UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30, 2008
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
001-32312
Novelis Inc.
(Exact name of registrant as
specified in its charter)
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Canada
(State or other jurisdiction
of
incorporation or organization)
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98-0442987
(I.R.S. employer
identification number)
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3399 Peachtree Road NE, Suite 1500
Atlanta, Georgia
(Address of principal
executive offices)
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30326
(Zip
Code)
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Telephone:
(404) 814-4200
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o
No þ
As of July 31, 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.
TABLE OF
CONTENTS
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FINANCIAL INFORMATION
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Financial Statements
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Condensed Consolidated Statements of Operations
and Comprehensive Income (Loss) (unaudited) Three Months Ended
June 30, 2008; May 16, 2007 Through June 30, 2007
(Restated); and April 1, 2007 Through May 15, 2007
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2
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Condensed Consolidated Balance Sheets (unaudited)
As of June 30, 2008 and March 31, 2008 (Restated)
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3
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Condensed Consolidated Statements of Cash Flows
(unaudited) Three Months Ended June 30, 2008;
May 16, 2007 Through June 30, 2007 (Restated); and
April 1, 2007 Through May 15, 2007
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4
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Condensed Consolidated Statement of
Shareholders Equity (unaudited) Three Months Ended
June 30, 2008 (Restated as to opening balance)
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5
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Notes to the Condensed Consolidated Financial
Statements (unaudited)
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6
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Managements Discussion and Analysis of
Financial Condition and Results of Operations
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44
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Quantitative and Qualitative Disclosures About
Market Risk
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71
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Controls and Procedures
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75
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OTHER INFORMATION
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Legal Proceedings
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77
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Exhibits
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79
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EX-10.1 EMPLOYMENT LETTER |
EX-10.2 FORM OF NOVELIS LONG-TERM INCENTIVE PLAN |
EX-31.1 SECTION CERTIFICATION OF PEO |
EX-31.2 SECTION 302 CERTIFICATION OF PFO |
EX-32.1 SECTION 906 CERTIFICATION OF PEO |
EX-32.2 SECTION 906 CERTIFICATION OF PFO |
1
PART I.
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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Novelis
Inc.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (unaudited)
(in millions)
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Three Months
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May 16, 2007
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April 1, 2007
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Ended
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Through
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Through
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June 30, 2008
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June 30, 2007
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May 15, 2007
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(Restated)(A)
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Successor
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Successor
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Predecessor
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Net sales
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$
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3,103
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$
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1,547
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$
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1,281
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Cost of goods sold (exclusive of depreciation and amortization
shown below)
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2,831
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1,436
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1,205
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Selling, general and administrative expenses
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84
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42
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95
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Depreciation and amortization
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116
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53
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28
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Research and development expenses
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12
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13
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6
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Interest expense and amortization of debt issuance
costs net
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40
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25
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26
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(Gain) loss on change in fair value of derivative
instruments net
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(66
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)
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(14
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(20
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Equity in net (income) loss of non-consolidated affiliates
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2
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1
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(1
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Sale transaction fees
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32
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Other (income) expenses net
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22
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11
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4
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3,041
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1,567
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1,375
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Income (loss) before provision (benefit) for taxes on income
(loss) and minority interests share
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62
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(20
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(94
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Provision (benefit) for taxes on income (loss)
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35
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27
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4
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Income (loss) before minority interests share
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27
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(47
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(98
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Minority interests share
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(2
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2
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1
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Net income (loss)
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25
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(45
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(97
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Other comprehensive income (loss) net of tax
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Currency translation adjustment
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10
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(2
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35
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Change in fair value of effective portion of hedges
net
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11
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1
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(1
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Amortization of net actuarial loss for postretirement benefit
plans
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(1
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Other comprehensive income (loss) net of tax
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21
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(1
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33
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Comprehensive income (loss)
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$
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46
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$
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(46
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$
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(64
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(A) |
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See Note 2 Restatement of Financial Statements. |
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
Novelis
Inc.
CONDENSED
CONSOLIDATED BALANCE SHEETS (unaudited)
(in millions, except number of shares)
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As of
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June 30,
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March 31,
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2008
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2008
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(Restated)(A)
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Successor
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Successor
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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296
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$
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326
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Accounts receivable (net of allowances of $1 as of June 30,
2008 and March 31, 2008)
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third parties
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1,577
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1,248
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related parties
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27
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31
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Inventories
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1,577
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1,455
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Prepaid expenses and other current assets
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86
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58
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Current portion of fair value of derivative instruments
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198
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203
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Deferred income tax assets
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111
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125
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Total current assets
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3,872
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3,446
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Property, plant and equipment net
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3,253
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3,357
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Goodwill
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1,868
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1,869
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Intangible assets net
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868
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888
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Investment in and advances to non-consolidated affiliates
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938
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946
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Fair value of derivative instruments net of current
portion
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32
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21
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Deferred income tax assets
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9
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12
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Other long-term assets
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third parties
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92
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102
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related parties
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37
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41
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Total assets
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$
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10,969
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$
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10,682
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities
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Current portion of long-term debt
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$
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14
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$
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15
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Short-term borrowings
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430
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115
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Accounts payable
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third parties
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1,613
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1,582
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related parties
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61
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55
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Accrued expenses and other current liabilities
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805
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850
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Deferred income tax liabilities
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46
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39
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Total current liabilities
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2,969
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2,656
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Long-term debt net of current portion
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2,553
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2,560
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Deferred income tax liabilities
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695
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701
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Accrued postretirement benefits
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435
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421
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Other long-term liabilities
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599
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672
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7,251
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7,010
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Commitments and contingencies
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Minority interests in equity of consolidated affiliates
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149
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149
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Shareholders equity
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Common stock, no par value; unlimited number of shares
authorized; 77,459,658 shares issued and outstanding as of
June 30, 2008 and March 31, 2008
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Additional paid-in capital
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3,497
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3,497
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Retained earnings (Accumulated deficit)
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5
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(20
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Accumulated other comprehensive income (loss)
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67
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46
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Total shareholders equity
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3,569
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3,523
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Total liabilities and shareholders equity
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$
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10,969
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$
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10,682
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(A) |
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See Note 2 Restatement of Financial Statements. |
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
Novelis
Inc.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
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Three Months
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May 16, 2007
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April 1, 2007
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Ended
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Through
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Through
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June 30, 2008
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June 30, 2007
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May 15, 2007
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(Restated)(A)
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Successor
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Successor
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Predecessor
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OPERATING ACTIVITIES
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Net income (loss)
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$
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25
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$
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(45
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)
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$
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(97
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)
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Adjustments to determine net cash provided by (used in)
operating activities:
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Depreciation and amortization
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116
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53
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28
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(Gain) loss on change in fair value of derivative
instruments net
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(66
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)
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(14
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(20
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Deferred income taxes
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10
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14
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(18
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Amortization of debt issuance costs
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1
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1
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Write-off and amortization of fair value adjustments
net
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(64
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)
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(6
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)
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Equity in net (income) loss of non-consolidated affiliates
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2
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1
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(1
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Dividends from non-consolidated affiliates
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4
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Minority interests share
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2
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(2
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(1
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Impairment charges on long-lived assets
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1
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(Gain) loss on sales of property, plant and
equipment net
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(1
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)
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Changes in assets and liabilities:
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Accounts receivable
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|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
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|
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(337
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)
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(59
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)
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(21
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)
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related parties
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(2
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)
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|
|
|
|
|
|
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Inventories
|
|
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(129
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)
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70
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|
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(76
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)
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Prepaid expenses and other current assets
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(29
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)
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5
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|
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(7
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)
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Other long-term assets
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8
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|
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(1
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)
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|
|
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(1
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)
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Accounts payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
63
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|
|
|
|
|
|
|
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(62
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)
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related parties
|
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|
11
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|
|
|
1
|
|
|
|
|
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Accrued expenses and other current liabilities
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|
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(5
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)
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|
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(78
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)
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42
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Accrued postretirement benefits
|
|
|
16
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|
|
|
5
|
|
|
|
|
1
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Other long-term liabilities
|
|
|
27
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|
|
|
12
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|
|
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(2
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)
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|
|
|
|
|
|
|
|
|
|
|
|
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Net cash provided by (used in) operating activities
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|
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(351
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)
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|
|
(44
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)
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|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(33
|
)
|
|
|
(22
|
)
|
|
|
|
(17
|
)
|
Proceeds from sales of property, plant and equipment
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
6
|
|
|
|
1
|
|
|
|
|
1
|
|
Proceeds from loans receivable net
related parties
|
|
|
8
|
|
|
|
4
|
|
|
|
|
|
|
Net proceeds from settlement of derivative instruments
|
|
|
34
|
|
|
|
29
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
16
|
|
|
|
13
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
Principal repayments
|
|
|
(4
|
)
|
|
|
(46
|
)
|
|
|
|
(1
|
)
|
Short-term borrowings net
|
|
|
313
|
|
|
|
83
|
|
|
|
|
60
|
|
Dividends minority interests
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
(7
|
)
|
Debt issuance costs
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
(2
|
)
|
Proceeds from the exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
309
|
|
|
|
115
|
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(26
|
)
|
|
|
84
|
|
|
|
|
(27
|
)
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
1
|
|
Cash and cash equivalents beginning of period
|
|
|
326
|
|
|
|
102
|
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
296
|
|
|
$
|
186
|
|
|
|
$
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
17
|
|
|
$
|
14
|
|
|
|
$
|
13
|
|
Income taxes paid
|
|
$
|
55
|
|
|
$
|
12
|
|
|
|
$
|
9
|
|
Supplemental schedule of non-cash investing and financing
activities related to the Acquisition of Novelis Common Stock
(See Note 1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
|
$
|
(1,244
|
)
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
$
|
(1,866
|
)
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
|
$
|
(859
|
)
|
|
|
|
|
|
Investment in and advances to non-consolidated affiliates
|
|
|
|
|
|
$
|
(610
|
)
|
|
|
|
|
|
Debt
|
|
|
|
|
|
$
|
66
|
|
|
|
|
|
|
|
|
|
(A) |
|
See Note 2 Restatement of Financial Statements. |
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
Novelis
Inc.
CONDENSED
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(unaudited)
(in millions, except number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2008 (Restated)(A)
|
|
|
77,459,658
|
|
|
$
|
|
|
|
$
|
3,497
|
|
|
$
|
(20
|
)
|
|
$
|
46
|
|
|
$
|
3,523
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
25
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
Change in fair value of effective portion of hedges
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2008
|
|
|
77,459,658
|
|
|
$
|
|
|
|
$
|
3,497
|
|
|
$
|
5
|
|
|
$
|
67
|
|
|
$
|
3,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
See Note 2 Restatement of Financial Statements. |
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited)
|
|
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.
Description
of Business and Basis of Presentation
Novelis Inc., formed in Canada on September 21, 2004, and
its subsidiaries, is the worlds leading aluminum rolled
products producer based on shipment volume. We produce aluminum
sheet and light gauge products where the end-use destination of
the products includes the construction and industrial, beverage
and food cans, foil products and transportation markets. As of
June 30, 2008, we had operations on four continents: North
America; Europe; Asia and South America, through 32 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.
The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with our audited
consolidated financial statements and accompanying notes in our
Annual Report on
Form 10-K/A
for the year ended March 31, 2008 filed with the United
States Securities and Exchange Commission (SEC) on
August 11, 2008. The accompanying unaudited condensed
consolidated financial statements have been prepared pursuant to
SEC
Rule 10-01
of
Regulation S-X.
Certain information and note disclosures normally included in
annual financial statements prepared in accordance with
generally accepted accounting principles in the United States of
America (GAAP) have been condensed or omitted pursuant to those
rules and regulations, although we believe that the disclosures
made are adequate to make the information not misleading.
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 pursuant to a plan
of arrangement (the Arrangement) at a price of $44.93 per share.
The aggregate purchase price for all of the Companys
common shares was $3.4 billion and Hindalco also assumed
$2.8 billion of Novelis debt for a total transaction
value of $6.2 billion. Subsequent to completion of the
Arrangement on May 15, 2007, all of our common shares were
indirectly held by Hindalco.
Our acquisition by Hindalco was recorded in accordance with
Staff Accounting Bulletin No. 103, Push Down Basis
of Accounting Required in Certain Limited Circumstances
(SAB No. 103). In the accompanying condensed
consolidated balance sheets, 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 condensed consolidated
financial statements and certain note presentations for the
three months ended June 30, 2007 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 June 30, 2007, labeled Successor). The
accompanying condensed consolidated financial statements include
a black line division which indicates that the Predecessor and
Successor reporting entities shown are not comparable.
6
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Interim
Reporting
The unaudited results of operations for the interim periods
shown in these condensed consolidated financial statements,
including the periods shown as Predecessor and Successor, are
not necessarily indicative of operating results for the entire
fiscal year. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements recognize
all adjustments of a normal recurring nature considered
necessary to fairly state our consolidated financial position as
of June 30, 2008 and March 31, 2008; the consolidated
results of our operations and consolidated cash flows for
(1) the three months ended June 30, 2008 and
(2) the periods from May 16, 2007 through
June 30, 2007 (as restated); and from April 1, 2007
through May 15, 2007; and changes in our consolidated
shareholders equity for the three months ended
June 30, 2008.
Dividends
Our board of directors has declared no dividends 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.
Recently
Adopted Accounting Standards
The following accounting standards have been adopted by us
during the three months ended June 30, 2008.
On April 1, 2008, we adopted FASB Statement No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities including an amendment of FASB Statement
No. 115 (FASB Statement No. 159). FASB Statement
No. 159 permits entities to choose to measure financial
instruments and certain other assets and liabilities at fair
value on an
instrument-by-instrument
basis (the fair value option) with changes in fair
value reported in earnings each reporting period. The fair value
option enables some companies to reduce the volatility in
reported earnings caused by measuring related assets and
liabilities differently without applying the complex hedge
accounting requirements under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities
(FASB Statement No. 133), to achieve similar results.
We already record our derivative contracts and hedging
activities at fair value in accordance with FASB Statement
No. 133. We did not elect the fair value option for any
other financial instruments or certain other financial assets
and liabilities that were not previously required to be measured
at fair value.
On April 1, 2008, we adopted FASB Statement No. 157,
Fair Value Measurements (FASB
Statement No. 157), as it relates to financial assets
and financial liabilities. In February 2008, the FASB issued
FASB Staff
Position No. FAS 157-2,
Effective Date of FASB Statement No. 157, which
delayed our required adoption date of FASB Statement
No. 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at
fair value in the financial statements on at least an annual
basis, until April 1, 2009. Also in February 2008, the FASB
issued FASB Staff Position
No. FAS 157-1,
Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13, which states that FASB
Statement No. 13, Accounting for Leases, and other
accounting pronouncements that address fair value measurements
for purposes of lease classification or measurement under FASB
Statement No. 13 are excluded from the provisions of FASB
Statement No. 157, except for assets and liabilities
related to leases assumed in a business combination that are
required to be measured at fair value under FASB Statement
No. 141 or FASB Statement No. 141 (Revised),
Business Combinations. See Note 15 Fair
Value Measurements regarding our adoption of this standard.
7
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
On April 1, 2008, we adopted FASB 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. Our adoption of this
standard did not have a material impact on our consolidated
financial position, results of operations and cash flows.
Recently
Issued Accounting Standards
The following new accounting standards have been issued, but
have not yet been adopted by us as of June 30, 2008, as
adoption is not required until future reporting periods.
In May 2008, the FASB issued Statement No. 162, The
Hierarchy of Generally Accepted Accounting Principles (FASB
Statement No. 162). 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 April 2008, the FASB issued Staff Position
No. FAS 142-3,
Determination of Useful Life of Intangible Assets, (FSP
FAS 142-3).
FSP
FAS 142-3
amends the factors that should be considered in developing the
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under FASB Statement
No. 142, Goodwill and Other Intangible Assets. FSP
FAS 142-3
also requires expanded disclosure related to the determination
of intangible asset useful lives. FSP
FAS 142-3
is effective for 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 FSP
FAS 142-3
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 (FASB Statement No. 161), an amendment of
FASB Statement No. 133. 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
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 adoption permitted. FASB
Statement No. 161 permits, but does not require,
comparative disclosures for earlier periods upon 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 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
8
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
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, Accounting for Income Taxes, 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
(FASB Statement No. 160), 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.
We have determined that all other recently issued accounting
standards will not have a material impact on our consolidated
financial position, results of operations or cash flows, or do
not apply to our operations.
|
|
2.
|
Restatement
of Financial Statements
|
The Company has restated its consolidated financial statements
as of March 31, 2008 and for the period from May 16,
2007 through March 31, 2008. This restatement corrects
non-cash errors relating to our application of purchase
accounting associated with an equity method investment which led
to a misstatement of our provision for income taxes during the
period we were finalizing our purchase accounting. The impact of
the restatement on the period from May 16, 2007 through
June 30, 2007 represented the correction of other
miscellaneous adjustments related to an overstatement of
deferred income tax expense that were deemed to be not material
by management, either individually or in the aggregate. These
adjustments do not have an impact on our compliance with the
financial covenants under our 7.25% Senior Notes or under
our New Senior Secured Credit Facilities (see
Note 9 Debt to our accompanying condensed
consolidated financial statements). See our
Form 10-K/A
filed with the SEC on August 11, 2008 for details of these
corrections, including the effects of the restatement on the
March 31, 2008 balance sheet.
9
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
The following tables highlight the financial statement effect
related to the above corrections for the period from
May 16, 2007 through June 30, 2007.
Our condensed consolidated statement of operations and
comprehensive income (loss) for the period from May 16,
2007 through June 30, 2007 is restated as follows (in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007 Through June 30, 2007
|
|
|
|
As Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Restatements
|
|
|
Restated
|
|
|
|
Successor
|
|
|
|
|
|
Successor
|
|
|
Net sales
|
|
$
|
1,547
|
|
|
$
|
|
|
|
$
|
1,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
1,436
|
|
|
|
|
|
|
|
1,436
|
|
Selling, general and administrative expenses
|
|
|
42
|
|
|
|
|
|
|
|
42
|
|
Depreciation and amortization
|
|
|
53
|
|
|
|
|
|
|
|
53
|
|
Research and development expenses
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
25
|
|
|
|
|
|
|
|
25
|
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
(14
|
)
|
|
|
|
|
|
|
(14
|
)
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Other (income) expenses net
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,567
|
|
|
|
|
|
|
|
1,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for taxes on income
(loss) and minority interests share
|
|
|
(20
|
)
|
|
|
|
|
|
|
(20
|
)
|
Provision (benefit) for taxes on income (loss)
|
|
|
36
|
|
|
|
(9
|
)
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests share
|
|
|
(56
|
)
|
|
|
9
|
|
|
|
(47
|
)
|
Minority interests share
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(54
|
)
|
|
|
9
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
Change in fair value of effective portion of hedges
net
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) net of tax
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(55
|
)
|
|
$
|
9
|
|
|
$
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Our condensed consolidated statement of cash flows for the
period from May 16, 2007 through June 30, 2007 is
restated as follows (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007 Through June 30, 2007
|
|
|
|
As Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Restatements
|
|
|
Restated
|
|
|
|
Successor
|
|
|
|
|
|
Successor
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(54
|
)
|
|
$
|
9
|
|
|
$
|
(45
|
)
|
Adjustments to determine net cash provided by (used in)
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
53
|
|
|
|
|
|
|
|
53
|
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
(14
|
)
|
|
|
|
|
|
|
(14
|
)
|
Deferred income taxes
|
|
|
23
|
|
|
|
(9
|
)
|
|
|
14
|
|
Write-off and amortization of fair value adjustments
net
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Minority interests share
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
Changes in assets and liabilities (net of effects from
acquisitions and divestitures):
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable third parties
|
|
|
(59
|
)
|
|
|
|
|
|
|
(59
|
)
|
Inventories
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
Prepaid expenses and other current assets
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Other long-term assets
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Accounts payable related parties
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Accrued expenses and other current liabilities
|
|
|
(78
|
)
|
|
|
|
|
|
|
(78
|
)
|
Accrued postretirement benefits
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Other long-term liabilities
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(44
|
)
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(22
|
)
|
|
|
|
|
|
|
(22
|
)
|
Proceeds from sales of assets
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Proceeds from loans receivable net
related parties
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Net proceeds from settlement of derivative instruments
|
|
|
29
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
92
|
|
|
|
|
|
|
|
92
|
|
Principal repayments
|
|
|
(46
|
)
|
|
|
|
|
|
|
(46
|
)
|
Short-term borrowings net
|
|
|
83
|
|
|
|
|
|
|
|
83
|
|
Dividends minority interests
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Debt issuance costs
|
|
|
(13
|
)
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
115
|
|
|
|
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
84
|
|
|
|
|
|
|
|
84
|
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period
|
|
|
102
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
186
|
|
|
$
|
|
|
|
$
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
3.
|
Restructuring
Programs
|
The following table summarizes the activity in our restructuring
reserves (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Exit
|
|
|
|
|
|
|
Severance Reserves
|
|
|
Related Reserves
|
|
|
Total
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
Restructuring
|
|
|
|
Europe
|
|
|
America
|
|
|
Total
|
|
|
Europe
|
|
|
America
|
|
|
Total
|
|
|
Reserves
|
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2008
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
16
|
|
|
$
|
1
|
|
|
$
|
17
|
|
|
$
|
24
|
|
Provisions (recoveries) net
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Cash payments
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Adjustments other
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2008
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
7
|
|
|
$
|
15
|
|
|
$
|
1
|
|
|
$
|
16
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories consist of the following (in millions).
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2008
|
|
|
March 31, 2008
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Finished goods
|
|
$
|
355
|
|
|
$
|
357
|
|
Work in process
|
|
|
609
|
|
|
|
638
|
|
Raw materials
|
|
|
526
|
|
|
|
386
|
|
Supplies
|
|
|
88
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,578
|
|
|
|
1,456
|
|
Allowances
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
1,577
|
|
|
$
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Property,
Plant and Equipment
|
Property, plant and equipment net, consists of the
following (in millions).
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2008
|
|
|
March 31, 2008
|
|
|
|
|
|
|
(Restated)
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Land and property rights
|
|
$
|
260
|
|
|
$
|
258
|
|
Buildings
|
|
|
844
|
|
|
|
826
|
|
Machinery and equipment
|
|
|
2,481
|
|
|
|
2,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,585
|
|
|
|
3,544
|
|
Accumulated depreciation and amortization
|
|
|
(413
|
)
|
|
|
(331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
3,172
|
|
|
|
3,213
|
|
Construction in progress
|
|
|
81
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment net
|
|
$
|
3,253
|
|
|
$
|
3,357
|
|
|
|
|
|
|
|
|
|
|
12
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
May 16, 2007
|
|
|
April 1, 2007
|
|
|
Ended
|
|
Through
|
|
|
Through
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
|
May 15, 2007
|
|
|
Successor
|
|
Successor
|
|
|
Predecessor
|
Depreciation expense related to property, plant and equipment
|
|
|
$103
|
|
|
|
$49
|
|
|
|
|
$28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Goodwill
and Intangible Assets
|
Goodwill
Goodwill by operating segment is as follows (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
As of
|
|
Operating Segment
|
|
March 31, 2008
|
|
|
Adjustments
|
|
|
June 30, 2008
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
Successor
|
|
|
North America
|
|
$
|
1,093
|
|
|
$
|
(1
|
)(A)
|
|
$
|
1,092
|
|
Europe
|
|
|
515
|
|
|
|
|
|
|
|
515
|
|
Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
261
|
|
|
|
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,869
|
|
|
$
|
(1
|
)
|
|
$
|
1,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Adjustment for final payment related to the transfer of pension
plans in Canada for employees who elected to transfer their past
service to Novelis. Plan assets transferred exceeded plan
liabilities assumed by $1 million (See
Note 12 Postretirement Benefit Plans). |
Intangible
Assets
The following table summarizes the components of intangible
assets (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2008
|
|
|
March 31, 2008
|
|
|
|
Successor
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Estimated
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Useful
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Useful
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Life
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Life
|
|
|
Tradenames
|
|
$
|
152
|
|
|
$
|
(9
|
)
|
|
$
|
143
|
|
|
|
20 years
|
|
|
$
|
152
|
|
|
$
|
(6
|
)
|
|
$
|
146
|
|
|
|
20 years
|
|
Technology
|
|
|
169
|
|
|
|
(13
|
)
|
|
|
156
|
|
|
|
15 years
|
|
|
|
169
|
|
|
|
(10
|
)
|
|
|
159
|
|
|
|
15 years
|
|
Customer-related intangible assets
|
|
|
482
|
|
|
|
(27
|
)
|
|
|
455
|
|
|
|
20 years
|
|
|
|
484
|
|
|
|
(21
|
)
|
|
|
463
|
|
|
|
20 years
|
|
Favorable energy supply contract
|
|
|
124
|
|
|
|
(17
|
)
|
|
|
107
|
|
|
|
9.5 years
|
|
|
|
124
|
|
|
|
(13
|
)
|
|
|
111
|
|
|
|
9.5 years
|
|
Other favorable contracts
|
|
|
15
|
|
|
|
(8
|
)
|
|
|
7
|
|
|
|
3.3 years
|
|
|
|
15
|
|
|
|
(6
|
)
|
|
|
9
|
|
|
|
3.3 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
942
|
|
|
$
|
(74
|
)
|
|
$
|
868
|
|
|
|
17.2 years
|
|
|
$
|
944
|
|
|
$
|
(56
|
)
|
|
$
|
888
|
|
|
|
17.2 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
13
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
consumed. All other intangible assets are amortized using the
straight-line method over their estimated useful lives.
The components of amortization expense related to intangible
assets are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Total Amortization expense related to intangible assets
|
|
$
|
18
|
|
|
$
|
7
|
|
|
|
$
|
|
|
Less: Amortization expense related to intangible assets included
in Cost of goods sold(A)
|
|
|
5
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to intangible assets included in
Depreciation and amortization
|
|
$
|
13
|
|
|
$
|
4
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 (remaining nine months)
|
|
$
|
46
|
|
2010
|
|
|
60
|
|
2011
|
|
|
56
|
|
2012
|
|
|
55
|
|
2013
|
|
|
55
|
|
|
|
7.
|
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 June 30, 2008, and which we
account for using the equity method. We have no material
investments in affiliates 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
|
%
|
14
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
The following table summarizes the condensed results of
operations of our equity method affiliates (on a 100% basis, in
millions) on a historical basis of accounting. These results do
not include the incremental depreciation and amortization
expense that we record in our equity method accounting, which
arises as a result of the amortization of fair value adjustments
we made to our investments in non-consolidated affiliates due to
the Arrangement. For the three months ended June 30, 2008
and the period from May 16, 2007 through June 30,
2007, we recorded incremental depreciation and amortization
expense, net of tax of $9 million and $3 million,
respectively, as part of our equity method accounting for these
affiliates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
May 16, 2007
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
Through
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
May 15, 2007
|
|
|
Net sales
|
|
$
|
157
|
|
|
$
|
85
|
|
|
$
|
45
|
|
Costs, expenses and provisions for taxes on income
|
|
|
142
|
|
|
|
81
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15
|
|
|
$
|
4
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the accompanying condensed consolidated financial
statements are transactions and balances arising from business
we conduct with these non-consolidated affiliates, which we
classify as related party transactions and balances. We earned
less than $1 million of interest income on a loan due from
Aluminum Norf GmbH during each of the following periods: the
three months ended June 30, 2008; the period from
May 16, 2007 through June 30, 2007 and the period from
April 1, 2007 through May 15, 2007. The following
table describes the nature and amounts of significant
transactions that we had with related parties (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Purchases of tolling services and electricity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminium Norf GmbH(A)
|
|
$
|
71
|
|
|
$
|
41
|
|
|
|
$
|
21
|
|
Consorcio Candonga(B)
|
|
|
3
|
|
|
|
2
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchases from related parties
|
|
$
|
74
|
|
|
$
|
43
|
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
The following table describes the period-end account balances
that we have with these non-consolidated affiliates, shown as
related party balances in the accompanying condensed
consolidated balance sheets (in millions). We have no other
material related party balances.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2008
|
|
|
March 31, 2008
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Accounts receivable(A)
|
|
$
|
27
|
|
|
$
|
31
|
|
Other long-term receivables(A)
|
|
$
|
37
|
|
|
$
|
41
|
|
Accounts payable(B)
|
|
$
|
61
|
|
|
$
|
55
|
|
|
|
|
(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. |
15
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
8.
|
Accrued
Expenses and Other Current Liabilities
|
Accrued expenses and other current liabilities are comprised of
the following (in millions).
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2008
|
|
|
March 31, 2008
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Accrued compensation and benefits
|
|
$
|
125
|
|
|
$
|
141
|
|
Accrued settlement of legal claim
|
|
|
39
|
|
|
|
39
|
|
Accrued interest payable
|
|
|
41
|
|
|
|
15
|
|
Accrued income taxes
|
|
|
8
|
|
|
|
35
|
|
Current portion of fair value of unfavorable sales contracts
|
|
|
233
|
|
|
|
242
|
|
Current portion of fair value of derivative instruments
|
|
|
120
|
|
|
|
148
|
|
Other current liabilities
|
|
|
239
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
$
|
805
|
|
|
$
|
850
|
|
|
|
|
|
|
|
|
|
|
Debt consists of the following (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
June 30, 2008
|
|
|
|
March 31, 2008
|
|
|
|
|
|
|
|
|
|
Unamortized
|
|
|
|
|
|
|
|
|
|
Unamortized
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
|
|
|
Fair Value
|
|
|
Carrying
|
|
|
|
Rates(A)
|
|
|
Principal
|
|
|
Adjustments(B)
|
|
|
Value
|
|
|
|
Principal
|
|
|
Adjustments(B)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
Novelis Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.25% Senior Notes, due February 2015
|
|
|
7.25
|
%
|
|
$
|
1,399
|
|
|
$
|
65
|
|
|
$
|
1,464
|
|
|
|
$
|
1,399
|
|
|
$
|
67
|
|
|
$
|
1,466
|
|
Floating rate Term Loan facility, due July 2014
|
|
|
4.79
|
%
|
|
|
297
|
|
|
|
|
|
|
|
297
|
|
|
|
|
298
|
|
|
|
|
|
|
|
298
|
|
Novelis Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate Term Loan facility, due July 2014
|
|
|
4.79
|
%(C)
|
|
|
653
|
|
|
|
|
|
|
|
653
|
|
|
|
|
655
|
|
|
|
|
|
|
|
655
|
|
Novelis Switzerland S.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation, due January 2020 (Swiss francs (CHF)
53 million)
|
|
|
7.50
|
%
|
|
|
52
|
|
|
|
(3
|
)
|
|
|
49
|
|
|
|
|
54
|
|
|
|
(4
|
)
|
|
|
50
|
|
Capital lease obligation, due August 2011 (CHF 3 million)
|
|
|
2.49
|
%
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Novelis Korea Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loan, due October 2010
|
|
|
5.44
|
%
|
|
|
100
|
|
|
|
|
|
|
|
100
|
|
|
|
|
100
|
|
|
|
|
|
|
|
100
|
|
Bank loans, due September 2008 through June 2011 (KRW
1 billion)
|
|
|
3.56
|
%(D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt, due April 2008 through December 2012
|
|
|
1.64
|
%(D)
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
|
|
|
|
2,505
|
|
|
|
62
|
|
|
|
2,567
|
|
|
|
|
2,512
|
|
|
|
63
|
|
|
|
2,575
|
|
Less: current portion
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt net of current portion
|
|
|
|
|
|
$
|
2,491
|
|
|
$
|
62
|
|
|
$
|
2,553
|
|
|
|
$
|
2,497
|
|
|
$
|
63
|
|
|
$
|
2,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
|
(A) |
|
Interest rates are as of June 30, 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. |
|
(C) |
|
Excludes the effect of any related interest rate swaps. See
New Senior Secured Credit Facilities. |
|
(D) |
|
Weighted average interest rate. |
New
Senior Secured Credit Facilities
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).
We incurred debt issuance costs on our New Credit Facilities
totaling $32 million. 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
$25 million and $27 million as of June 30, 2008
and March 31, 2008, respectively.
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.
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. Due to
the change in the market price of our senior notes from 105.25%
as of May 14, 2007 to 94.25% as of June 30, 2008, the
estimated fair value of this debt has decreased
$155 million to $1.318 billion.
Short-Term
Borrowings and Lines of Credit
As of June 30, 2008, our short-term borrowings were
$430 million consisting of (1) $359 million of
short-term loans under our ABL facility, (2) a
$40 million short-term loan in Korea and
(3) $31 million in bank overdrafts. As of
June 30, 2008, $30 million of our ABL facility was
utilized for letters of credit and we had $411 million in
remaining availability under this revolving credit facility.
17
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
As of June 30, 2008, we had an additional $158 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 3.63% and 4.12% as of June 30,
2008 and March 31, 2008, respectively.
|
|
10.
|
Accumulated
Other Comprehensive Income (Loss)
|
Other comprehensive income (loss) is comprised of the following
(in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Net change in foreign currency translation adjustments
|
|
$
|
10
|
|
|
$
|
(13
|
)
|
|
|
$
|
31
|
|
Net change in fair value of effective portion of hedges
|
|
|
19
|
|
|
|
2
|
|
|
|
|
(1
|
)
|
Amortization of net actuarial loss for postretirement benefit
plans
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss), before income tax effect
|
|
|
29
|
|
|
|
(11
|
)
|
|
|
|
29
|
|
Income tax effect
|
|
|
(8
|
)
|
|
|
10
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
21
|
|
|
$
|
(1
|
)
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), net of income tax
effects, is comprised of the following (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2008
|
|
|
|
March 31, 2008
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
Successor
|
|
|
|
Successor
|
|
|
Foreign currency translation adjustments
|
|
$
|
69
|
|
|
|
$
|
59
|
|
Fair value of effective portion of hedges net
|
|
|
11
|
|
|
|
|
|
|
Postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
Pension and other benefits
|
|
|
(13
|
)
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
$
|
67
|
|
|
|
$
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
Share-Based
Compensation
|
Novelis
Long-Term Incentive Plan
In June 2008, our board of directors authorized the Novelis
Long-Term Incentive Plan FY 2009 FY 2012 (2009 LTIP)
covering the performance period from April 1, 2008 through
March 31, 2012. Under the 2009 LTIP, phantom stock
appreciation rights (SARs) are to be granted to certain of our
executive officers and key employees. The SARs will vest at the
rate of 25% per year, subject to performance criteria (see
below) and expire seven years from their grant date. Each SAR is
to be settled in cash based on the difference between the market
value of one Hindalco share on the date of grant compared to the
date of exercise, converted from Indian rupees to
U.S. dollars at the time of exercise. The amount of cash
paid would be limited to (i) 2.5 times the target payout if
exercised within one year of vesting or (ii) 3 times the
target payout if exercised after one year of vesting. The SARs
do not transfer any shareholder rights in Hindalco to a
participant. As of June 30, 2008, no SARs have been awarded.
18
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
The performance criterion for vesting is based on the actual
overall Novelis Operating Earnings before Interest,
Depreciation, Amortization and Taxes (Operating EBITDA, as
defined in the 2009 LTIP) compared to the target Operating
EBITDA established and approved each fiscal year. The minimum
threshold for vesting each year is 75% of each annual target
Operating EBITDA, at which point 75% of the SARs for that period
would vest, with an equal pro rata amount of SARs vesting
through 100% achievement of the target.
Pre-Acquisition
Share-Based Compensation Expense
As a result of our acquisition by Hindalco on May 15, 2007,
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. Compensation expense
resulting from the accelerated vesting of plan awards, totaling
$45 million is included in Selling, general and
administrative expenses in our condensed consolidated
statement of operations for the period from April 1, 2007
through May 15, 2007.
Total Share-Based Compensation Expense for the respective
periods is presented in the table below (in millions). These
amounts are included in Selling, general and administrative
expenses in our condensed consolidated statements of
operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Recognition Awards
|
|
$
|
0.1
|
|
|
$
|
0.4
|
|
|
|
$
|
1.5
|
|
Novelis 2006 Incentive Plan (stock options)
|
|
|
n.a.
|
|
|
|
n.a.
|
|
|
|
|
14.5
|
|
Novelis 2006 Incentive Plan (SARs)
|
|
|
n.a.
|
|
|
|
n.a.
|
|
|
|
|
5.6
|
|
Novelis Conversion Plan of 2005
|
|
|
n.a.
|
|
|
|
n.a.
|
|
|
|
|
23.8
|
|
Stock Price Appreciation Unit Plan
|
|
|
n.a.
|
|
|
|
n.a.
|
|
|
|
|
(0.5
|
)
|
Deferred Share Unit Plan for Non-Executive Directors
|
|
|
n.a.
|
|
|
|
n.a.
|
|
|
|
|
0.2
|
|
Novelis Founders Performance Awards
|
|
|
n.a.
|
|
|
|
n.a.
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Share-Based Compensation Expense
|
|
$
|
0.1
|
|
|
$
|
0.4
|
|
|
|
$
|
45.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n.a. not applicable
19
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
12.
|
Postretirement
Benefit Plans
|
Components of net periodic benefit cost for all of our
significant postretirement benefit plans are shown in the table
below (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit Plans
|
|
|
Other Postretirement Benefit Plans
|
|
|
|
Three Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Service cost
|
|
$
|
10
|
|
|
$
|
6
|
|
|
|
$
|
6
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
|
$
|
1
|
|
Interest cost
|
|
|
15
|
|
|
|
6
|
|
|
|
|
6
|
|
|
|
3
|
|
|
|
1
|
|
|
|
|
1
|
|
Expected return on assets
|
|
|
(13
|
)
|
|
|
(5
|
)
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment/settlement losses
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
13
|
|
|
$
|
7
|
|
|
|
$
|
7
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected long-term rate of return on plan assets is 6.9% in
fiscal 2009.
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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Funded pension plans
|
|
$
|
4
|
|
|
$
|
4
|
|
|
|
$
|
4
|
|
Unfunded pension plans
|
|
|
4
|
|
|
|
2
|
|
|
|
|
2
|
|
Savings and defined contribution pension plans
|
|
|
5
|
|
|
|
2
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contributions
|
|
$
|
13
|
|
|
$
|
8
|
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the remainder of fiscal 2009, we expect to contribute an
additional $31 million to our funded pension plans,
$13 million to our unfunded pension plans and
$13 million to our savings and defined contribution plans.
During the quarter ended June 30, 2008, we finalized the
pension transfer in Canada for those employees who elected to
transfer their past service from Alcan to Novelis. During the
quarter, Alcan transferred pension assets of $50 million
and past service liability of $49 million to the Novelis
Pension Plan (Canada). We recorded the $1 million
difference between transferred plan assets and liabilities as an
adjustment to Goodwill (see Note 6
Goodwill and Intangible Assets).
20
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
13.
|
Currency
Losses (Gains)
|
The following currency losses (gains) are included in the
accompanying condensed consolidated statements of operations (in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Net loss (gain) on change in fair value of currency derivative
instruments(A)
|
|
$
|
(32
|
)
|
|
$
|
(16
|
)
|
|
|
$
|
(10
|
)
|
Net loss (gain) on translation of monetary assets and
liabilities(B)
|
|
|
20
|
|
|
|
7
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(12
|
)
|
|
$
|
(9
|
)
|
|
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 condensed consolidated balance sheets (net of tax
effect and in millions).
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
May 16, 2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
|
June 30, 2008
|
|
|
March 31, 2008
|
|
|
|
|
|
|
(Restated)
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Cumulative currency translation adjustment beginning
of period
|
|
$
|
59
|
|
|
$
|
|
|
Effect of changes in exchange rates
|
|
|
10
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
Cumulative currency translation adjustment end of
period
|
|
$
|
69
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
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 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 condensed consolidated balance sheets.
Our condensed consolidated statement of operations for the three
months ended June 30, 2008 includes a gain of
$22 million presented in Other comprehensive income
(loss) net of tax for the change in fair value
of the effective portion of our cash flow hedges. As of
June 30, 2008, we expect to realize $3 million of
effective net gains during the next twelve months. The maximum
period over which we have hedged our exposure to cash flow
variability is through November 2016.
For the three months ended June 30, 2008, we recognized
gains of $38 million presented in Other comprehensive
income (loss) net of tax for the change in fair
value of the effective portion of our net investment hedges. As
of June 30, 2008, we expect to realize $10 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.
21
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
The fair values of our financial instruments and commodity
contracts as of June 30, 2008 and March 31, 2008 were
as follows (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2008
|
|
|
|
Maturity Dates
|
|
|
|
|
|
|
|
Net Fair
|
|
|
|
(Fiscal Year)
|
|
Assets
|
|
|
Liabilities
|
|
|
Value
|
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
2009 through 2012
|
|
$
|
50
|
|
|
$
|
(77
|
)
|
|
$
|
(27
|
)
|
Cross-currency swaps
|
|
2009 through 2015
|
|
|
7
|
|
|
|
(159
|
)
|
|
|
(152
|
)
|
Interest rate currency swaps
|
|
2009 through 2011
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
Interest rate swaps
|
|
2009 through 2010
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Aluminum forward contracts
|
|
2009 through 2011
|
|
|
122
|
|
|
|
(28
|
)
|
|
|
94
|
|
Aluminum options
|
|
2009 through 2011
|
|
|
6
|
|
|
|
(4
|
)
|
|
|
2
|
|
Electricity swap
|
|
2017
|
|
|
22
|
|
|
|
|
|
|
|
22
|
|
Embedded derivative instruments
|
|
2009
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Natural gas swaps
|
|
2009 through 2010
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value
|
|
|
|
|
230
|
|
|
|
(277
|
)
|
|
|
(47
|
)
|
Less: current portion(A)
|
|
|
|
|
198
|
|
|
|
(120
|
)
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent portion(A)
|
|
|
|
$
|
32
|
|
|
$
|
(157
|
)
|
|
$
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The amounts of the current and long-term portions of fair values
under assets are each presented on the face of our accompanying
condensed 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 condensed consolidated balance
sheets. |
22
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
15.
|
Fair
Value Measurements
|
FASB Statement No. 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about
fair value measurements. The provisions of this standard apply
to other accounting pronouncements that require or permit fair
value measurements and are to be applied prospectively with
limited exceptions. Our adoption of FASB Statement No. 157
on April 1, 2008 resulted in (1) a gain of less than
$1 million which is included in (Gain) loss on change in
fair value of derivative instruments net in our
condensed consolidated statement of operations, (2) a
$1 million decrease to the fair value of effective portion
of hedges net included in Accumulated other
comprehensive income (loss) and (3) a $35 million
increase to the foreign currency translation adjustment included
in Accumulated other comprehensive income (loss) in our
condensed consolidated balance sheet during the quarter ended
June 30, 2008. These adjustments are primarily due to the
inclusion of nonperformance risk (i.e., credit spreads) in our
valuation models related to certain of our cross-currency swap
derivative instruments (see Note 14 Financial
Instruments and Commodity Contracts).
FASB Statement No. 157 defines fair value as the price that
would be received to sell an asset or paid to transfer a
liability (an exit price) in an orderly transaction between
market participants at the measurement date. FASB Statement
No. 157 will be the single source in GAAP for the
definition of fair value, except for the fair value of leased
property as defined in FASB Statement No. 13, for purposes
of lease classification or measurement. FASB Statement
No. 157 establishes a fair value hierarchy that
distinguishes between (1) market participant assumptions
developed based on market data obtained from independent sources
(observable inputs) and (2) an entitys own
assumptions about market participant assumptions developed based
on the best information available in the circumstances
(unobservable inputs). The fair value hierarchy consists of
three broad levels, which gives the highest priority to
unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair
value hierarchy under FASB Statement No. 157 are described
as follows:
Level 1 Unadjusted quoted prices in
active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities;
Level 2 Inputs other than quoted prices
included within Level 1 that are observable for the asset
or liability, either directly or indirectly; and
Level 3 Inputs that are unobservable for
the asset or liability.
The following section describes the valuation methodologies we
used to measure our various financial instruments at fair value,
including an indication of the level in the fair value hierarchy
in which each instrument is generally classified:
Derivative
contracts
For certain of our derivative contracts whose fair values are
based upon trades in liquid markets, such as aluminum forward
contracts and options, valuation model inputs can generally be
verified and valuation techniques do not involve significant
judgment. The fair values of such financial instruments are
generally classified within Level 2 of the fair value
hierarchy.
The majority of our derivative contracts are valued using
industry-standard models that use observable market inputs as
their basis, such as time value, forward interest rates,
volatility factors, and current (spot) and forward market prices
for foreign exchange rates. We generally classify these
instruments within Level 2 of the valuation hierarchy. Such
derivatives include interest rate swaps, cross currency swaps,
foreign currency forward contracts and certain energy-related
forward contracts (e.g., natural gas).
23
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
We classify derivative contracts that are valued based on models
with significant unobservable market inputs as Level 3 of
the valuation hierarchy. These derivatives include certain of
our energy-related forward contracts (e.g., electricity) and
certain foreign currency forward contracts. Models for these
fair value measurements include inputs based on estimated future
prices for periods beyond the term of the quoted prices.
FASB Statement No. 157 requires that for Level 2 and 3
of the fair value hierarchy, where appropriate, valuations are
adjusted for various factors such as liquidity, bid/offer
spreads and credit considerations (nonperformance risk).
The following table presents our assets and liabilities that are
measured and recognized at fair value on a recurring basis
classified under the appropriate level of the fair value
hierarchy as of June 30, 2008 (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Derivative Instruments
|
|
$
|
|
|
|
$
|
208
|
|
|
$
|
22
|
|
|
$
|
230
|
|
Liabilities Derivative Instruments
|
|
$
|
|
|
|
$
|
(270
|
)
|
|
$
|
(7
|
)
|
|
$
|
(277
|
)
|
Financial instruments classified as Level 3 in the fair
value hierarchy represent derivative contracts (primarily
energy-related and certain foreign currency forward contracts)
in which at least one significant unobservable input is used in
the valuation model. The following table presents a
reconciliation of activity for such derivative contracts on a
net basis (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized/
|
|
Net Realized/
|
|
|
|
|
|
|
|
Net Change in
|
|
|
|
|
Unrealized
|
|
Unrealized Gains
|
|
|
|
|
|
|
|
Unrealized Gains
|
|
|
Beginning
|
|
Gains
|
|
(Losses) Included
|
|
Purchases,
|
|
Transfers
|
|
Ending
|
|
(Losses) Relating to
|
|
|
Balance
|
|
(Losses)
|
|
in Other
|
|
Issuances
|
|
in and/or
|
|
Balance
|
|
Instruments Still
|
|
|
April 1,
|
|
Included in
|
|
Comprehensive
|
|
and
|
|
(Out) of
|
|
June 30,
|
|
Held at June 30,
|
|
|
2008
|
|
Earnings(B)
|
|
Income (Loss)(C)
|
|
Settlements
|
|
Level 3
|
|
2008
|
|
2008(D)
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments(A)
|
|
|
$11
|
|
|
|
$(1
|
)
|
|
|
$9
|
|
|
|
$(5
|
)
|
|
|
$1
|
|
|
|
$15
|
|
|
|
$7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Represents derivative assets net of derivative liabilities. |
|
(B) |
|
Included in (Gain) loss on change in fair value of derivative
instruments net. |
|
(C) |
|
Included in Change in fair value of effective portion of
hedges net in the accompanying condensed
consolidated statement of shareholders equity. |
|
(D) |
|
Represents unrealized gains (losses) relating to assets and
liabilities classified as Level 3 included in (Gain)
loss on change in fair value of derivative instruments
net. |
24
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
16.
|
Other
(Income) Expenses Net
|
Other (income) expenses net is comprised of the
following (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Exchange (gains) losses net
|
|
$
|
20
|
|
|
$
|
7
|
|
|
|
$
|
4
|
|
Restructuring charges (recoveries) net
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
1
|
|
Impairment charges on long-lived assets
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on disposal of property, plant and
equipment net
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Other net
|
|
|
3
|
|
|
|
3
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expenses net
|
|
$
|
22
|
|
|
$
|
11
|
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We provide for income taxes using the liability method in
accordance with FASB Statement No. 109, Accounting for
Income Taxes. In accordance with APB Opinion No. 28,
Interim Financial Reporting, and FASB Interpretation
No. 18, Accounting for Income Taxes in Interim
Periods, the provision for taxes on income recognizes our
estimate of the effective tax rate expected to be applicable for
the full fiscal year, adjusted for the impact of any discrete
events, which are reported in the period in which they occur.
Each quarter, we re-evaluate our estimated tax expense for the
year and make adjustments for changes in the estimated tax rate.
Additionally, we evaluate the realizability of our deferred tax
assets on a quarterly basis. Our evaluation considers all
positive and negative evidence and factors, such as the
scheduled reversal of temporary differences, historical and
projected future taxable income or losses, and prudent and
feasible tax planning strategies.
The Provision (benefit) for taxes on income (loss) for
the three months ended June 30, 2008 was based on the
estimated effective tax rates applicable for the fiscal year
ending March 31, 2009, after considering items specifically
related to the interim period. The Provision (benefit) for
taxes on income (loss) for (1) the periods from
May 16, 2007 through June 30, 2007 (Successor) (as
restated) and April 1, 2007 through May 15, 2007
(Predecessor) were based on the estimated effective tax rates
applicable for the year ended March 31, 2008, after
considering items specifically related to the interim periods.
25
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
A reconciliation of the Canadian statutory tax rates to our
effective tax rates is as follows (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Pre-tax income (loss) before equity in net (income) loss of
non-consolidated affiliates and minority interests share
|
|
$
|
64
|
|
|
$
|
(19
|
)
|
|
|
$
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian statutory tax rate
|
|
|
31
|
%
|
|
|
33
|
%
|
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) at the Canadian statutory rate
|
|
$
|
20
|
|
|
$
|
(6
|
)
|
|
|
$
|
(31
|
)
|
Increase (decrease) for taxes on income (loss) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange translation items
|
|
|
9
|
|
|
|
19
|
|
|
|
|
23
|
|
Exchange remeasurement of deferred income taxes
|
|
|
20
|
|
|
|
3
|
|
|
|
|
3
|
|
Change in valuation allowances
|
|
|
3
|
|
|
|
21
|
|
|
|
|
13
|
|
Expense/income items with no tax effect net
|
|
|
(4
|
)
|
|
|
(11
|
)
|
|
|
|
(9
|
)
|
Enacted tax rate changes
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
Tax rate differences on foreign earnings
|
|
|
(14
|
)
|
|
|
2
|
|
|
|
|
2
|
|
Uncertain tax positions
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Other net
|
|
|
|
|
|
|
2
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for taxes on income (loss)
|
|
$
|
35
|
|
|
$
|
27
|
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
55
|
%
|
|
|
(142
|
)%
|
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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; and
(4) 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.
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.
During the quarter ended June 30, 2008, our unrecognized
tax benefits increased less than $1 million as a result of
tax positions taken during a prior period. Our reserves for
uncertain tax positions totaled $61 million as of both
June 30, 2008 and March 31, 2008. As of both
June 30, 2008 and March 31, 2008, the total amount of
unrecognized tax benefits that, if recognized, would affect the
effective income tax rate in future periods based on anticipated
settlement dates is $44 million.
26
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
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 examinations will result in a payment in the range of up
to $4 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
$14 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
June 30, 2008 and March 31, 2008, we had
$16 million and $14 million accrued for potential
interest on income taxes, respectively. For the three months
ended June 30, 2008 and for the periods from May 16,
2007 through June 30, 2007; and from April 1, 2007
through May 15, 2007; our Provision (benefit) for taxes
on income (loss) included a charge for an additional
$2 million, $2 million and less than $1 million
of potential interest, respectively.
|
|
18.
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
May 16, 2007
|
|
|
April 1, 2007
|
|
|
Ended
|
|
Through
|
|
|
Through
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
|
May 15, 2007
|
|
|
Successor
|
|
Successor
|
|
|
Predecessor
|
Purchases from Alcan as a percentage of total metal
purchases in kt(A)
|
|
|
35
|
%
|
|
|
34
|
%
|
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 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
27
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
funded, $39 million is in dispute with and under further
review by certain of our insurance carriers. In the quarter
ended September 30, 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 September 30, 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 June 30, 2008 and March 31, 2008.
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.
28
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
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 States Court of Appeals for
the Eleventh Circuit and filed its appellate brief on
July 11, 2008. On August 13, 2008, Novelis Corporation
filed its response brief with the United States Court of Appeals
for the Eleventh 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. (Anheuser-Busch) in federal court
in Ohio. Anheuser-Busch subsequently filed suit against Novelis
Corporation and the Company in federal court in Missouri. On
January 3, 2007, Anheuser-Buschs suit was transferred
to the Ohio federal court.
Novelis Corporation alleged that Anheuser-Busch 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 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 asked for a declaratory
judgment that Anheuser-Busch 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 filed a motion for
summary judgment. On May 22, 2008, the court granted
Anheuser-Buschs motion for summary judgment. Novelis
Corporation filed a notice of appeal with the United States
Court of Appeals for the Sixth Circuit on June 20, 2008.
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. 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.
29
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
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, management
and the board of the joint venture are conducting their
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
June 30, 2008 will be approximately $47 million. Of
this amount, $33 million is included in Other long-term
liabilities, with the remaining $14 million included in
Accrued expenses and other current liabilities in our
condensed consolidated balance sheet as of June 30, 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 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.
30
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Brazil
Tax Matters
Primarily as a result of legal proceedings with Brazils
Ministry of Treasury regarding certain taxes in South America,
as of June 30, 2008 and March 31, 2008, we had cash
deposits aggregating approximately $42 million and
$36 million, respectively, in judicial depository accounts
pending finalization of the related cases. The depository
accounts are in the name of the Brazilian government and will be
expended towards these legal proceedings or released to us,
depending on the outcome of the legal cases. These deposits are
included in Other long-term assets third parties
in our accompanying condensed consolidated balance sheets.
In addition, we are involved in several disputes with
Brazils 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 $8 million to
$105 million as of June 30, 2008. In total, these
reserves approximate $128 million and $111 million as
of June 30, 2008 and March 31, 2008, respectively, and
are included in Other long-term liabilities in our
accompanying condensed consolidated balance sheets.
On July 16, 2008, the second instance court in Brazil ruled
in favor of the Ministry of Treasury in the amount of
$5.5 million in one of these tax disputes. We have
30 days to file a notice of appeal with the court and are
currently reviewing the courts order to understand the
reasoning behind the decision and evaluate our grounds for
appeal.
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 condensed consolidated financial statements,
all liabilities associated with trade payables and short-term
debt facilities for these entities are already included in our
condensed consolidated balance sheets.
The following table discloses information about our obligations
under guarantees of indebtedness of others as of June 30,
2008 (in millions). We did not have any obligations under
guarantees of indebtedness related to our majority-owned
subsidiaries as of June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
Liability
|
|
|
Potential
|
|
Carrying
|
Type of Entity
|
|
Future Payment
|
|
Value
|
|
Wholly-owned subsidiaries
|
|
$
|
83
|
|
|
$
|
60
|
|
Aluminium Norf GmbH
|
|
$
|
16
|
|
|
$
|
|
|
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.
31
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
19.
|
Segment
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.
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 recoveries (charges) net;
(i) gains or losses on sales 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 to our
consolidated and combined financial statements included in our
Annual Report on
Form 10-K/A
for the year ended March 31, 2008.
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 condensed consolidated
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.
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 11 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.
|
Adjustment to Eliminate Proportional
Consolidation. The financial information for our
segments includes the results of our non-consolidated affiliates
on a proportionately consolidated basis, which is consistent
with the way we manage our business segments. However, under
GAAP, these non-consolidated affiliates are accounted for using
the equity method of accounting. Therefore, in order to
reconcile the financial information for the segments shown in
the tables below to the relevant GAAP-based measures, we
32
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
must remove our proportional share of each line item that we
included in the segment amounts. See Note 7
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
|
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
$
|
3,996
|
|
|
$
|
4,231
|
|
|
$
|
1,129
|
|
|
$
|
1,544
|
|
|
$
|
(193
|
)
|
|
$
|
262
|
|
|
$
|
10,969
|
|
March 31, 2008 (Restated)
|
|
$
|
3,888
|
|
|
$
|
4,171
|
|
|
$
|
1,081
|
|
|
$
|
1,478
|
|
|
$
|
(199
|
)
|
|
$
|
263
|
|
|
$
|
10,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Proportional
|
|
|
Corporate
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Consolidation
|
|
|
and Other
|
|
|
Total
|
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (to third parties)
|
|
$
|
1,083
|
|
|
$
|
1,218
|
|
|
$
|
510
|
|
|
$
|
295
|
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
$
|
3,103
|
|
Intersegment sales
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Segment Income (Loss)
|
|
|
42
|
|
|
|
111
|
|
|
|
31
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
231
|
|
Depreciation and amortization
|
|
|
42
|
|
|
|
63
|
|
|
|
15
|
|
|
|
17
|
|
|
|
(22
|
)
|
|
|
1
|
|
|
|
116
|
|
Capital expenditures
|
|
|
7
|
|
|
|
19
|
|
|
|
5
|
|
|
|
6
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Proportional
|
|
|
Corporate
|
|
|
|
|
May 16, 2007 Through June 30, 2007
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Consolidation
|
|
|
and Other
|
|
|
Total
|
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (to third parties)
|
|
$
|
574
|
|
|
$
|
593
|
|
|
$
|
246
|
|
|
$
|
134
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,547
|
|
Intersegment sales
|
|
|
1
|
|
|
|
|
|
|
|
3
|
|
|
|
16
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
Segment Income (Loss)
|
|
|
23
|
|
|
|
43
|
|
|
|
(2
|
)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
Depreciation and amortization
|
|
|
21
|
|
|
|
22
|
|
|
|
8
|
|
|
|
7
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
53
|
|
Capital expenditures
|
|
|
5
|
|
|
|
12
|
|
|
|
4
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
1
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Depreciation and amortization
|
|
|
7
|
|
|
|
11
|
|
|
|
7
|
|
|
|
5
|
|
|
|
(3
|
)
|
|
|
1
|
|
|
|
28
|
|
Capital expenditures
|
|
|
4
|
|
|
|
8
|
|
|
|
4
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
1
|
|
|
|
17
|
|
33
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
The following table shows the reconciliation from Total Segment
Income to Net income (loss) (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Total Segment Income
|
|
$
|
231
|
|
|
$
|
86
|
|
|
|
$
|
32
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
(40
|
)
|
|
|
(25
|
)
|
|
|
|
(26
|
)
|
Unrealized gains (losses) on change in fair value of derivative
instruments net(A)
|
|
|
21
|
|
|
|
(15
|
)
|
|
|
|
5
|
|
Realized gains (losses) on corporate derivative
instruments net
|
|
|
|
|
|
|
8
|
|
|
|
|
(3
|
)
|
Depreciation and amortization
|
|
|
(116
|
)
|
|
|
(53
|
)
|
|
|
|
(28
|
)
|
Impairment charges on long-lived assets
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Minority interests share
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
|
1
|
|
Adjustment to eliminate proportional consolidation(B)
|
|
|
(18
|
)
|
|
|
(9
|
)
|
|
|
|
(7
|
)
|
Restructuring recoveries (charges) net
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
(1
|
)
|
Gain (loss) on sales of property, plant and equipment and
businesses net
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Corporate selling, general and administrative expenses
|
|
|
(14
|
)
|
|
|
(8
|
)
|
|
|
|
(35
|
)
|
Other costs net
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
1
|
|
Sale transaction fees
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
Benefit (provision) for taxes on income (loss)
|
|
|
(35
|
)
|
|
|
(27
|
)
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
25
|
|
|
$
|
(45
|
)
|
|
|
$
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Unrealized gains (losses) on change in fair value of derivative
instruments net represents the portion of gains
(losses) that were not settled in cash during the period. Total
realized and unrealized gains (losses) are shown in the table
below and are included in the aggregate each period in (Gain)
loss on change in fair value of derivative instruments
net on our condensed consolidated
statements of operations. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
May 16, 2007
|
|
|
April 1, 2007
|
|
|
Ended
|
|
Through
|
|
|
Through
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
|
May 15, 2007
|
|
|
Successor
|
|
Successor
|
|
|
Predecessor
|
(Gains) losses on change in fair value of derivative
instruments net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized and included in Segment Income
|
|
|
$(45
|
)
|
|
|
$(21
|
)
|
|
|
|
$(18
|
)
|
Realized on corporate derivative instruments
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
3
|
|
Unrealized
|
|
|
(21
|
)
|
|
|
15
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gains) losses on change in fair value of derivative
instruments net
|
|
|
$(66
|
)
|
|
|
$(14
|
)
|
|
|
|
$(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
|
(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
condensed consolidated statements of operations. See
Note 7 Investment in and Advances to
Non-Consolidated Affiliates and Related Party Transactions for
further information about these non-consolidated affiliates. |
Information
about Major Customers
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
May 16, 2007
|
|
|
April 1, 2007
|
|
|
Ended
|
|
Through
|
|
|
Through
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
|
May 15, 2007
|
|
|
Successor
|
|
Successor
|
|
|
Predecessor
|
Net sales to Rexam as a percentage of total net sales
|
|
|
15.7
|
%
|
|
|
15.8
|
%
|
|
|
|
13.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.
|
Supplemental
Guarantor Information
|
In connection with the issuance of our Senior Notes, certain of
our wholly-owned subsidiaries provided guarantees of the Senior
Notes. These guarantees are full and unconditional as well as
joint and several. The guarantor subsidiaries (the Guarantors)
are comprised of the majority of our businesses in Canada, the
U.S., the U.K., Brazil and Switzerland, as well as certain
businesses in Germany. Certain Guarantors may be subject to
restrictions on their ability to distribute earnings to Novelis
Inc. (the Parent). The remaining subsidiaries (the
Non-Guarantors) of the Parent are not guarantors of the Senior
Notes.
The following information presents condensed consolidating
statements of operations, consolidating balance sheets and
consolidating 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.
35
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Novelis
Inc.
Condensed
Consolidating Statement of Operations
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 (Successor)
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
395
|
|
|
$
|
2,582
|
|
|
$
|
836
|
|
|
$
|
(710
|
)
|
|
$
|
3,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
387
|
|
|
|
2,377
|
|
|
|
777
|
|
|
|
(710
|
)
|
|
|
2,831
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
62
|
|
|
|
22
|
|
|
|
|
|
|
|
84
|
|
Depreciation and amortization
|
|
|
6
|
|
|
|
89
|
|
|
|
21
|
|
|
|
|
|
|
|
116
|
|
Research and development expenses
|
|
|
8
|
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
12
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
7
|
|
|
|
29
|
|
|
|
4
|
|
|
|
|
|
|
|
40
|
|
(Gain) loss on change in fair value of derivative instruments
net
|
|
|
|
|
|
|
(62
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
(66
|
)
|
Equity in net (income) loss of affiliates
|
|
|
(32
|
)
|
|
|
2
|
|
|
|
|
|
|
|
32
|
|
|
|
2
|
|
Other (income) expenses net
|
|
|
(7
|
)
|
|
|
13
|
|
|
|
16
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
369
|
|
|
|
2,513
|
|
|
|
837
|
|
|
|
(678
|
)
|
|
|
3,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for taxes on income
(loss) and minority interests share
|
|
|
26
|
|
|
|
69
|
|
|
|
(1
|
)
|
|
|
(32
|
)
|
|
|
62
|
|
Provision (benefit) for taxes on income (loss)
|
|
|
1
|
|
|
|
33
|
|
|
|
1
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests share
|
|
|
25
|
|
|
|
36
|
|
|
|
(2
|
)
|
|
|
(32
|
)
|
|
|
27
|
|
Minority interests share
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
25
|
|
|
$
|
36
|
|
|
$
|
(4
|
)
|
|
$
|
(32
|
)
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Novelis
Inc.
Condensed
Consolidating Statement of Operations
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007 Through June 30, 2007
(Successor)
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
Restated
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
245
|
|
|
$
|
1,347
|
|
|
$
|
419
|
|
|
$
|
(464
|
)
|
|
$
|
1,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
247
|
|
|
|
1,251
|
|
|
|
402
|
|
|
|
(464
|
)
|
|
|
1,436
|
|
Selling, general and administrative expenses
|
|
|
5
|
|
|
|
25
|
|
|
|
12
|
|
|
|
|
|
|
|
42
|
|
Depreciation and amortization
|
|
|
3
|
|
|
|
38
|
|
|
|
12
|
|
|
|
|
|
|
|
53
|
|
Research and development expenses
|
|
|
2
|
|
|
|
7
|
|
|
|
4
|
|
|
|
|
|
|
|
13
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
3
|
|
|
|
20
|
|
|
|
2
|
|
|
|
|
|
|
|
25
|
|
(Gain) loss on change in fair value of derivative instruments
net
|
|
|
(13
|
)
|
|
|
(4
|
)
|
|
|
3
|
|
|
|
|
|
|
|
(14
|
)
|
Equity in net (income) loss of affiliates
|
|
|
25
|
|
|
|
1
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
1
|
|
Other (income) expenses net
|
|
|
(4
|
)
|
|
|
14
|
|
|
|
1
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268
|
|
|
|
1,352
|
|
|
|
436
|
|
|
|
(489
|
)
|
|
|
1,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for taxes on income
(loss) and minority interests share
|
|
|
(23
|
)
|
|
|
(5
|
)
|
|
|
(17
|
)
|
|
|
25
|
|
|
|
(20
|
)
|
Provision (benefit) for taxes on income (loss)
|
|
|
22
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests share
|
|
|
(45
|
)
|
|
|
(10
|
)
|
|
|
(17
|
)
|
|
|
25
|
|
|
|
(47
|
)
|
Minority interests share
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(45
|
)
|
|
$
|
(10
|
)
|
|
$
|
(15
|
)
|
|
$
|
25
|
|
|
$
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Novelis
Inc.
Condensed
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 non-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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Novelis
Inc.
Condensed
Consolidating Balance Sheet
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2008 (Successor)
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14
|
|
|
$
|
161
|
|
|
$
|
121
|
|
|
$
|
|
|
|
$
|
296
|
|
Accounts receivable net of allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
46
|
|
|
|
1,055
|
|
|
|
476
|
|
|
|
|
|
|
|
1,577
|
|
related parties
|
|
|
515
|
|
|
|
290
|
|
|
|
24
|
|
|
|
(802
|
)
|
|
|
27
|
|
Inventories
|
|
|
66
|
|
|
|
1,058
|
|
|
|
453
|
|
|
|
|
|
|
|
1,577
|
|
Prepaid expenses and other current assets
|
|
|
4
|
|
|
|
61
|
|
|
|
21
|
|
|
|
|
|
|
|
86
|
|
Current portion of fair value of derivative instruments
|
|
|
|
|
|
|
183
|
|
|
|
22
|
|
|
|
(7
|
)
|
|
|
198
|
|
Deferred income tax assets
|
|
|
|
|
|
|
105
|
|
|
|
6
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
645
|
|
|
|
2,913
|
|
|
|
1,123
|
|
|
|
(809
|
)
|
|
|
3,872
|
|
Property, plant and equipment net
|
|
|
172
|
|
|
|
2,430
|
|
|
|
651
|
|
|
|
|
|
|
|
3,253
|
|
Goodwill
|
|
|
|
|
|
|
1,679
|
|
|
|
189
|
|
|
|
|
|
|
|
1,868
|
|
Intangible assets net
|
|
|
|
|
|
|
868
|
|
|
|
|
|
|
|
|
|
|
|
868
|
|
Investments
|
|
|
3,652
|
|
|
|
937
|
|
|
|
1
|
|
|
|
(3,652
|
)
|
|
|
938
|
|
Fair value of derivative instruments net of current
portion
|
|
|
|
|
|
|
22
|
|
|
|
10
|
|
|
|
|
|
|
|
32
|
|
Deferred income tax assets
|
|
|
8
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
9
|
|
Other long-term assets
|
|
|
1,318
|
|
|
|
152
|
|
|
|
130
|
|
|
|
(1,471
|
)
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,795
|
|
|
$
|
9,001
|
|
|
$
|
2,105
|
|
|
$
|
(5,932
|
)
|
|
$
|
10,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
3
|
|
|
$
|
10
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
14
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
359
|
|
|
|
71
|
|
|
|
|
|
|
|
430
|
|
related parties
|
|
|
5
|
|
|
|
358
|
|
|
|
20
|
|
|
|
(383
|
)
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
77
|
|
|
|
926
|
|
|
|
610
|
|
|
|
|
|
|
|
1,613
|
|
related parties
|
|
|
112
|
|
|
|
236
|
|
|
|
125
|
|
|
|
(412
|
)
|
|
|
61
|
|
Accrued expenses and other current liabilities
|
|
|
64
|
|
|
|
613
|
|
|
|
138
|
|
|
|
(10
|
)
|
|
|
805
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
261
|
|
|
|
2,548
|
|
|
|
965
|
|
|
|
(805
|
)
|
|
|
2,969
|
|
Long-term debt net of current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
1,758
|
|
|
|
694
|
|
|
|
101
|
|
|
|
|
|
|
|
2,553
|
|
related parties
|
|
|
|
|
|
|
1,202
|
|
|
|
273
|
|
|
|
(1,475
|
)
|
|
|
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
674
|
|
|
|
21
|
|
|
|
|
|
|
|
695
|
|
Accrued postretirement benefits
|
|
|
23
|
|
|
|
303
|
|
|
|
109
|
|
|
|
|
|
|
|
435
|
|
Other long-term liabilities
|
|
|
184
|
|
|
|
392
|
|
|
|
23
|
|
|
|
|
|
|
|
599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,226
|
|
|
|
5,813
|
|
|
|
1,492
|
|
|
|
(2,280
|
)
|
|
|
7,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
5
|
|
|
|
3,108
|
|
|
|
559
|
|
|
|
(3,667
|
)
|
|
|
5
|
|
Accumulated other comprehensive income (loss)
|
|
|
67
|
|
|
|
80
|
|
|
|
(95
|
)
|
|
|
15
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
3,569
|
|
|
|
3,188
|
|
|
|
464
|
|
|
|
(3,652
|
)
|
|
|
3,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
5,795
|
|
|
$
|
9,001
|
|
|
$
|
2,105
|
|
|
$
|
(5,932
|
)
|
|
$
|
10,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Novelis
Inc.
Condensed
Consolidating Balance Sheet
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008 (Successor)
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
Restated
|
|
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
|
|
|
175
|
|
|
|
2,458
|
|
|
|
724
|
|
|
|
|
|
|
|
3,357
|
|
Goodwill
|
|
|
|
|
|
|
1,680
|
|
|
|
189
|
|
|
|
|
|
|
|
1,869
|
|
Intangible assets net
|
|
|
|
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
|
888
|
|
Investments
|
|
|
3,629
|
|
|
|
945
|
|
|
|
1
|
|
|
|
(3,629
|
)
|
|
|
946
|
|
Fair value of derivative instruments net of current
portion
|
|
|
|
|
|
|
18
|
|
|
|
3
|
|
|
|
|
|
|
|
21
|
|
Deferred income tax assets
|
|
|
10
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
12
|
|
Other long-term assets
|
|
|
1,328
|
|
|
|
160
|
|
|
|
135
|
|
|
|
(1,480
|
)
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,771
|
|
|
$
|
8,768
|
|
|
$
|
2,075
|
|
|
$
|
(5,932
|
)
|
|
$
|
10,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
680
|
|
|
|
20
|
|
|
|
|
|
|
|
701
|
|
Accrued postretirement benefits
|
|
|
23
|
|
|
|
297
|
|
|
|
101
|
|
|
|
|
|
|
|
421
|
|
Other long-term liabilities
|
|
|
222
|
|
|
|
431
|
|
|
|
19
|
|
|
|
|
|
|
|
672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,248
|
|
|
|
5,659
|
|
|
|
1,406
|
|
|
|
(2,303
|
)
|
|
|
7,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(20
|
)
|
|
|
3,075
|
|
|
|
564
|
|
|
|
(3,639
|
)
|
|
|
(20
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
46
|
|
|
|
34
|
|
|
|
(44
|
)
|
|
|
10
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
3,523
|
|
|
|
3,109
|
|
|
|
520
|
|
|
|
(3,629
|
)
|
|
|
3,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
5,771
|
|
|
$
|
8,768
|
|
|
$
|
2,075
|
|
|
$
|
(5,932
|
)
|
|
$
|
10,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Novelis
Inc.
Condensed
Consolidating Statement of Cash Flows
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 (Successor)
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
4
|
|
|
$
|
(313
|
)
|
|
$
|
(7
|
)
|
|
$
|
(35
|
)
|
|
$
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1
|
)
|
|
|
(25
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
(33
|
)
|
Proceeds from sales of property, plant and equipment
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Proceeds from loans receivable net
related parties
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Net proceeds from settlement of derivative instruments
|
|
|
|
|
|
|
21
|
|
|
|
13
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(1
|
)
|
|
|
11
|
|
|
|
6
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(4
|
)
|
related parties
|
|
|
|
|
|
|
5
|
|
|
|
(30
|
)
|
|
|
25
|
|
|
|
|
|
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
|
|
|
|
288
|
|
|
|
25
|
|
|
|
|
|
|
|
313
|
|
related parties
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(1
|
)
|
|
|
286
|
|
|
|
(11
|
)
|
|
|
35
|
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2
|
|
|
|
(16
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
(26
|
)
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Cash and cash equivalents beginning of period
|
|
|
12
|
|
|
|
177
|
|
|
|
137
|
|
|
|
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
14
|
|
|
$
|
161
|
|
|
$
|
121
|
|
|
$
|
|
|
|
$
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Novelis
Inc.
Condensed
Consolidating Statement of Cash Flows
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007 Through June 30, 2007
(Successor)
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
14
|
|
|
$
|
(23
|
)
|
|
$
|
(35
|
)
|
|
|
|
|
|
$
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2
|
)
|
|
|
(18
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(22
|
)
|
Proceeds from sales of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
(40
|
)
|
|
|
1
|
|
|
|
|
|
|
|
40
|
|
|
|
1
|
|
Proceeds from loans receivable net related
parties
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Net proceeds from settlement of derivative instruments
|
|
|
6
|
|
|
|
22
|
|
|
|
1
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(36
|
)
|
|
|
9
|
|
|
|
|
|
|
|
40
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
92
|
|
|
|
40
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
92
|
|
Principal repayments
|
|
|
(7
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
Short-term borrowings net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(10
|
)
|
|
|
72
|
|
|
|
21
|
|
|
|
|
|
|
|
83
|
|
related parties
|
|
|
(19
|
)
|
|
|
8
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
minority interests
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Debt issuance costs
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
43
|
|
|
|
81
|
|
|
|
31
|
|
|
|
(40
|
)
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
21
|
|
|
|
67
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
84
|
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period
|
|
|
8
|
|
|
|
74
|
|
|
|
20
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
29
|
|
|
$
|
141
|
|
|
$
|
16
|
|
|
$
|
|
|
|
$
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (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 provided by (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) provided by 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 (used in) 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
FORWARD
LOOKING STATEMENTS
The following information should be read together with our
unaudited condensed consolidated financial statements and
accompanying notes included elsewhere in this quarterly report
for a more complete understanding of our financial condition and
results of operations. The following discussion contains
forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results could differ materially from those
discussed in these forward-looking statements. Factors that
could cause or contribute to these differences include, but are
not limited to, those discussed below, particularly in
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND
MARKET DATA.
REFERENCES
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.
References to our
Form 10-K/A
made throughout this document refer to our Annual Report on
Form 10-K/A
for the year ended March 31, 2008, filed with the United
States Securities and Exchange Commission (SEC) on
August 11, 2008.
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 June 30, 2008, we had operations on four
continents: North America; South America; Asia and Europe,
through 32 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. 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.
Restatement
As discussed in Note 2 Restatement of
Financial Statements in the accompanying unaudited condensed
consolidated financial statements, the Company has restated its
condensed consolidated financial statements as of March 31,
2008 and for the unaudited period from May 16, 2007 through
June 30, 2007 to correct non-cash accounting adjustments to
correct errors in our application of purchase accounting for an
equity method investment which led to a misstatement of our
provision for income taxes during the period we were finalizing
our purchase accounting. We also corrected other miscellaneous
adjustments that were deemed to be not material by management,
either individually or in the aggregate. These adjustments do
not have an impact on our compliance with the financial
covenants under our 7.25% Senior Notes or under our New Senior
Secured Credit Facilities (see Note 9 Debt to
our accompanying condensed consolidated financial statements).
Acquisition
of Novelis Common Stock
On May 15, 2007, the Company was acquired by Hindalco
through its indirect wholly-owned subsidiary pursuant to a plan
of arrangement (the Arrangement) at a price of $44.93 per share.
The aggregate purchase price for all of the Companys
common shares was $3.4 billion and Hindalco also assumed
$2.8 billion of Novelis debt for a total transaction
value of $6.2 billion. Subsequent to completion of the
Arrangement on May 15, 2007, all of our common shares were
indirectly held by Hindalco.
As discussed in Note 1 Business and Summary of
Significant Accounting Policies in the accompanying condensed
consolidated financial statements, the Arrangement was recorded
in accordance with Staff
44
Accounting Bulletin No. 103, Push Down Basis of
Accounting Required in Certain Limited Circumstances
(SAB No. 103). Accordingly, in the accompanying
condensed consolidated balance sheets, 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 condensed
consolidated financial statements and certain note presentations
separate the Companys presentation into 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
June 30, 2007, labeled Successor). The
accompanying condensed consolidated financial statements include
a black line division which indicates that the Predecessor and
Successor reporting entities shown are not comparable.
NOTE REGARDING
COMBINED RESULTS OF OPERATIONS AND SELECTED FINANCIAL AND
OPERATING INFORMATION DUE TO THE ACQUISITION
As discussed above, the Arrangement created a new basis of
accounting. Under generally accepted accounting principles in
the United States of America (GAAP), the condensed consolidated
financial statements for the three months ended June 30,
2007 are presented in two distinct periods, as Predecessor and
Successor entities are not comparable in all material respects.
However, in order to facilitate an understanding of our results
of operations for the three months ended June 30, 2008 in
comparison with the three months ended June 30, 2007, in
this section, our Predecessor results and our Successor results
are presented and discussed on a combined basis. The combined
results of operations are non-GAAP financial measures, do not
include any proforma assumptions or adjustments and should not
be used in isolation or substitution of Predecessor and
Successor results.
Shown below are combining schedules of (1) shipments and
(2) our results of operations for periods allocable to the
Successor, Predecessor and the combined presentation for the
three months ended June 30, 2007 that we use
throughout our MD&A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
June 30, 2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Combined
|
|
Combined Shipments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipments (kt)(A):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products(B)
|
|
|
407
|
|
|
|
|
348
|
|
|
|
755
|
|
Ingot products(C)
|
|
|
23
|
|
|
|
|
15
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
430
|
|
|
|
|
363
|
|
|
|
793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 and Europe,
foundry products in Korea, secondary ingot in Europe and other
miscellaneous recyclable aluminum. |
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
June 30, 2007
|
|
|
|
(Restated)
|
|
|
|
|
|
|
(Restated)
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Combined
|
|
Combined Results of Operations ($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,547
|
|
|
|
$
|
1,281
|
|
|
$
|
2,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
1,436
|
|
|
|
|
1,205
|
|
|
|
2,641
|
|
Selling, general and administrative expenses
|
|
|
42
|
|
|
|
|
95
|
|
|
|
137
|
|
Depreciation and amortization
|
|
|
53
|
|
|
|
|
28
|
|
|
|
81
|
|
Research and development expenses
|
|
|
13
|
|
|
|
|
6
|
|
|
|
19
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
25
|
|
|
|
|
26
|
|
|
|
51
|
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
(14
|
)
|
|
|
|
(20
|
)
|
|
|
(34
|
)
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
1
|
|
|
|
|
(1
|
)
|
|
|
|
|
Sale transaction fees
|
|
|
|
|
|
|
|
32
|
|
|
|
32
|
|
Other expenses net
|
|
|
11
|
|
|
|
|
4
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,567
|
|
|
|
|
1,375
|
|
|
|
2,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for taxes on income
(loss) and minority interests share
|
|
|
(20
|
)
|
|
|
|
(94
|
)
|
|
|
(114
|
)
|
Provision (benefit) for taxes on income (loss)
|
|
|
27
|
|
|
|
|
4
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests share
|
|
|
(47
|
)
|
|
|
|
(98
|
)
|
|
|
(145
|
)
|
Minority interests share
|
|
|
2
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(45
|
)
|
|
|
$
|
(97
|
)
|
|
$
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HIGHLIGHTS
Significant highlights, events and factors impacting our
business during the three months ended June 30, 2008
and 2007 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):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(Restated)
|
|
|
|
Successor
|
|
|
Combined
|
|
|
Shipments (kt)(A):
|
|
|
|
|
|
|
|
|
Rolled products(B)
|
|
|
777
|
|
|
|
755
|
|
Ingot products(C)
|
|
|
48
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
825
|
|
|
|
793
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,103
|
|
|
$
|
2,828
|
|
Net income (loss)
|
|
$
|
25
|
|
|
$
|
(142
|
)
|
Net increase (decrease) in total debt(D)
|
|
$
|
308
|
|
|
$
|
248
|
|
|
|
|
|
(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 and Europe,
foundry products in Korea, secondary ingot in Europe and other
miscellaneous recyclable aluminum.
|
46
|
|
|
|
(D)
|
Net increase (decrease) in total debt is measured by comparing
the period-end amounts of our total outstanding debt (including
short-term borrowings) as shown in our condensed consolidated
balance sheets to the previous fiscal year ending balances as of
March 31. The net increase (decrease) in total debt
excludes the change in unamortized fair value adjustments
recorded as part of the Arrangement.
|
|
|
|
|
|
Rolled products shipments increased the first quarter of fiscal
2009 primarily due to increases in canstock fueled by continued
demand in the can markets of all segments, partially offset by
decreases in (1) light gauge primarily in North America and
Europe as a result of weak market demand, (2) specialty and
painted products in Europe as a result of weak market conditions
for building-related products and (3) foil stock in Europe
and Asia.
|
|
|
|
London Metal Exchange (LME) pricing for aluminum (metal) was an
average of 6.5% higher during the three months ended
June 30, 2008 than the comparable prior year period. Cash
prices have trended up at the end of the first quarter. As of
June 30, 2008 and 2007, cash prices per metric tonne were
$3,075 and $2,686, respectively. This trend positively impacted
our fiscal 2009 first quarter results as described more fully
under Metal Price Lag below.
|
|
|
|
Net sales for the first quarter of fiscal 2009 increased from
the comparable prior year period due to (1) an increase of
$101 million as a result of 6.5% increase in average LME
metal pricing, (2) an increase of $93 million from
higher rolled products volume primarily in North America, South
America and Asia, offset by lower volume in Europe, (3) an
increase of $19 million in conversion premiums across all
segments, (4) an increase of $69 million from foreign
currency exchange gains primarily in Europe driven by the
continued strengthening of the euro against the
U.S. dollar, (5) an increase of $27 million due
to a favorable change in the product mix of rolled products and
(6) incremental purchase accounting adjustments of
$20 million related to the accretion of can ceiling
contract fair value reserves in North America, partially offset
by (7) $60 million of lower metal price lag in
North America and Asia. Metal represents approximately
60% 70% of the sales value of our products.
|
|
|
|
During the three months ended June 30, 2008 and 2007, we
recognized pre-tax gains of $66 million and
$34 million, respectively, related to the change in fair
value of derivative instruments. For segment reporting purposes,
Segment Income (defined in Operating Segment Review below)
includes approximately $45 million and $39 million of
cash-settled derivative gains for the three months ended
June 30, 2008 and 2007, respectively.
|
|
|
|
During the first quarter of fiscal 2009, input and operational
costs were approximately $48 million higher than in the
comparable prior year period primarily as a result of higher
energy, freight and alloy costs. These cost increases were
offset by a decrease in stock compensation expense of
$45 million and a decrease in sale transaction fees of
$32 million.
|
|
|
|
The first quarter of fiscal year 2009 was favorably impacted
versus the comparable prior year period by $18 million for
certain income and expense items associated with fair value
adjustments recorded at the date of acquisition. The pre-tax
impact of these items was primarily driven by the accretion of
reserves related to unfavorable contracts (recorded at fair
value at the date of acquisition) and inventory adjustments in
the prior period that did not occur in the current fiscal year,
partially offset by higher depreciation and amortization.
|
|
|
|
During the first quarter of fiscal 2009, costs associated with
currency exposure, primarily to the Brazilian real, were
$26 million higher than in the comparable prior year
period. The average Brazilian real per U.S. dollar
strengthened approximately 16% during the first quarter of
fiscal 2009 versus the comparable prior year period.
|
|
|
|
As of June 30, 2008, our total debt (excluding unamortized
fair value adjustments recorded as part of the acquisition by
Hindalco) increased by $308 million from the prior fiscal
year end. This increase in debt was driven primarily by an
increase in short-term borrowings to fund our working capital
requirements.
|
47
|
|
|
|
|
Income tax expense in the first quarter of 2009 included
$29 million of income tax expense related to exchange
translation and re-measurement items, offset by a
$14 million tax benefit associated with statutory tax rate
differences on foreign earnings. The prior year period included
a net $68 million of tax expense associated with discrete
period items and tax rate differences on foreign earnings.
|
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 8% and 10% of our
total shipments for the first quarters of fiscal 2009 and 2008,
respectively, provide for a ceiling over which metal prices
could not 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 each of the three month periods ended
June 30, 2008 and 2007, we were unable to pass through
approximately $78 million of metal purchase costs
associated with sales under these 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 remainder of fiscal year 2009.
Based on a June 30, 2008 aluminum price of $3,075 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 $240
$260 million for the remainder of fiscal 2009 and
$240 $260 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 three
months ended June 30, 2008 and 2007, we recorded accretion
of $64 million and $44 million, respectively. As of
June 30, 2008, the balance of these reserves is
$321 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 an offsetting benefit to the can ceiling
contracts. 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 aluminum
futures and options 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
48
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 three
months ended June 30, 2008, metal price lag favorably
impacted our results by $34 million and negatively impacted
the comparable prior year period by approximately
$11 million, for a net favorable impact of
$45 million. These amounts include the effects of
derivative instruments we purchased to offset this risk as
described below. For general metal price lag exposure we used
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.
For accounting purposes, we do not treat all derivative
instruments as hedges under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging
Activities (FASB Statement No. 133). 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 Statement 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 condensed
consolidated 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.
OPERATIONS
AND SEGMENT REVIEW
The following discussion and analysis is based on our condensed
consolidated statements of operations, which reflect our results
of operations for the three months ended June 30, 2008 and
the three months ended June 30, 2007 (as prepared on a
combined non-GAAP basis).
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
Successor
|
|
|
Combined
|
|
|
|
|
|
Shipments (kt)
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products, including tolling (the conversion of
customer-owned metal)
|
|
|
777
|
|
|
|
755
|
|
|
|
2.9
|
%
|
Ingot products, including primary and secondary ingot and
recyclable aluminum
|
|
|
48
|
|
|
|
38
|
|
|
|
26.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
825
|
|
|
|
793
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Percent
|
|
|
|
2008
|
|
|
|
2007
|
|
|
Change
|
|
|
|
(Restated)
|
|
|
|
Successor
|
|
|
|
Combined
|
|
|
|
|
|
Results of Operations ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,103
|
|
|
|
$
|
2,828
|
|
|
|
9.7
|
%
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
2,831
|
|
|
|
|
2,641
|
|
|
|
7.2
|
%
|
Selling, general and administrative expenses
|
|
|
84
|
|
|
|
|
137
|
|
|
|
(38.7
|
)%
|
Depreciation and amortization
|
|
|
116
|
|
|
|
|
81
|
|
|
|
43.2
|
%
|
Research and development expenses
|
|
|
12
|
|
|
|
|
19
|
|
|
|
(36.8
|
)%
|
Interest expense and amortization of debt issuance
costs net
|
|
|
40
|
|
|
|
|
51
|
|
|
|
(21.6
|
)%
|
(Gain) loss on change in fair value of derivative
instruments net
|
|
|
(66
|
)
|
|
|
|
(34
|
)
|
|
|
94.1
|
%
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
2
|
|
|
|
|
|
|
|
|
n.m.
|
|
Sale transaction fees
|
|
|
|
|
|
|
|
32
|
|
|
|
(100.0
|
)%
|
Other (income) expenses net
|
|
|
22
|
|
|
|
|
15
|
|
|
|
46.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,041
|
|
|
|
|
2,942
|
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for taxes on income
(loss) and minority interests share
|
|
|
62
|
|
|
|
|
(114
|
)
|
|
|
154.4
|
%
|
Provision (benefit) for taxes on income (loss)
|
|
|
35
|
|
|
|
|
31
|
|
|
|
12.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests share
|
|
|
27
|
|
|
|
|
(145
|
)
|
|
|
118.6
|
%
|
Minority interests share
|
|
|
(2
|
)
|
|
|
|
3
|
|
|
|
(166.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
25
|
|
|
|
$
|
(142
|
)
|
|
|
117.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n.m. not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Percent
|
|
|
|
2008
|
|
|
|
2007
|
|
|
Change
|
|
|
|
Successor
|
|
|
|
Combined
|
|
|
|
|
|
London Metal Exchange Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum (per metric tonne, and presented in U.S. dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing cash price as of end of period
|
|
$
|
3,075
|
|
|
|
$
|
2,686
|
|
|
|
14.5
|
%
|
Average cash price during the period
|
|
$
|
2,940
|
|
|
|
$
|
2,761
|
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
U.S. Dollar
|
|
|
|
June 30,
|
|
|
Strengthen/
|
|
|
|
2008
|
|
|
|
2007
|
|
|
(Weaken)
|
|
|
|
Successor
|
|
|
|
Combined
|
|
|
|
|
|
Federal Reserve Bank of New York Exchange Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average of the month end rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollar per euro
|
|
|
1.563
|
|
|
|
|
1.354
|
|
|
|
(15.4
|
)%
|
Brazilian real per U.S. dollar
|
|
|
1.638
|
|
|
|
|
1.961
|
|
|
|
(16.5
|
)%
|
South Korean won per U.S. dollar
|
|
|
1,027
|
|
|
|
|
927
|
|
|
|
10.8
|
%
|
Canadian dollar per U.S. dollar
|
|
|
1.007
|
|
|
|
|
1.080
|
|
|
|
(6.8
|
)%
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Percent
|
|
|
|
2008
|
|
|
|
2007
|
|
|
Change
|
|
|
|
Successor
|
|
|
|
Combined
|
|
|
|
|
|
New York Mercantile Exchange Energy Price
Quotations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light Sweet Crude Average settlement price (per
barrel)
|
|
$
|
117.76
|
|
|
|
$
|
61.69
|
|
|
|
90.9
|
%
|
Natural Gas Average Henry Hub contract settlement
price (per MMBTU)(A)
|
|
$
|
10.92
|
|
|
|
$
|
7.55
|
|
|
|
44.6
|
%
|
|
|
|
|
(A)
|
One MMBTU is the equivalent of one decatherm, or one million
British Thermal Units (BTUs).
|
RESULTS
OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2008 COMPARED TO
THE QUARTER ENDED JUNE 30, 2007 (THREE MONTHS COMBINED
NON-GAAP)
Shipments
Rolled products shipments increased the first quarter of fiscal
2009 primarily due to increases in canstock fueled by continued
demand in the can markets of all segments, partially offset by
decreases in (1) light gauge primarily in North America and
Europe as a result of weak market demand, (2) specialty and
painted products in Europe as a result of weak market conditions
for building-related products and (3) foil stock in Europe
and Asia.
Net
sales
Higher net sales in the first quarter of fiscal 2009 compared to
fiscal 2008 resulted primarily from (1) an increase of
$101 million as a result of 6.5% increase in average LME
metal pricing, (2) an increase of $93 million from
higher rolled products volume primarily in North America, South
America and Asia, offset by lower volume in Europe, (3) an
increase of $19 million in conversion premiums across all
segments, (4) an increase of $69 million from foreign
currency exchange gains primarily in Europe driven by the
continued strengthening of the euro against the
U.S. dollar, (5) an increase of $27 million due
to a favorable change in the product mix of rolled products and
(6) incremental purchase accounting adjustments of
$20 million related to the accretion of can ceiling
contract fair value reserves in North America, partially offset
by (7) $60 million of lower metal price lag in North
America and Asia. Metal represents approximately 60%
70% of the sales value of our products.
Net sales for the first quarters of both fiscal 2009 and fiscal
2008 were adversely impacted in North America due to price
ceilings on certain sales contracts, which limited our ability
to pass through approximately $78 million of metal purchase
costs in both periods.
51
Costs
and expenses
The following table presents our costs and expenses for the
three months ended June 30, 2008 and 2007, in dollars and
expressed as percentages of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
$ in Millions
|
|
|
Net Sales
|
|
|
|
$ in Millions
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
Successor
|
|
|
|
Combined
|
|
|
Cost of goods sold (exclusive of depreciation and amortization)
|
|
$
|
2,831
|
|
|
|
91.2
|
%
|
|
|
$
|
2,641
|
|
|
|
93.4
|
%
|
Selling, general and administrative expenses
|
|
|
84
|
|
|
|
2.7
|
%
|
|
|
|
137
|
|
|
|
4.8
|
%
|
Depreciation and amortization
|
|
|
116
|
|
|
|
3.7
|
%
|
|
|
|
81
|
|
|
|
2.9
|
%
|
Research and development expenses
|
|
|
12
|
|
|
|
0.4
|
%
|
|
|
|
19
|
|
|
|
0.7
|
%
|
Interest expense and amortization of debt issuance
costs net
|
|
|
40
|
|
|
|
1.3
|
%
|
|
|
|
51
|
|
|
|
1.8
|
%
|
(Gain) loss on change in fair value of derivative instruments
net
|
|
|
(66
|
)
|
|
|
(2.1
|
)%
|
|
|
|
(34
|
)
|
|
|
(1.2
|
)%
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
2
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
%
|
Sale transaction fees
|
|
|
|
|
|
|
|
%
|
|
|
|
32
|
|
|
|
1.1
|
%
|
Other (income) expenses net
|
|
|
22
|
|
|
|
0.7
|
%
|
|
|
|
15
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,041
|
|
|
|
98.0
|
%
|
|
|
$
|
2,942
|
|
|
|
104.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold. Metal represents
approximately 70% 80% of our input costs. As a
percentage of net sales, cost of goods sold improved as a result
of pricing improvements across all segments, partially offset by
certain input and operational cost increases.
Selling, general and administrative expenses
(SG&A). SG&A decreased primarily as a
result of (1) stock compensation expense of
$45 million and (2) $4 million in director and
officer insurance premiums for tail coverage associated with our
acquisition by Hindalco, both incurred in the first quarter of
fiscal 2008.
Depreciation and amortization. Depreciation
and amortization increased $35 million due to the increases
in the bases of our property, plant and equipment and intangible
assets recorded as a result of the Arrangement.
Research and development expenses. Research
and development expenses decreased due to the one-time write off
of $9 million of in-process research and development costs
resulting from the Arrangement in the first quarter of fiscal
2008.
Interest expense and amortization of debt issuance
costs net. Interest expense and
amortization of debt issuance costs decreased primarily due to
lower average interest rates on our variable rate debt.
Gain (loss) on change in fair value of derivative
instruments net. The net gain on the
change in fair value of derivative instruments increased due
(1) to an increase of $21 million in gains associated
with aluminum forward contracts which benefited from rising LME
prices during the fiscal 2009 quarter and (2) an increase
of $9 million in gains associated with currency swaps which
benefited from the strengthening of the U.S. dollar against
the Korean won.
Sale transaction fees. We incurred
$32 million of fees and expenses related to the Arrangement
during the first quarter of fiscal 2008.
52
Other (income) expenses net. A
reconciliation of the difference between the periods is shown
below (in millions):
|
|
|
|
|
|
|
Other
|
|
|
|
(Income)
|
|
|
|
Expenses Net
|
|
|
Other (income) expenses net for the three months
ended June 30, 2007
|
|
$
|
15
|
|
Exchange losses of $20 million in 2009 compared to
$11 million in 2008
|
|
|
9
|
|
Restructuring charges (recoveries) net of
$(1) million in 2009 compared to $2 million in 2008
|
|
|
(3
|
)
|
Impairment charges on long-lived assets of $1 million in
2009 only
|
|
|
1
|
|
Net gain on sale of property, plant and equipment of
$1 million in 2009 only
|
|
|
(1
|
)
|
Other net
|
|
|
1
|
|
|
|
|
|
|
Other (income) expenses net for the three months
ended June 30, 2008
|
|
$
|
22
|
|
|
|
|
|
|
Provision
(benefit) for taxes on income (loss)
For the three months ended June 30, 2008, we recorded a
$35 million provision for taxes on our pre-tax income of
$64 million, before our equity in net (income) loss of
non-consolidated affiliates and minority interests share,
which represented an effective tax rate of 55%. Our effective
tax rate differs from the Canadian statutory rate primarily due
to the following factors: (1) $9 million in expense
for 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,
(2) $20 million in expense for the remeasurement of
deferred income taxes due to foreign currency changes and
(3) a $14 million benefit for differences between the
Canadian statutory and foreign effective tax rates applied to
entities in different jurisdictions.
For the three months ended June 30, 2007, we recorded a
$31 million (as restated) provision for taxes on our
pre-tax loss of $114 million (as restated), before our
equity in net (income) loss of non-consolidated affiliates and
minority interests share, which represented an effective
tax rate of (27)%. Our effective tax rate differs from the
Canadian statutory rate due primarily to
(1) $42 million in expense (as restated) for 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, (2) $6 million in expense for
the remeasurement of deferred income taxes due to foreign
currency changes, (3) a $34 million expense for change
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
(4) a $20 million benefit (as restated) for expense
and income items with no tax effect.
OPERATING
SEGMENT REVIEW FOR THE QUARTER ENDED JUNE 30, 2008 COMPARED TO
THE QUARTER ENDED JUNE 30, 2007 (THREE MONTHS COMBINED
NON-GAAP)
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.
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 (recoveries) net;
(i) gains or losses on sales of property, plant and
equipment and businesses net; (j) corporate
selling, general and
53
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 to our
consolidated and combined financial statements included in our
Annual Report on
Form 10-K/A
for the year ended March 31, 2008.
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 condensed consolidated
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 condensed consolidated financial
statements for the three months ended June 30, 2007 are
presented in two distinct periods, as Predecessor and Successor
entities are not comparable in all material respects. However,
in order to facilitate an understanding of our results of
operations for the three months ended June 30, 2008 in
comparison with the three months ended June 30, 2007, in
this section, our Predecessor results and our Successor results
are presented and discussed on a combined basis. The combined
results of operations are non-GAAP financial measures and should
not be used in isolation or substitution of the Predecessor and
Successor results.
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 three months ended June 30,
2007 that we use throughout MD&A (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
June 30, 2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Combined
|
|
Combined Net sales by Operating Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
574
|
|
|
|
$
|
446
|
|
|
$
|
1,020
|
|
Europe
|
|
|
593
|
|
|
|
|
510
|
|
|
|
1,103
|
|
Asia
|
|
|
246
|
|
|
|
|
216
|
|
|
|
462
|
|
South America
|
|
|
134
|
|
|
|
|
109
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net sales
|
|
$
|
1,547
|
|
|
|
$
|
1,281
|
|
|
$
|
2,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
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 three months ended June 30,
2007 that we use throughout our MD&A (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
June 30, 2007
|
|
|
|
(Restated)
|
|
|
|
|
|
|
(Restated)
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Combined
|
|
Combined Results by Operating Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
23
|
|
|
|
$
|
(24
|
)
|
|
$
|
(1
|
)
|
Europe
|
|
|
43
|
|
|
|
|
32
|
|
|
|
75
|
|
Asia
|
|
|
(2
|
)
|
|
|
|
6
|
|
|
|
4
|
|
South America
|
|
|
22
|
|
|
|
|
18
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Income
|
|
|
86
|
|
|
|
|
32
|
|
|
|
118
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
(25
|
)
|
|
|
|
(26
|
)
|
|
|
(51
|
)
|
Unrealized gains (losses) on change in fair value of derivative
instruments net(A)
|
|
|
(15
|
)
|
|
|
|
5
|
|
|
|
(10
|
)
|
Realized gains (losses) on corporate derivative
instruments net
|
|
|
8
|
|
|
|
|
(3
|
)
|
|
|
5
|
|
Depreciation and amortization
|
|
|
(53
|
)
|
|
|
|
(28
|
)
|
|
|
(81
|
)
|
Minority interests share
|
|
|
2
|
|
|
|
|
1
|
|
|
|
3
|
|
Adjustment to eliminate proportional consolidation(B)
|
|
|
(9
|
)
|
|
|
|
(7
|
)
|
|
|
(16
|
)
|
Restructuring charges net
|
|
|
(1
|
)
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Corporate selling, general and administrative expenses
|
|
|
(8
|
)
|
|
|
|
(35
|
)
|
|
|
(43
|
)
|
Other costs net
|
|
|
(3
|
)
|
|
|
|
1
|
|
|
|
(2
|
)
|
Sale transaction fees
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
(32
|
)
|
Benefit (provision) for taxes on income (loss)
|
|
|
(27
|
)
|
|
|
|
(4
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(45
|
)
|
|
|
$
|
(97
|
)
|
|
$
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 condensed consolidated statements of operations. See
Note 7 Investment in and Advances to
Non-Consolidated Affiliates and Related Party Transactions in
the accompanying notes to the condensed consolidated financial
statements for further information about these non-consolidated
affiliates. |
55
Reconciliation
The following table presents Segment Income (Loss) by operating
segment and reconciles Total Segment Income to Net income (loss)
(in millions).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(Restated)
|
|
|
|
Successor
|
|
|
Combined
|
|
|
Segment Income (Loss)
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
42
|
|
|
$
|
(1
|
)
|
Europe
|
|
|
111
|
|
|
|
75
|
|
Asia
|
|
|
31
|
|
|
|
4
|
|
South America
|
|
|
47
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Total Segment Income
|
|
|
231
|
|
|
|
118
|
|
Interest expense and amortization of debt issuance
costs net
|
|
|
(40
|
)
|
|
|
(51
|
)
|
Unrealized gains (losses) on change in fair value of derivative
instruments net
|
|
|
21
|
|
|
|
(10
|
)
|
Realized gains (losses) on corporate derivative
instruments net
|
|
|
|
|
|
|
5
|
|
Depreciation and amortization
|
|
|
(116
|
)
|
|
|
(81
|
)
|
Impairment charges on long-lived assets
|
|
|
(1
|
)
|
|
|
|
|
Minority interests share
|
|
|
(2
|
)
|
|
|
3
|
|
Adjustment to eliminate proportional consolidation
|
|
|
(18
|
)
|
|
|
(16
|
)
|
Restructuring recoveries (charges) net
|
|
|
1
|
|
|
|
(2
|
)
|
Gain (loss) on sales of property, plant and equipment and
businesses net
|
|
|
1
|
|
|
|
|
|
Corporate selling, general and administrative expenses
|
|
|
(14
|
)
|
|
|
(43
|
)
|
Other costs net
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Sale transaction fees
|
|
|
|
|
|
|
(32
|
)
|
Benefit (provision) for taxes on income (loss)
|
|
|
(35
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
25
|
|
|
$
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
OPERATING
SEGMENT RESULTS
North
America
As of June 30, 2008, North America manufactured aluminum
sheet and light gauge products through nine 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.
56
The following table presents key financial and operating
information for North America for the three months ended
June 30, 2008 and 2007 (in millions, except for shipments,
which are in kt).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
Successor
|
|
|
Combined
|
|
|
|
|
|
Shipments (kt):
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products
|
|
|
286
|
|
|
|
277
|
|
|
|
3.2
|
%
|
Ingot products
|
|
|
8
|
|
|
|
16
|
|
|
|
(50.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
294
|
|
|
|
293
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,083
|
|
|
$
|
1,020
|
|
|
|
6.2
|
%
|
Segment Income (Loss)
|
|
$
|
42
|
|
|
$
|
(1
|
)
|
|
|
4,300.0
|
%
|
Total assets
|
|
$
|
3,996
|
|
|
$
|
4,524
|
|
|
|
(11.7
|
)%
|
Shipments
Rolled products shipments increased due to increases in demand
in canstock and industrial products, partially offset by
decreases in demand for light gauge products as a result of a
weak demand in construction and transportation industries. Ingot
product shipments declined due to lower scrap sales.
Net
sales
Net sales increased primarily due to (1) increased volume
of rolled products of $38 million, (2) increased
average LME prices for metal of $29 million and
(3) $20 million of incremental accretion related to
the contract fair value reserves as discussed in Metal Price
Ceilings, partially offset by (4) contracts priced in prior
periods resulting in an unfavorable metal price lag of
$37 million. During both the three months ended
June 30, 2008 and 2007, we were unable to pass through
approximately $78 million of metal purchase costs,
resulting in no incremental impact to net sales between the
periods.
Segment
Income
Segment Income was favorably impacted by
(1) $11 million due to higher volume of shipments,
(2) $7 million as a result of pricing increases and
favorable changes in product mix, (3) $6 million as a
result of the impact of the metal price ceilings (excluding the
accretion of the contract fair value reserves),
(4) $33 million of incremental net favorable fair
value adjustments recorded as a result of the Arrangement and
(5) lower stock compensation expense of $11 million
recorded in the fiscal 2008 period as a result of the
Arrangement, partially offset by (6) the negative impact of
metal price lag which unfavorably impacted Segment Income by
$9 million in fiscal 2009 as compared to fiscal 2008 and
(7) higher operating costs of $15 million primarily
associated with energy and freight.
Total
Assets
Total assets decreased primarily due to the finalization of
adjustments to our purchase price allocation made subsequent to
the fiscal 2008 period.
Europe
As of June 30, 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,
packaging, automotive, lithographic, building and other various
industrial uses.
57
The following table presents key financial and operating
information for Europe for the three months ended June 30,
2008 and 2007 (in millions, except for shipments, which are in
kt).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
Successor
|
|
|
Combined
|
|
|
|
|
|
Shipments (kt):
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products
|
|
|
271
|
|
|
|
285
|
|
|
|
(4.9
|
)%
|
Ingot products
|
|
|
28
|
|
|
|
4
|
|
|
|
600.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
299
|
|
|
|
289
|
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,218
|
|
|
$
|
1,103
|
|
|
|
10.4
|
%
|
Segment Income
|
|
$
|
111
|
|
|
$
|
75
|
|
|
|
48.0
|
%
|
Total assets
|
|
$
|
4,231
|
|
|
$
|
3,468
|
|
|
|
22.0
|
%
|
Shipments
Rolled products shipments decreased due to decreases in demand
for specialty, painted and light gauge products from a continued
weak building-related products market, partially offset by
increases in canstock and lithographic products. Ingot product
shipments increased during the first quarter of fiscal 2009. Due
to slower business conditions, we sold additional ingot to
manage inventory levels.
Net
sales
Net sales increased primarily due to (1) increased volume
of non-rolled products of $14 million, (2) increased
average LME prices for metal of $38 million,
(3) increases in conversion premiums of $12 million
and (4) an increase of $71 million from foreign
currency exchange gains driven by the continued strengthening of
the euro against the U.S. dollar, partially offset by
(5) decreased volume in rolled products of $11 million
and (6) unfavorable changes in product mix of
$3 million.
Segment
Income
Segment Income was favorably impacted by
(1) $11 million due to higher pricing, (2) the
positive impact of metal price lag of $31 million,
(3) $7 million of incremental favorable fair value
adjustments recorded as a result of the Arrangement and
(4) lower stock compensation expense of $6 million
recorded in the fiscal 2008 period as a result of the
Arrangement, partially offset by (5) $6 million from
lower volume of rolled products and (6) higher operating
costs of $16 million primarily associated with energy.
Total
assets
Total assets increased primarily due to the strengthening of the
euro against the U.S. dollar and the finalization of
adjustments to our purchase price allocation made subsequent to
the first quarter of fiscal 2008.
Asia
As of June 30, 2008, Asia operated three manufacturing
facilities, with production balanced between foil, construction
and industrial, and beverage and food can end-use applications.
58
The following table presents key financial and operating
information for Asia for the three months ended June 30,
2008 and 2007 (in millions, except for shipments, which are in
kt).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
Successor
|
|
|
Combined
|
|
|
|
|
|
Shipments (kt):
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products
|
|
|
133
|
|
|
|
118
|
|
|
|
12.7
|
%
|
Ingot products
|
|
|
7
|
|
|
|
11
|
|
|
|
(36.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
140
|
|
|
|
129
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
510
|
|
|
$
|
462
|
|
|
|
10.4
|
%
|
Segment Income
|
|
$
|
31
|
|
|
$
|
4
|
|
|
|
675.0
|
%
|
Total assets
|
|
$
|
1,129
|
|
|
$
|
1,323
|
|
|
|
(14.7
|
)%
|
Shipments
Rolled products shipments increased primarily due to increased
demand in the can market, partially offset by a decline of
shipments in the industrial products 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. Ingot shipments decreased as a
result of a labor strike at one of our large customers.
Net
sales
Net sales increased primarily due to (1) increased volume
of rolled products of $55 million and (2) increased
average LME prices for metal of $24 million, partially
offset by (3) contracts priced in prior periods resulting
in an unfavorable metal price lag of $23 million and
(4) decreased volume and sales in non-rolled products of
$12 million.
Segment
Income
Segment Income was favorably impacted by
(1) $9 million due to higher prices, (2) the
positive impact of metal price lag of $18 million,
(3) $9 million of incremental favorable fair value
adjustments recorded as a result of the Arrangement and
(4) lower stock compensation expense of $4 million
recorded in the fiscal 2008 period as a result of the
Arrangement, partially offset by (5) $9 million in net
foreign currency exchange losses as the U.S. dollar
strengthened against the Korean won and (6) higher
operating costs of $8 million primarily associated with
energy.
Total
assets
Total assets decreased primarily due to the finalization of
adjustments to our purchase price allocation made subsequent to
the fiscal 2008 period.
South
America
As of June 30, 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.
59
The following table presents key financial and operating
information for South America for the three months ended
June 30, 2008 and 2007 (in millions, except for shipments,
which are in kt).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
Successor
|
|
|
Combined
|
|
|
|
|
|
Shipments (kt):
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolled products
|
|
|
87
|
|
|
|
75
|
|
|
|
16.0
|
%
|
Ingot products
|
|
|
5
|
|
|
|
7
|
|
|
|
(28.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments
|
|
|
92
|
|
|
|
82
|
|
|
|
12.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
295
|
|
|
$
|
243
|
|
|
|
21.4
|
%
|
Segment Income
|
|
$
|
47
|
|
|
$
|
40
|
|
|
|
17.5
|
%
|
Total assets
|
|
$
|
1,544
|
|
|
$
|
1,321
|
|
|
|
16.9
|
%
|
Shipments
Rolled products shipments increased primarily due to an increase
in overall can shipments driven by strong market demand. Ingot
shipments decreased primarily as a result of lower primary
billet production.
Net
sales
Net sales increased primarily due to (1) increased volume
of rolled products of $11 million, (2) favorable
changes in product mix of rolled products of $30 million
and (3) increased average LME prices for metal of
$10 million.
Segment
Income
Segment Income was favorably impacted by
(1) $5 million due to higher prices, (2) the
positive impact of metal price lag of $9 million,
(3) $7 million of incremental favorable fair value
adjustments recorded as a result of the Arrangement,
(4) lower stock compensation expense of $3 million
recorded in the fiscal 2008 period as a result of the
Arrangement and (5) increased benefit of internally
supplied metal from our smelter of $3 million, partially
offset by (6) increased net foreign currency exchange
losses of $13 million as the Brazilian real strengthened
against the U.S. dollar and (7) higher operating costs
of $9 million.
Total
assets
Total assets increased primarily due to increases in working
capital and fixed asset additions since the first quarter of
fiscal 2008.
LIQUIDITY
AND CAPITAL RESOURCES
As discussed above, the Arrangement created a new basis of
accounting. Under GAAP, the condensed consolidated financial
statements for the three months ended June 30, 2007 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 liquidity and capital
resources for the three months ended June 30, 2008 in
comparison with the three months ended June 30, 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.
60
Cash Flows
Shown below is a condensed combining schedule of cash flows for
periods allocable to the Successor, Predecessor and the combined
presentation for the three months ended June 30, 2007 that
we use throughout our discussion of Liquidity and Capital
Resources (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
Three Months
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Ended
|
|
|
|
June 30, 2007
|
|
|
|
May 15, 2007
|
|
|
June 30, 2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Combined
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(44
|
)
|
|
|
$
|
(230
|
)
|
|
$
|
(274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(22
|
)
|
|
|
|
(17
|
)
|
|
|
(39
|
)
|
Proceeds from sales of assets
|
|
|
1
|
|
|
|
|
|
|
|
|
1
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
1
|
|
|
|
|
1
|
|
|
|
2
|
|
Proceeds from loans receivable net
related parties
|
|
|
4
|
|
|
|
|
|
|
|
|
4
|
|
Net proceeds from settlement of derivative instruments
|
|
|
29
|
|
|
|
|
18
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
13
|
|
|
|
|
2
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
92
|
|
|
|
|
|
|
|
|
92
|
|
Proceeds from issuance of debt
|
|
|
|
|
|
|
|
150
|
|
|
|
150
|
|
Principal repayments
|
|
|
(46
|
)
|
|
|
|
(1
|
)
|
|
|
(47
|
)
|
Short-term borrowings net
|
|
|
83
|
|
|
|
|
60
|
|
|
|
143
|
|
Dividends minority interests
|
|
|
(1
|
)
|
|
|
|
(7
|
)
|
|
|
(8
|
)
|
Debt issuance costs
|
|
|
(13
|
)
|
|
|
|
(2
|
)
|
|
|
(15
|
)
|
Proceeds from the exercise of stock options
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
115
|
|
|
|
|
201
|
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
84
|
|
|
|
|
(27
|
)
|
|
|
57
|
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Cash and cash equivalents beginning of period
|
|
|
102
|
|
|
|
|
128
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
186
|
|
|
|
$
|
102
|
|
|
$
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 condensed consolidated
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.
61
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 both the three
months ended June 30, 2008 and 2007, we were unable to pass
through approximately $78 million 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 June 30, 2008 aluminum price of
$3,075 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 $240
$260 million during the remainder of fiscal 2009 and
$240 $260 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. As of June 30,
2008, the balance of these reserves is $321 million.
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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
Successor
|
|
|
Combined
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(351
|
)
|
|
$
|
(274
|
)
|
|
$
|
(77
|
)
|
Dividends minority interests
|
|
|
|
|
|
|
(8
|
)
|
|
|
8
|
|
Capital expenditures
|
|
|
(33
|
)
|
|
|
(39
|
)
|
|
|
6
|
|
Net proceeds from settlement of derivative instruments
|
|
|
34
|
|
|
|
47
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
(350
|
)
|
|
$
|
(274
|
)
|
|
$
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
296
|
|
|
$
|
186
|
|
|
$
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities increased in the first
quarter of fiscal 2009 compared to fiscal 2008 as a result of
(1) changes in certain components of our working capital,
primarily driven by higher dollar inventory levels due to the
increase in aluminum prices in the first half of this calendar
year and the timing of payments made by our customers at March
31, 2008 and June 30, 2008, and partially offset by
(2) higher net income.
Dividends paid to our minority interests, primarily in our Asia
operating segment, were $8 million and paid in the first
quarter of fiscal 2008. Capital expenditures were slightly lower
between periods in all operating segments due, in part, to the
construction of Novelis
Fusiontm
ingot casting lines in our European and Asian segments as well
as additional planned maintenance activities, improvements to
our Yeongju, Korea hot mill and other ancillary upgrades made in
the first quarter of fiscal 2008. Net proceeds from the
settlement of derivative instruments contributed
$34 million to Free cash flow in the three months ended
June 30, 2008 as compared to $47 million during the
three months ended June 30, 2007.
During the first quarter of fiscal 2008, negative Free cash flow
was impacted by costs associated with or triggered by the
Arrangement including: (1) $72 million paid in
share-based compensation payments, (2) $42 million
paid for sale transaction fees and (3) $25 million in
bonus payments for the 2006 calendar year and the period from
January 1, 2007 through May 15, 2007.
62
Investing
Activities
The following table presents information regarding our Net cash
provided by (used in) investing activities (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
Successor
|
|
|
Combined
|
|
|
|
|
|
Net proceeds from settlement of derivative instruments
|
|
$
|
34
|
|
|
$
|
47
|
|
|
$
|
(13
|
)
|
Capital expenditures
|
|
|
(33
|
)
|
|
|
(39
|
)
|
|
|
6
|
|
Proceeds from loans receivable net
|
|
|
8
|
|
|
|
4
|
|
|
|
4
|
|
Proceeds from sales of assets
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
6
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
$
|
16
|
|
|
$
|
15
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 approximately $90
$110 million, and that total annual capital expenditures
will be approximately $170 $190 million for the
remainder of fiscal year 2009.
The majority of our capital expenditures for the three months
ended June 30, 2008 and 2007 were for projects devoted to
product quality, technology, productivity enhancement and
increased capacity. Capital expenditures were slightly lower
between periods in all operating segments due, in part, to the
construction of Novelis
Fusiontm
ingot casting lines in our European and Asian Segments as well
as additional planned maintenance activities, improvements to
our Yeongju, Korea hot mill and other ancillary upgrades made in
the first quarter of fiscal 2008.
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.
Financing
Activities
Overview
The following table presents information regarding our Net cash
provided by (used in) financing activities (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
Successor
|
|
|
Combined
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
$
|
|
|
|
$
|
92
|
|
|
$
|
(92
|
)
|
Proceeds from issuance of debt
|
|
|
|
|
|
|
150
|
|
|
|
(150
|
)
|
Principal repayments
|
|
|
(4
|
)
|
|
|
(47
|
)
|
|
|
43
|
|
Short-term borrowings net
|
|
|
313
|
|
|
|
143
|
|
|
|
170
|
|
Dividends minority interests
|
|
|
|
|
|
|
(8
|
)
|
|
|
8
|
|
Debt issuance costs
|
|
|
|
|
|
|
(15
|
)
|
|
|
15
|
|
Proceeds from the exercise of stock options
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
$
|
309
|
|
|
$
|
316
|
|
|
$
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of fiscal 2008, we amended our then
existing senior secured credit facilities to increase its
capacity by $150 million. We used these proceeds to reduce
the outstanding balance of our then existing revolving credit
facility, thus increasing our borrowing capacity. This
additional capacity, along with $92 million of cash
received from the issuance additional shares indirectly to
Hindalco, allowed us to fund general working capital
requirements and certain costs associated with the Arrangement
including the cash
63
settlement of share-based compensation arrangements and lender
fees. Dividends paid to our minority interests, primarily in our
Asia operating segment, were $8 million and paid in the
first quarter of fiscal 2008.
During the first quarter of fiscal 2009, we increased our
short-term borrowing under our new revolving credit facility to
provide for general working capital requirements.
Senior
Secured Credit Facilities
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).
We incurred debt issuance costs on our New Credit Facilities
totaling $32 million. 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
$25 million as of June 30, 2008.
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.
As of June 30, 2008 approximately 87% of our debt was fixed
rate and approximately 13% was variable rate.
Short-Term
Borrowings and Letters of Credit
As of June 30, 2008, our short-term borrowings were
$430 million consisting of (1) $359 million of
short-term loans under our ABL facility, (2) a
$40 million short-term loan in Korea and
(3) $31 million in bank overdrafts. As of
June 30, 2008, $30 million of our ABL facility was
utilized for letters of credit and an additional
$158 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 3.63% as of
June 30, 2008.
Liquidity
As of July 31, 2008, the current LME price was $2,928 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 the
continued carry of additional working capital as a result of the
increased price levels. The largest driver of our liquidity is
tied to our working capital, which is significantly influenced
by the price of aluminum. If aluminum prices were to increase
further, we would see further reductions in our overall
liquidity position.
Our estimated liquidity as of June 30, 2008 and 2007 is as
follows (in millions).
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
|
Successor
|
|
Predecessor
|
|
Cash and cash equivalents
|
|
|
$296
|
|
|
|
$186
|
|
Amount available under senior secured credit facilities
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total estimated liquidity
|
|
|
$707
|
|
|
|
$186
|
|
|
|
|
|
|
|
|
|
|
64
Our liquidity increased during the first quarter of fiscal 2009
primarily as a result of refinancing our credit facilities to
provide for additional capacity. 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
$98 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
June 30, 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, resulting in a reduction of
available borrowings under our ABL facility of $80 million.
Additionally, as our available liquidity under the ABL facility
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. As of June 30, 2008, we were at our
maximum available borrowing base under our ABL facility. At
current prices for aluminum, we believe that our cash on hand,
together with cash provided by operations and borrowing
availability under our credit facilities, will be sufficient to
meet our obligations and fund our working capital requirements
for the foreseeable future.
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.
Derivative
Instruments
As of June 30, 2008, we have derivative financial
instruments, as defined by FASB Statement No. 133. See
Note 14 Financial Instruments and Commodity
Contracts to our accompanying condensed consolidated 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 condensed consolidated balance sheets.
65
Our condensed consolidated statement of operations for the three
months ended June 30, 2008 includes a gain of
$22 million presented in Other comprehensive income
(loss) net of tax for the change in fair value of
the effective portion of our cash flow hedges. As of
June 30, 2008, we expect to realize $3 million of
effective net gains during the next twelve months. The maximum
period over which we have hedged our exposure to cash flow
variability is through November 2016.
For the three months ended June 30, 2008, we recognized
gains of $38 million presented in Other comprehensive
income (loss) net of tax for the change in fair
value of the effective portion of our net investment hedges. As
of June 30, 2008, we expect to realize $10 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 June 30, 2008 and March 31, 2008 were
as follows (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2008
|
|
|
|
Maturity Dates
|
|
|
|
|
|
|
|
Net Fair
|
|
|
|
(Fiscal Year)
|
|
Assets
|
|
|
Liabilities
|
|
|
Value
|
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
2009 through 2012
|
|
$
|
50
|
|
|
$
|
(77
|
)
|
|
$
|
(27
|
)
|
Cross-currency swaps
|
|
2009 through 2015
|
|
|
7
|
|
|
|
(159
|
)
|
|
|
(152
|
)
|
Interest rate currency swaps
|
|
2009 through 2011
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
Interest rate swaps
|
|
2009 through 2010
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Aluminum forward contracts
|
|
2009 through 2011
|
|
|
122
|
|
|
|
(28
|
)
|
|
|
94
|
|
Aluminum options
|
|
2009 through 2011
|
|
|
6
|
|
|
|
(4
|
)
|
|
|
2
|
|
Electricity swap
|
|
2017
|
|
|
22
|
|
|
|
|
|
|
|
22
|
|
Embedded derivative instruments
|
|
2009
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Natural gas swaps
|
|
2009 through 2010
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value
|
|
|
|
|
230
|
|
|
|
(277
|
)
|
|
|
(47
|
)
|
Less: current portion
|
|
|
|
|
198
|
|
|
|
(120
|
)
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent portion
|
|
|
|
$
|
32
|
|
|
$
|
(157
|
)
|
|
$
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
203
|
|
|
|
(148
|
)
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent portion
|
|
|
|
$
|
21
|
|
|
$
|
(201
|
)
|
|
$
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
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 condensed consolidated financial statements,
all liabilities associated with trade payables and short-term
debt facilities for these entities are already included in our
condensed consolidated balance sheets.
The following table discloses information about our obligations
under guarantees of indebtedness of others as of June 30,
2008 (in millions). We did not have any obligations under
guarantees of indebtedness related to our majority-owned
subsidiaries as of June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
Liability
|
|
|
Potential Future
|
|
Carrying
|
|
|
Payment
|
|
Value
|
|
Wholly-owned Subsidiaries
|
|
$
|
83
|
|
|
$
|
60
|
|
Aluminium Norf GmbH
|
|
$
|
16
|
|
|
$
|
|
|
We have no retained or contingent interest in assets transferred
to an unconsolidated entity or similar entity or similar
arrangement that serves as credit, liquidity or market risk
support to that entity for such assets.
Other
As part of our ongoing business, we do not participate in
transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities
(SPEs), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. As of June 30,
2008 and March 31, 2008, we are not involved in any
unconsolidated SPE transactions.
CONTRACTUAL
OBLIGATIONS
We have future obligations under various contracts relating to
debt and interest payments, capital and operating leases,
long-term purchase obligations, postretirement benefit plans and
uncertain tax positions. During the quarter ended June 30,
2008, there were no significant changes to these obligations as
reported in our Annual Report on
Form 10-K/A
for the year ended March 31, 2008.
DIVIDENDS
No dividends have been declared since October 26, 2006.
Future dividends are at the discretion of the board of directors
and will depend on, among other things, our financial resources,
cash flows generated by our business, our cash requirements,
restrictions under the instruments governing our indebtedness,
being in compliance with the appropriate indentures and
covenants under the instruments that govern our indebtedness
that would allow us to legally pay dividends and other relevant
factors.
67
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
During the quarter ended June 30, 2008, there were no
significant changes to our critical accounting policies and
estimates as reported in our Annual Report on
Form 10-K/A
for the year ended March 31, 2008.
RECENT
ACCOUNTING STANDARDS
Recently
Adopted Accounting Standards
The following accounting standards have been adopted by us
during the three months ended June 30, 2008.
On April 1, 2008, we adopted FASB Statement No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities including an amendment of FASB Statement
No. 115 (FASB Statement No. 159). FASB Statement
No. 159 permits entities to choose to measure financial
instruments and certain other assets and liabilities at fair
value on an
instrument-by-instrument
basis (the fair value option) with changes in fair
value reported in earnings each reporting period. The fair value
option enables some companies to reduce the volatility in
reported earnings caused by measuring related assets and
liabilities differently without applying the complex hedge
accounting requirements under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities
(FASB Statement No. 133), to achieve similar results.
We already record our derivative contracts and hedging
activities at fair value in accordance with FASB Statement
No. 133. We did not elect the fair value option for any
other financial instruments or certain other financial assets
and liabilities that were not previously required to be measured
at fair value.
On April 1, 2008, we adopted FASB Statement No. 157,
Fair Value Measurements (FASB Statement No. 157), as
it relates to financial assets and financial liabilities. In
February 2008, the FASB issued FASB Staff Position
No. FAS 157-2,
Effective Date of FASB Statement No. 157, which
delayed our required adoption date of FASB Statement
No. 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at
fair value in the financial statements on at least an annual
basis, until April 1, 2009. Also in February 2008, the FASB
issued FASB Staff Position
No. FAS 157-1,
Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13, which states that FASB
Statement No. 13, Accounting for Leases, and other
accounting pronouncements that address fair value measurements
for purposes of lease classification or measurement under FASB
Statement No. 13 are excluded from the provisions of FASB
Statement No. 157, except for assets and liabilities
related to leases assumed in a business combination that are
required to be measured at fair value under FASB Statement
No. 141 or FASB Statement No. 141 (Revised),
Business Combinations. See Note 15 Fair
Value of Measurements regarding our adoption of this standard.
On April 1, 2008, we adopted FASB 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. Our adoption of this
standard did not have a material impact on our consolidated
financial position, results of operations and cash flows.
Recently
Issued Accounting Standards
The following new accounting standards have been issued, but
have not yet been adopted by us as of June 30, 2008, as
adoption is not required until future reporting periods.
In May 2008, the FASB issued Statement No. 162, The
Hierarchy of Generally Accepted Accounting Principles (FASB
Statement No. 162). 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.
68
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 April 2008, the FASB issued Staff Position
No. FAS 142-3,
Determination of Useful Life of Intangible Assets, (FSP
FAS 142-3).
FSP
FAS 142-3
amends the factors that should be considered in developing the
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under FASB Statement
No. 142, Goodwill and Other Intangible Assets. FSP
FAS 142-3
also requires expanded disclosure related to the determination
of intangible asset useful lives. FSP
FAS 142-3
is effective for 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 FSP
FAS 142-3
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 (FASB Statement No. 161), an amendment of
FASB Statement No. 133. 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
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 adoption permitted. FASB
Statement No. 161 permits, but does not require,
comparative disclosures for earlier periods upon 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 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,
Accounting for Income Taxes, 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
potential impact 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
(FASB Statement No. 160), 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.
69
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.
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. 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 Quarterly Report on
Form 10-Q
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 and the
effectiveness of our hedging programs and controls. 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. While we do not know what
impact any of these differences may have on our business, our
results of operations, financial condition, cash flow and the
market price of our securities may be materially adversely
affected. Factors that could cause actual results or outcomes to
differ from the results expressed or implied by forward-looking
statements include, among other things:
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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 cans (UBC) and smelter hedges;
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relationships with, and financial and operating conditions of,
our customers, suppliers and our ultimate parent, Hindalco;
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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;
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changes in the relative values of various currencies;
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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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70
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changes in general economic conditions;
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our ability to improve and 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. Some of these and
other factors are discussed in more detail under
Item 1A. Risk Factors in our Annual Report on
Form 10-K/A
for the year ended March 31, 2008.
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Item 3.
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Quantitative
and Qualitative Disclosures About Market Risk
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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 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 both our credit risk of non- performance and 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 June 30,
2008 condensed 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.
71
In addition, sales contracts representing approximately 8% of
our total shipments for the quarter ended June 30, 2008
provide for a ceiling over which metal prices could not
contractually be passed through to a customer, 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 our estimated shipments for the remainder of fiscal 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 an offsetting benefit to the can ceiling
contracts. 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 aluminum
futures and options to hedge our exposure to further metal price
increases.
During the quarter ended June 30, 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.
Sensitivities
The following table presents the estimated potential pre-tax
gain (loss) in the fair values of these derivative instruments
as of June 30, 2008, given a 10% change in the three-month
LME price ($ in millions).
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Change in
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Change in
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Rate/Price
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Fair Value
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Aluminum Forward Contracts
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10
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%
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$
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51
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Aluminum Options
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10
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%
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$
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2
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Electricity
and Natural Gas
We use several sources of energy in the manufacture and delivery
of our aluminum rolled products. In the quarter ended
June 30, 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 June 30, 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
segment. 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.
72
Sensitivities
The following table presents the estimated potential effect on
the fair values of these derivative instruments as of
June 30, 2008, given a 10% change in spot prices for energy
contracts ($ in millions).
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Change in
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Change in
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Rate/Price
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Fair Value
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Electricity
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10
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%
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$
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8
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Natural Gas
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10
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%
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$
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3
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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 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 condensed
consolidated balance sheets. Net sales and expenses in our
foreign operations foreign currencies are translated into
varying amounts of U.S. dollars, and these 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 14 Financial
Instruments and Commodity Contracts to our accompanying
condensed consolidated financial statements.
73
Sensitivities
The following table presents the estimated potential effect on
the fair values of these derivative instruments as of
June 30, 2008, given a 10% change in rates ($ in millions).
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Pre-Tax
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Gain
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Increase (Decrease) in
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(Loss) in
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Exchange Rate
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Fair Value
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Currency measured against the U.S. dollar
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Euro
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10
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%
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$
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(54
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Korean won
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10
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%
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$
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(11
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Brazilian real
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10
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%
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$
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39
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British pound
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10
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%
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$
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11
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Swiss franc
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10
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%
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$
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(1
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Malaysian ringgit
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10
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%
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$
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1
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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.
The following table presents the estimated potential pre-tax
loss in the fair values of these derivative instruments as of
June 30, 2008, assuming a 10% increase in rates ($ in
millions).
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Pre-Tax
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Increase in
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Loss in
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Rate
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Fair Value
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Currency measured against the U.S. dollar
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Euro
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10
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%
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$
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(86
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British pound
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10
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%
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$
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(14
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Swiss franc
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10
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%
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$
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(5
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)
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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
June 30, 2008, which includes $350 million of term
loan debt and other variable rate debt of $21 million.
There would be no significant impact on our annual pre-tax
income.
As of June 30, 2008, approximately 87% of our debt
obligations were at fixed rates. Due to the nature of fixed-rate
debt, there would be no significant impact on our interest
expense or cash flows from either a 10% increase or decrease in
market rates of interest.
From time to time, we have used interest rate swaps to manage
our debt cost. In Korea, we entered into interest rate swaps to
fix the interest rate on various floating rate debt. See
Note 9 Debt to our accompanying condensed
consolidated financial statements for further information.
74
Sensitivities
The following table presents the estimated potential effect on
the fair values of these derivative instruments as of
June 30, 2008 given a 10% change in rates ($ in millions).
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Change in
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Change in
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Rate
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Fair Value
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Interest Rate Swap Contracts
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North America
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10
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%
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$
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2
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Asia
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10
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%
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$
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Item 4.
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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 United States Securities Exchange Act of
1934, as amended (Exchange Act), is (1) recorded,
processed, summarized and reported within the time periods
specified in the rules and forms of the SEC 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 Quarterly Report on
Form 10-Q
for the period ended June 30, 2008, 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 June 30, 2008. Based on that
evaluation, the Principal Executive Officer and Principal
Financial Officer concluded that our disclosure controls and
procedures were not effective at a reasonable assurance level as
of June 30, 2008, because of the material weakness in our
internal control over financial reporting discussed below.
Notwithstanding the material weakness described below, our
management has concluded that the companys unaudited
condensed consolidated financial statements included in this
report are fairly stated, in all material respects, in
accordance with generally accepted accounting principles in the
United States of America (GAAP).
Changes
in Internal Control Over Financial Reporting
On June 27, 2008, Jeffrey Schwaneke, Vice President and
Controller (Principal Accounting Officer) resigned to pursue
another professional opportunity. Immediately upon
Mr. Schwanekes departure, we engaged an external
accounting consultant with previous public company accounting
experience to serve as Interim Controller.
There have been no other changes in our internal control over
financial reporting (as defined in
Rule 13a-15(f)
under the Exchange Act) during the period covered by this report
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Material
Weakness Existing as of June 30, 2008 and Remediation
Plan
A material weakness is a control deficiency, or a combination of
control deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a
material misstatement of the companys annual or interim
financial statements will not be prevented or detected on a
timely basis. As of June 30, 2008, we did not maintain
effective controls over the application of purchase accounting
for an equity method investee including related income tax
accounts. Specifically, our controls did not ensure the accuracy
of our purchase accounting adjustments for an equity method
investee, resulting in an error in our provision for income
taxes during the period we were finalizing our purchase
accounting. This control deficiency resulted in adjustments
affecting the period May, 15, 2007 through March 31, 2008
identified in Note 2 Restatement of Financial
Statements in the consolidated and combined financial statements
included in our
75
Form 10-K/A
filed with the SEC on August 11, 2008 (see
Note 2 Restatement of Financial Statements to
the accompanying condensed consolidated financial statements).
Additionally, this control deficiency could result in a material
misstatement of the accounts identified in
Note 2 Restatement of Financial Statements to
the accompanying condensed consolidated financial statements
that would result in a material misstatement of the
Companys annual or interim consolidated financial
statements that would not be prevented or detected. Accordingly,
management has determined that this control deficiency
constitutes a material weakness.
Our plan for remediating this material weakness includes the
following:
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1.
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We conducted a full review of the purchase accounting for the
Hindalco acquisition, including a review of the valuation
approach, as well as the related accounting for equity method
investees and related income tax accounts. This review was
conducted by the Principal Financial Officer, corporate and
regional financial officers, corporate and regional tax
personnel, and the companys external valuation expert.
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2.
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Management will re-evaluate all accounting and financial
reporting controls for purchase accounting and equity method
investees, including related income tax accounts.
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3.
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Training sessions will be conducted for key financial and tax
personnel regarding equity method accounting and related income
tax accounting matters.
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4.
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Management is transitioning certain purchase accounting
responsibilities to our regional financial personnel, including
tax personnel, and developing procedures to monitor the ongoing
activity in the regions.
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76
PART II.
OTHER INFORMATION
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Item 1.
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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 September 30, 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 September 30, 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 June 30, 2008 and March 31, 2008.
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
77
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 States Court of Appeals for
the Eleventh Circuit and filed its appellate brief on
July 11, 2008. On August 13, 2008, Novelis Corporation
filed its response brief with the United States Court of Appeals
for the Eleventh 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. (Anheuser-Busch) in federal court
in Ohio. Anheuser-Busch subsequently filed suit against Novelis
Corporation and the Company in federal court in Missouri. On
January 3, 2007, Anheuser-Buschs suit was transferred
to the Ohio federal court.
Novelis Corporation alleged that Anheuser-Busch 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 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 asked for a declaratory
judgment that Anheuser-Busch 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 filed a motion for
summary judgment. On May 22, 2008, the court granted
Anheuser-Buschs motion for summary judgment. Novelis
Corporation filed a notice of appeal with the United States
Court of Appeals for the Sixth Circuit on June 20, 2008.
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
78
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. 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, management
and the board of the joint venture are conducting their
activities as normal.
|
|
|
|
|
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 the
Form 8-K
filed by Novelis Inc. on January 7, 2005 (File
No. 001-32312))
|
|
3
|
.2
|
|
Amended and Restated Bylaws, adopted as of July 24, 2008
(incorporated by reference to Exhibit 3.2 to the
Form 8-K
filed by Novelis Inc. on July 25, 2008 (File
No. 001-32312))
|
|
4
|
.1
|
|
Shareholder Rights Agreement between Novelis and CIBC Mellon
Trust Company (incorporated by reference to
Exhibit 4.1 to the
Form 10-K
filed by Novelis Inc. on March 30, 2005 (File
No. 001-32312))
|
|
4
|
.2
|
|
Indenture, relating to the Notes, dated as of February 3,
2005, between the Company, the guarantors named on the signature
pages thereto and The Bank of New York Trust Company, N.A.,
as trustee (incorporated by reference to Exhibit 4.1 to our
Current Report on
Form 8-K
filed on February 3, 2005
(File No. 001-32312))
|
|
4
|
.3
|
|
Form of Note for 7
1/4% Senior
Notes due 2015 (incorporated by reference to Exhibit 4.1 to
the
Form S-4
filed by Novelis Inc. on August 3, 2005 (File
No. 331-127139))
|
|
4
|
.4
|
|
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 our Current
Report on
Form 8-K
file on February 13, 2007)
|
|
10
|
.1*
|
|
Employment Letter dated April 28, 2008 between Novelis Inc.
and Jean-Marc Germain
|
|
10
|
.2*
|
|
Form of Novelis Long-Term Incentive Plan for Fiscal
2009-2012
|
|
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. |
79
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
NOVELIS INC.
Steven Fisher
Chief Financial Officer
(Principal Financial Officer)
Date: August 14, 2008
80
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 the
Form 8-K
filed by Novelis Inc. on January 7, 2005 (File
No. 001-32312))
|
|
3
|
.2
|
|
Amended and Restated Bylaws, adopted as of July 24, 2008
(incorporated by reference to Exhibit 3.2 to the
Form 8-K
filed by Novelis Inc. on July 25, 2008 (File
No. 001-32312))
|
|
4
|
.1
|
|
Shareholder Rights Agreement between Novelis and CIBC Mellon
Trust Company (incorporated by reference to
Exhibit 4.1 to the
Form 10-K
filed by Novelis Inc. on March 30, 2005 (File
No. 001-32312))
|
|
4
|
.2
|
|
Indenture, relating to the Notes, dated as of February 3,
2005, between the Company, the guarantors named on the signature
pages thereto and The Bank of New York Trust Company, N.A.,
as trustee (incorporated by reference to Exhibit 4.1 to our
Current Report on
Form 8-K
filed on February 3, 2005 (File
No. 001-32312))
|
|
4
|
.3
|
|
Form of Note for 7
1/4% Senior
Notes due 2015 (incorporated by reference to Exhibit 4.1 to
the
Form S-4
filed by Novelis Inc. on August 3, 2005 (File
No. 331-127139))
|
|
4
|
.4
|
|
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 our Current
Report on
Form 8-K
file on February 13, 2007)
|
|
10
|
.1*
|
|
Employment Letter dated April 28, 2008 between Novelis Inc.
and Jean-Marc Germain
|
|
10
|
.2*
|
|
Form of Novelis Long-Term Incentive Plan for Fiscal
2009-2012
|
|
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. |
81