reference to
Exhibit 4.1 to our
Form 8-K
filed February 13, 2007 (File
No. 001-32312))
|
|
4
|
.3
|
|
Specimen Certificate of Novelis Inc. Common Shares (incorporated
by reference to Exhibit 4.2 to our Form 10 filed on
December 27, 2004 (File
No. 001-32312))
|
|
4
|
.4
|
|
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
Form 8-K
filed on February 3, 2005
(File No. 001-32312))
|
|
4
|
.5
|
|
Form of Note for
71/4% Senior
Notes due 2015 (incorporated by reference to Exhibit 4.1 to
our
Form S-4
filed on August 3, 2005 (File
No. 333-127139))
|
|
4
|
.6
|
|
Supplemental Indenture, between the Company, Novelis Finances
USA LLC, Novelis South America Holdings LLC, Aluminum Upstream
Holdings LLC and the Bank of New York Trust Company, N.A.
(incorporated by reference to Exhibit 4.6 to our
Post-Effective Amendment No. 1 to our
Form S-4
Registration Statement filed on December 1, 2006 (File
No. 333-127139))
|
|
10
|
.1
|
|
$800 million asset-based lending credit facility (ABL
Facility) dated as of July 6, 2007 among Novelis
Inc., Novelis Corporation as U.S. Borrower, the other U.S.
Subsidiaries of Novelis Inc., Novelis UK Ltd, Novelis AG, AV
Aluminum Inc. as parent guarantor, the other guarantors party
thereto, with the lenders party thereto, ABN AMRO Bank N.V., as
U.S./European issuing bank, swingline lender and administrative
agent, LaSalle Business Credit, LLC, as collateral agent and
funding agent, UBS Securities LLC, as syndication agent, Bank of
America, N.A., National City Business Credit, Inc. and CIT
Business Credit Canada Inc., as documentation agents, ABN AMRO
Bank N.V. Canada Branch, as Canadian issuing bank, Canadian
funding agent and Canadian administrative agent, and ABN AMRO
Incorporated and UBS Securities LLC, as joint lead arrangers and
joint book managers (incorporated by reference to
Exhibit 10.1 to our Quarterly Report on
Form 10-Q
for the period ended September 30, 2007 filed on
November 9, 2007)
(File No. 001-32312)
|
|
10
|
.2
|
|
$960 million term loan facility (Term Loan
Facility) dated as of July 6, 2007 among Novelis
Inc., Novelis Corporation as U.S. Borrower, AV Aluminum Inc., As
Holdings, and the other guarantors party thereto, with the
lenders party thereto, UBS AG, Stamford Branch, as
administrative agent and as collateral agent, UBS Securities
LLC, as syndication agent, ABN AMRO Incorporated, as
documentation agent, and UBS Securities LLC and ABN AMRO
Incorporated as joint lead arrangers and joint book managers
(incorporated by reference to Exhibit 10.2 to our Quarterly
Report on
Form 10-Q
for the period ended September 30, 2007 filed on
November 9, 2007)
(File No. 001-32312)
|
|
10
|
.3
|
|
Intercreditor Agreement dated as of July 6, 2007 by and
among Novelis Inc., Novelis Corporation, Novelis PAE
Corporation, Novelis Finances USA LLC, Novelis South America
Holdings LLC, Aluminum Upstream Holdings LLC, Novelis UK Ltd,
Novelis AG, AV Aluminum Inc., and the subsidiary guarantors
party thereto, as grantors, ABN AMRO BANK N.V., as revolving
credit administrative agent ABN AMRO Bank N.A., acting through
its Canadian branch, as revolving credit Canadian administrative
agent and as revolving credit Canadian funding agent,
La Salle Business Credit, LLC, as revolving credit
collateral agent and as revolving credit funding agent, and UBS
AG, Stamford Branch, as Term Loan administrative agent, and Term
Loan collateral agent (incorporated by reference to
Exhibit 10.3 to our Quarterly Report on
Form 10-Q
for the period ended September 30, 2007 filed on
November 9, 2007) (File
No. 001-32312)
|
236
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.4
|
|
Security Agreement made by Novelis Inc., as Canadian Borrower,
Novelis Corporation, as U.S. Borrower and the guarantors from
time to time party thereto in favor of UBS AG, Stamford branch,
as collateral agent dated as of July 6, 2007 (incorporated
by reference to Exhibit 10.4 to our Quarterly Report on
Form 10-Q
for the period ended September 30, 2007 filed on
November 9, 2007) (File
No. 001-32312)
|
|
10
|
.5
|
|
Security Agreement made by Novelis Inc., as Canadian Borrower,
Novelis Corporation, Novelis PAE Corporation, Novelis Finances
USA LLC, Novelis South America Holdings LLC, Aluminum Upstream
Holdings LLC, as U.S. Borrowers and the guarantors from time to
time party thereto in favor of La Salle Business Credit,
LLC, as collateral agent dated as of July 6, 2007
(incorporated by reference to Exhibit 10.5 to our Quarterly
Report on
Form 10-Q
for the period ended September 30, 2007 filed on
November 9, 2007) (File
No. 001-32312)
|
|
10
|
.6**
|
|
Amended and Restated Metal Supply Agreement between Novelis
Inc., as Purchaser, and Alcan Inc., as Supplier, for the supply
of re-melt aluminum ingot
|
|
10
|
.7**
|
|
Amended and Restated 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
|
|
10
|
.8**
|
|
Amended and Restated Metal Supply Agreement between Novelis
Inc., as Purchaser, and Alcan Inc., as Supplier, for the supply
of sheet ingot in North America
|
|
10
|
.9**
|
|
Amended and Restated Metal Supply Agreement between Novelis
Inc., as Purchaser, and Alcan Inc., as Supplier, for the supply
of sheet ingot in Europe
|
|
10
|
.10*
|
|
Letter Agreement between Novelis Inc. and Edward A. Blechschmidt
dated as of January 16, 2007 (incorporated by reference to
Exhibit 10.1 to our Form
8-K filed on
January 19, 2007)
(File No. 001-32312)
|
|
10
|
.11*
|
|
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
|
.12*
|
|
Employment Letter, dated June 23, 2006, by and between Rick
Dobson and Novelis Inc. (incorporated by reference to
Exhibit 10.50 to our Annual Report on Form
10-K filed
on August 25, 2006 (File
No. 001-32312))
|
|
10
|
.13*
|
|
Addendum to Rick Dobson Offer Letter, dated June 20, 2006,
by and between Rick Dobson and Novelis Inc. (incorporated by
reference to Exhibit 10.51 to our Annual Report on
Form 10-K
filed on August 25, 2006 (File
No. 001-32312))
|
|
10
|
.14*
|
|
Employment Arrangement between Steven Fisher and Novelis Inc. as
described in the
Form 8-K
and
Form 8-K/A
filed on May 21, 2007 and August 15, 2007,
respectively (incorporated by reference to our
Form 8-K
filed on May 21, 2007 and our
Form 8-K/A
filed on August 15, 2007
(File No. 001-32312))
|
|
10
|
.15*
|
|
Letter Agreement, dated October 20, 2006, by and between
Novelis Inc. and Thomas Walpole (incorporated by reference to
Exhibit 10.1 to our
Form 8-K
filed on October 26, 2006
(File No. 001-32312))
|
|
10
|
.16*
|
|
Employment Agreement of Antonio Tadeu Coelho Nardocci dated as
of November 8, 2004
|
|
10
|
.17*
|
|
Employment Agreement of Arnaud de Weert (incorporated by
reference to Exhibit 10.1 to our
Form 8-K
filed on April 3, 2006 (File
No. 001-32312))
|
|
10
|
.18*
|
|
Letter Agreement between Novelis Inc. and David Godsell dated as
of November 10, 2004 (incorporated by reference to
Exhibit 10.1 to our
Form 8-K
filed on October 26, 2006
(File No. 001-32312))
|
|
10
|
.19*
|
|
Form of Change in Control Agreement between Novelis Inc. and
certain executive officers (incorporated by reference to
Exhibit 99.1 to our
Form 8-K
filed on September 27, 2006
(File No. 001-32312))
|
|
10
|
.20*
|
|
Form of Change in Control Agreement between Novelis Inc. and
certain executive officers and key employees (incorporated by
reference to Exhibit 99.2 to our
Form 8-K
filed on September 27, 2006 (File
No. 001-32312))
|
|
10
|
.21*
|
|
Form of Recognition Agreement between Novelis Inc. and certain
executive officers and key employees (incorporated by reference
to Exhibit 99.3 to our
Form 8-K
filed on September 27, 2006 (File
No. 001-32312))
|
237
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.22*
|
|
Form of Amendment to Recognition Agreements (incorporated by
reference to Exhibit 10.1 of our
Form 8-K/A
filed May 8, 2007 (File No. 001-32312))
|
|
10
|
.23*
|
|
Form of SAR Award (incorporated by reference to
Exhibit 10.3 to our
Form 8-K
filed on November 1, 2006 (File
No. 001-32312))
|
|
10
|
.24*
|
|
Novelis Inc. 2006 Incentive Plan, as amended (incorporated by
reference to Exhibit 10.1 to our
Form 8-K
filed on November 1, 2006 (File
No. 001-32312))
|
|
10
|
.25*
|
|
Form of Non-Qualified Stock Option Award (incorporated by
reference to Exhibit 10.2 to our
Form 8-K
filed on November 1, 2006 (File
No. 001-32312))
|
|
10
|
.26*
|
|
Form of Novelis Long-Term Incentive Plan for Fiscal
2008-2010
|
|
10
|
.27*
|
|
Separation and Release Agreement between Novelis Inc. and Rick
Dobson dated August 15, 2007
|
|
10
|
.28*
|
|
Agreement Regarding Termination of Employment between Novelis
Inc. and David Godsell dated as of November 12, 2007
|
|
10
|
.29*
|
|
Separation and Release Agreement between Novelis Inc. and David
Godsell dated November 12, 2007
|
|
10
|
.30
|
|
Form of Indemnity Agreement between Novelis Inc. and Members of
the Board of Directors of Novelis Inc. (incorporated by
reference to Exhibit 10.1 to our Current Report on
Form 8-K
filed on May 21, 2007)
|
|
10
|
.31
|
|
Form of Indemnity Agreement between Novelis Inc. and certain
executive officers dated as of June 27, 2007 (incorporated
by reference to Exhibit 10.1 to our Current Report on
Form 8-K
filed on June 28, 2007(File
No. 001-32312))
|
|
10
|
.32*
|
|
Form of Amended and Restated Novelis Founders Performance Awards
Plan dated March 14, 2006 (incorporated by reference to
Exhibit 10.7 to our
Form 8-K
filed on March 20, 2006
(File No. 001-32312))
|
|
10
|
.33*
|
|
First Amendment to the Amended and Restated Novelis Founders
Performance Awards Plan (incorporated by reference to our
Form 8-K/A
filed May 8, 2007 (File
No. 001-32312))
|
|
10
|
.34*
|
|
Novelis Founders Performance Award Notification for Martha
Brooks dated March 31, 2005 (incorporated by reference to
Exhibit 10.2 to our
Form 8-K
filed on March 21, 2006 (File
No. 001-32312))
|
|
10
|
.35*
|
|
Novelis Founders Performance Award Notification for Kevin
Greenawalt dated March 31, 2005
|
|
10
|
.36*
|
|
Novelis Founders Performance Award Notification for Thomas
Walpole dated March 31, 2005
|
|
10
|
.37*
|
|
Novelis Founders Performance Award Notification for Tadeu
Nardocci dated March 31, 2005
|
|
10
|
.38*
|
|
Novelis Founders Performance Award Notification for David
Godsell dated March 31, 2005
|
|
10
|
.39*
|
|
Form of Novelis Annual Incentive Plan for 2007 2008
|
|
11
|
.1
|
|
Statement regarding computation of per share earnings
(incorporated by reference to Item 8. Financial Statements
and Supplementary Data Note 19
Earnings per Share to the Consolidated and Combined Financial
Statements. (File
No. 001-32312))
|
|
21
|
.1
|
|
List of subsidiaries of Novelis Inc.
|
|
31
|
.1
|
|
Section 302 Certification of Principal Executive Officer
|
|
31
|
.2
|
|
Section 302 Certification of Principal Financial Officer
|
|
32
|
.1
|
|
Section 906 Certification of Principal Executive Officer
|
|
32
|
.2
|
|
Section 906 Certification of Principal Financial Officer
|
|
|
|
* |
|
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. |
238