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
December 31, 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 January 31, 2009, the registrant had 77,459,658
common shares outstanding. All of the Registrants
outstanding shares were held indirectly by Hindalco Industries
Ltd., the Registrants parent company.
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
December 31, 2008; Three Months Ended December 31,
2007 (Restated); Nine Months Ended December 31, 2008;
May 16, 2007 Through December 31, 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 December 31, 2008 and March 31, 2008
(Restated)
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3
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Condensed Consolidated Statements of Cash Flows
(unaudited) Nine Months Ended December 31, 2008;
May 16, 2007 Through December 31, 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) Nine Months Ended
December 31, 2008 (Restated as to opening balance)
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6
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Notes to the Condensed Consolidated Financial
Statements (unaudited)
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7
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Managements Discussion and Analysis of
Financial Condition and Results of Operations
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55
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Quantitative and Qualitative Disclosures About
Market Risk
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89
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Controls and Procedures
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93
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PART II.
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OTHER INFORMATION
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Legal Proceedings
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95
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Risk Factors
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95
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Exhibits
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96
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EX-10.1 |
EX-10.2 |
EX-31.1 |
EX-31.2 |
EX-32.1 |
EX-32.2 |
1
PART I.
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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Three Months
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Nine Months
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May 16, 2007
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April 1, 2007
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Ended
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Ended
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Through
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Through
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December 31,
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December 31,
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December 31,
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May 15,
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2008
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2007
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2008
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2007
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2007
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(Restated)
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(Restated)
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Successor
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Successor
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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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2,176
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$
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2,735
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$
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8,238
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$
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7,103
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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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2,023
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2,474
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7,645
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6,465
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1,205
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Selling, general and administrative expenses
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73
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99
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246
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229
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95
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Depreciation and amortization
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107
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108
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330
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264
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28
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Research and development expenses
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11
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11
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33
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34
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6
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Interest expense and amortization of debt issuance costs, net
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44
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47
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125
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128
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26
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(Gain) loss on change in fair value of derivative instruments,
net
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405
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56
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524
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72
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(20
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Impairment of goodwill
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1,340
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1,340
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Restructuring charges, net
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15
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1
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14
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2
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1
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Equity in net (income) loss of non-consolidated affiliates
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166
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3
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166
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(16
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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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20
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(17
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)
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53
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(9
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3
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4,204
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2,782
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10,476
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7,169
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1,375
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Loss before income taxes and minority interests share
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(2,028
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)
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(47
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(2,238
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(66
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)
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(94
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)
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Income tax provision (benefit)
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(199
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)
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26
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(333
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)
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73
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4
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Loss before minority interests share
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(1,829
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(73
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(1,905
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(139
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(98
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Minority interests share
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9
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7
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2
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1
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Net loss
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(1,820
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)
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(73
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(1,898
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)
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(137
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)
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(97
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)
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Other comprehensive income (loss):
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Currency translation adjustment
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36
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(63
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)
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50
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31
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Change in fair value of effective portion of hedges
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(27
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)
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1
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(24
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5
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(1
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)
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Postretirement benefit plans:
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Amortization of net actuarial loss
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(1
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Change in pension and other benefits
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(17
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)
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(15
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)
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Other comprehensive income (loss) before income tax effect
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(44
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)
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37
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(102
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)
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55
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29
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Income tax provision (benefit) related to items of other
comprehensive income (loss)
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11
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(3
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)
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13
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(15
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)
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(4
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)
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Other comprehensive income (loss), net of tax
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(55
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)
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40
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(115
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)
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70
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33
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Comprehensive loss
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$
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(1,875
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)
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$
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(33
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)
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$
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(2,013
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)
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$
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(67
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)
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$
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(64
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)
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See accompanying notes to the condensed consolidated financial
statements.
2
Novelis
Inc.
(in
millions, except number of shares)
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December 31,
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March 31,
|
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2008
|
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2008
|
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(Restated)
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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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176
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$
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326
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|
Accounts receivable (net of allowances of $1 as of December 31
and March 31, 2008)
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third parties
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|
1,069
|
|
|
|
1,248
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|
related parties
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|
22
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|
|
|
31
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|
Inventories
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1,170
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1,455
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Prepaid expenses and other current assets
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73
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58
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|
Fair value of derivative instruments
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328
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|
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|
203
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Deferred income tax assets
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274
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125
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|
|
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Total current assets
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3,112
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3,446
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Property, plant and equipment, net
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2,920
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3,357
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Goodwill
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584
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1,930
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Intangible assets, net
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|
816
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|
888
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Investment in and advances to non-consolidated affiliates
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752
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|
946
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Fair value of derivative instruments, net of current portion
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71
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21
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Deferred income tax assets
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4
|
|
|
|
6
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|
Other long-term assets
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|
|
|
|
|
|
|
|
third parties
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|
87
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|
|
|
102
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|
related parties
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|
25
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|
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41
|
|
|
|
|
|
|
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Total assets
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$
|
8,371
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|
|
$
|
10,737
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|
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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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$
|
22
|
|
|
$
|
15
|
|
Short-term borrowings
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|
|
292
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|
|
|
115
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|
Accounts payable
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|
|
|
|
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third parties
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970
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|
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|
1,582
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|
related parties
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|
51
|
|
|
|
55
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|
Fair value of derivative instruments
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|
|
996
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|
|
|
148
|
|
Accrued expenses and other current liabilities
|
|
|
597
|
|
|
|
704
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,928
|
|
|
|
2,658
|
|
Long-term debt, net of current portion
|
|
|
2,540
|
|
|
|
2,560
|
|
Deferred income tax liabilities
|
|
|
520
|
|
|
|
754
|
|
Accrued postretirement benefits
|
|
|
432
|
|
|
|
421
|
|
Other long-term liabilities
|
|
|
335
|
|
|
|
672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,755
|
|
|
|
7,065
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests in equity of consolidated affiliates
|
|
|
106
|
|
|
|
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
December 31, 2008 and March 31, 2008
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
3,497
|
|
|
|
3,497
|
|
Accumulated deficit
|
|
|
(1,918
|
)
|
|
|
(20
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(69
|
)
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,510
|
|
|
|
3,523
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
8,371
|
|
|
$
|
10,737
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
3
Novelis
Inc.
(unaudited)
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,898
|
)
|
|
$
|
(137
|
)
|
|
|
$
|
(97
|
)
|
Adjustments to determine net cash provided by (used in)
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
330
|
|
|
|
264
|
|
|
|
|
28
|
|
(Gain) loss on change in fair value of derivative instruments,
net
|
|
|
524
|
|
|
|
72
|
|
|
|
|
(20
|
)
|
Deferred income taxes
|
|
|
(404
|
)
|
|
|
22
|
|
|
|
|
(18
|
)
|
Amortization of debt issuance costs
|
|
|
4
|
|
|
|
8
|
|
|
|
|
1
|
|
Write-off and amortization of fair value adjustments, net
|
|
|
(178
|
)
|
|
|
(156
|
)
|
|
|
|
|
|
Impairment of goodwill
|
|
|
1,340
|
|
|
|
|
|
|
|
|
|
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
166
|
|
|
|
(16
|
)
|
|
|
|
(1
|
)
|
Foreign exchange remeasurement on non-working capital items, net
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Gain on reversal of accrued legal claim
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
Provision for uncollectible accounts receivable
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
Inventory reserves and adjustments
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
Dividends from non-consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Minority interests share
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
|
(1
|
)
|
Impairment charges on long-lived assets
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sales of property, plant and equipment and
business, net
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
85
|
|
|
|
76
|
|
|
|
|
(21
|
)
|
related parties
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
Inventories
|
|
|
98
|
|
|
|
190
|
|
|
|
|
(76
|
)
|
Prepaid expenses and other current assets
|
|
|
(25
|
)
|
|
|
(1
|
)
|
|
|
|
(7
|
)
|
Other long-term assets
|
|
|
8
|
|
|
|
(4
|
)
|
|
|
|
(1
|
)
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(459
|
)
|
|
|
(260
|
)
|
|
|
|
(62
|
)
|
related parties
|
|
|
4
|
|
|
|
7
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
|
(45
|
)
|
|
|
(53
|
)
|
|
|
|
42
|
|
Accrued postretirement benefits
|
|
|
23
|
|
|
|
|
|
|
|
|
1
|
|
Other long-term liabilities
|
|
|
(33
|
)
|
|
|
17
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(434
|
)
|
|
|
29
|
|
|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(107
|
)
|
|
|
(120
|
)
|
|
|
|
(17
|
)
|
Net proceeds from settlement of derivative instruments
|
|
|
180
|
|
|
|
56
|
|
|
|
|
18
|
|
Proceeds from sales of property, plant and equipment and business
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
17
|
|
|
|
5
|
|
|
|
|
1
|
|
Proceeds from related parties loans receivable, net
|
|
|
18
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
112
|
|
|
|
(43
|
)
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
4
Novelis
Inc.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
8
|
|
|
|
1,100
|
|
|
|
|
150
|
|
Principal repayments
|
|
|
(11
|
)
|
|
|
(1,005
|
)
|
|
|
|
(1
|
)
|
Short-term borrowings, net
|
|
|
193
|
|
|
|
(103
|
)
|
|
|
|
60
|
|
Dividends minority interests
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
|
(7
|
)
|
Debt issuance costs
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
(2
|
)
|
Proceeds from the exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
185
|
|
|
|
46
|
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(137
|
)
|
|
|
32
|
|
|
|
|
(27
|
)
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
(13
|
)
|
|
|
(3
|
)
|
|
|
|
1
|
|
Cash and cash equivalents at beginning of period
|
|
|
326
|
|
|
|
102
|
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
176
|
|
|
$
|
131
|
|
|
|
$
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
101
|
|
|
$
|
122
|
|
|
|
$
|
13
|
|
Income taxes paid
|
|
$
|
87
|
|
|
$
|
50
|
|
|
|
$
|
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
|
|
|
|
|
|
$
|
(1,346
|
)
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
$
|
(1,645
|
)
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
|
$
|
(883
|
)
|
|
|
|
|
|
Investment in and advances to non-consolidated affiliates
|
|
|
|
|
|
$
|
(775
|
)
|
|
|
|
|
|
Debt
|
|
|
|
|
|
$
|
66
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
5
Novelis
Inc.
(in
millions, except number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2008 (Restated)
|
|
|
77,459,658
|
|
|
$
|
|
|
|
$
|
3,497
|
|
|
$
|
(20
|
)
|
|
$
|
46
|
|
|
$
|
3,523
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,898
|
)
|
|
|
|
|
|
|
(1,898
|
)
|
Currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
|
|
(90
|
)
|
Change in fair value of effective portion of hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
(17
|
)
|
Postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in pension and other benefits, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
77,459,658
|
|
|
$
|
|
|
|
$
|
3,497
|
|
|
$
|
(1,918
|
)
|
|
$
|
(69
|
)
|
|
$
|
1,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
6
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
December 31, 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. Management believes that all adjustments
necessary for the fair presentation of results, consisting of
normally recurring items, have been included in the unaudited
condensed consolidated financial statements for the interim
periods presented. The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The principal areas
of judgment relate to derivative financial instruments,
impairment of long-lived assets including goodwill and
intangible assets and income taxes.
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 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 (FASB 141). Due to
the impact of push down accounting, the Companys condensed
consolidated financial statements and certain note presentations
for the nine months ended December 31, 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 December 31, 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.
7
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Reclassifications
Certain reclassifications of the prior period amounts and
presentation have been made to conform to the presentation
adopted for the current periods. The following reclassification
and presentation changes were made to the prior periods
condensed consolidated balance sheets to conform to the current
period presentation: Fair value of derivative instruments
were reclassified from Accrued expenses and other current
liabilities to a separate line item. The amount of the
reclassification was $148 million at March 31, 2008.
This reclassification had no effect on total assets, total
shareholders equity, net income (loss) or cash flows as
previously presented.
During the quarter ended December 31, 2008, we reclassified
$6 million from Deferred income tax assets,
$2 million from Accrued expenses and other current
liabilities, and $53 million from Deferred income
tax liabilities to Goodwill due to a
misclassification on the opening balance sheet of the Successor
company. The impact of this reclassification increased total
assets and total liabilities by $55 million, but had no
effect on total shareholders equity, net income (loss) or
cash flows as previously presented and is not considered
material to the March 31, 2008 financial statements.
Recently
Adopted Accounting Standards
The following accounting standards have been adopted by us
during the nine months ended December 31, 2008.
During the quarter ended December 31, 2008, we adopted FASB
Staff Position (FSP)
No. FAS 140-4
and FASB Interpretation No. 46(R)-8 (FIN 46(R)-8),
Disclosures by Public Entities (Enterprises) about Transfers
of Financial Assets and Interests in Variable Interest Entities.
FIN 46(R)-8 calls for enhanced disclosures by public
entities about interests in variable interest entities (VIE) and
provides users of the financial statements with greater
transparency about an enterprises involvement with
variable interest entities. As FIN 46(R)-8 only requires
enhanced disclosures, this FSP will have no impact on our
consolidated financial position, results of operations and cash
flows. See Note 8 Consolidation of Variable
Interest Entities for these expanded disclosures.
During the quarter ended December 31, 2008, we adopted FASB
Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles (FASB 162). FASB 162 defines the order
in which accounting principles that are generally accepted
should be followed. Due to the nature of FASB 162, this standard
will have no impact on our consolidated financial position,
results of operations and cash flows.
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 159). FASB 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 133), to achieve similar results. We already record
our derivative contracts and hedging activities at fair value in
accordance with FASB 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 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 157 for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair
8
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
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 (FASB 13),
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 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 141 or FASB
Statement No. 141 (Revised), Business Combinations.
See Note 16 Fair Value Measurements regarding
our adoption of this standard.
On April 1, 2008, we adopted FASB Staff Position
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 December 31, 2008, as
adoption is not required until future reporting periods.
On December 30, 2008, the FASB issued FSP
No. 132(R)-1, Employers Disclosures about Pensions
and Other Postretirement Benefits (FSP No. 132(R)-1).
FSP No. 132(R)-1 requires that an employer disclose the
following information about the fair value of plan assets:
1) how investment allocation decisions are made, including
the factors that are pertinent to understanding of investment
policies and strategies; 2) the major categories of plans
assets; 3) the inputs and valuation techniques used to
measure the fair value of plan assets; 4) the effect
of fair value measurements using significant unobservable inputs
on changes in plan assets for the period; and
5) significant concentrations of risk within plan assets.
FSP No. 132(R)-1 will be effective for fiscal years ending
after December 15, 2009, with early application permitted.
At initial adoption, application of FSP No. 132(R)-1 would
not be required for earlier periods that are presented for
comparative purposes. We have not yet commenced evaluating the
potential impact, if any, of the adoption of FSP
No. 132(R)-1 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, an amendment of FASB Statement No. 133
(FASB 161). FASB 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 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 161 is effective for financial
statements issued for fiscal years and interim periods beginning
after
9
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
November 15, 2008, with early adoption permitted. FASB 161
permits, but does not require, comparative disclosures for
earlier periods upon initial adoption. As FASB 161 only requires
enhanced disclosures, this standard will have no impact on our
consolidated financial position, results of operations and cash
flows.
In December 2007, the FASB issued Statement No. 141
(Revised), Business Combinations (FASB 141(R)). FASB
141(R) establishes principles and requirements for how the
acquirer in a business combination (i) recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree, (ii) recognizes and measures the
goodwill acquired in the business combination or a gain from a
bargain purchase, and (iii) determines what information to
disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.
FASB 141(R) also requires acquirers to estimate the
acquisition-date fair value of any contingent consideration and
to recognize any subsequent changes in the fair value of
contingent consideration in earnings. We will 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 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 141(R) would also
apply the provisions of FASB 141(R). Early adoption is
prohibited. We are currently evaluating the effects that
FASB 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 160). FASB 160 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 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 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.
|
Impact of
Market Conditions on our Business
|
The deterioration of global economic conditions combined with
rapidly declining aluminum prices from a peak of $3,292 per
tonne in July 2008 to $1,455 per tonne on December 31, 2008
have placed pressure on our short-term liquidity. However, we
believe we have sufficient long-term financing in place, with
only $22 million of our long-term debt due within the next
12 months.
Demand for flat rolled products decreased in our third fiscal
quarter by 13% as compared to the prior year. While we have
begun taking cost reduction measures, due to the capital
intensive nature of our business, we have been unable to make
corresponding short term adjustments to our capacity and fixed
cost structure to fully address these demand issues. These
circumstances decrease cash generated by operations and increase
the effect of timing issues related to our settlement of
aluminum forward contracts versus cash collection from our
customers. Looking forward, we have uncertainty regarding
customer credit due to the weakening demand as a result of the
global recession in certain of our customers end markets,
particularly the construction and automotive markets.
10
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
We enter into derivative instruments to hedge forecasted
purchases and sales of aluminum. Based on the aluminum price
forward curve as of December 31, 2008, we expect
approximately $580 million of cash outflows related to
settlement of these derivative instruments through the end of
fiscal 2010, including $260 million during the fourth
fiscal quarter of 2009. Except for approximately $160 million of
cash outflows related to hedges of our exposure to metal price
ceilings, we expect all of these outflows will be recovered
through collection of customer accounts receivable, typically on
a 30-60 day lag. Accordingly, this difference in timing
will place pressure on our short term liquidity outlook.
In the near term, our forecast indicates our liquidity position
will be tight, but adequate as we settle our outstanding
derivative positions. However, our liquidity needs could
increase due to the unpredictability of current market
conditions and their potential effect on customer credit, future
derivative settlements, future sales volume or other matters. We
cannot be assured that in the event of such deteriorating
conditions we would have adequate liquidity. As a result,
management has undertaken a number of activities to generate
cash in the near term as well implement changes in our cost
structure that will benefit our liquidity in the long-term.
In February 2009, we entered into an unsecured credit facility
of $100 million with a scheduled maturity date of
January 15, 2015 from a company affiliated with the Aditya
Birla group, and we have drawn down $75 million of this
facility to increase our cash position. We have also implemented
cost cutting initiatives, cut capital expenditures, reduced
inventory, and begun to restructure a number of facilities and
overhead staff, which will improve our long-term liquidity
position. Further, we are continuing to explore other possible
near term cash generation activities, including accelerating
certain customer payments to match the timing of the settlement
of forward metal purchases to improve our short-term liquidity
position.
|
|
3.
|
Restatement
of Financial Statements
|
We have restated our consolidated balance sheet as of
March 31, 2008 and our consolidated statements of
operations and comprehensive income (loss) and of cash flows for
the period from May 16, 2007 through December 31, 2007
to correct non-cash accounting 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 did 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 11 Debt). See our Annual
Report on
Form 10-K/A
filed with the SEC on August 11, 2008 for details of these
corrections, including the effects of the restatement on our
March 31, 2008 balance sheet. Items in the accompanying
condensed consolidated financial statements and related notes
that have been restated are marked accordingly.
11
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
The following tables highlight the financial statement effects
related to the above corrections for the period from
May 16, 2007 through December 31, 2007. Our condensed
consolidated statement of operations and comprehensive loss for
the three months ended December 31, 2007 is restated as
follows (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
December 31, 2007
|
|
|
|
As Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Restatements
|
|
|
Restated
|
|
|
|
Successor
|
|
|
|
|
|
Successor
|
|
|
Net sales
|
|
$
|
2,735
|
|
|
$
|
|
|
|
$
|
2,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
2,475
|
|
|
|
(1
|
)
|
|
|
2,474
|
|
Selling, general and administrative expenses
|
|
|
99
|
|
|
|
|
|
|
|
99
|
|
Depreciation and amortization
|
|
|
105
|
|
|
|
3
|
|
|
|
108
|
|
Research and development expenses
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
Interest expense and amortization of debt issuance costs, net
|
|
|
47
|
|
|
|
|
|
|
|
47
|
|
Loss on change in fair value of derivative instruments, net
|
|
|
50
|
|
|
|
6
|
|
|
|
56
|
|
Restructuring charges, net
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
3
|
|
Other income, net
|
|
|
(12
|
)
|
|
|
(5
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,780
|
|
|
|
2
|
|
|
|
2,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and minority interests share
|
|
|
(45
|
)
|
|
|
(2
|
)
|
|
|
(47
|
)
|
Income tax provision
|
|
|
4
|
|
|
|
22
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interests share
|
|
|
(49
|
)
|
|
|
(24
|
)
|
|
|
(73
|
)
|
Minority interests share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(49
|
)
|
|
|
(24
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
36
|
|
|
|
|
|
|
|
36
|
|
Change in fair value of effective portion of hedges, net
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before income tax effect
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
Income tax benefit related to items of other comprehensive income
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax
|
|
|
40
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(9
|
)
|
|
$
|
(24
|
)
|
|
$
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Our condensed consolidated statement of operations and
comprehensive loss for the period from May 16, 2007 through
December 31, 2007 is restated as follows (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
Through
|
|
|
|
December 31, 2007
|
|
|
|
As Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Restatements
|
|
|
Restated
|
|
|
|
Successor
|
|
|
|
|
|
Successor
|
|
|
Net sales
|
|
$
|
7,103
|
|
|
$
|
|
|
|
$
|
7,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
6,466
|
|
|
|
(1
|
)
|
|
|
6,465
|
|
Selling, general and administrative expenses
|
|
|
229
|
|
|
|
|
|
|
|
229
|
|
Depreciation and amortization
|
|
|
260
|
|
|
|
4
|
|
|
|
264
|
|
Research and development expenses
|
|
|
34
|
|
|
|
|
|
|
|
34
|
|
Interest expense and amortization of debt issuance costs, net
|
|
|
128
|
|
|
|
|
|
|
|
128
|
|
Loss on change in fair value of derivative instruments, net
|
|
|
72
|
|
|
|
|
|
|
|
72
|
|
Restructuring charges, net
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
9
|
|
|
|
(25
|
)
|
|
|
(16
|
)
|
Other income, net
|
|
|
(9
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,191
|
|
|
|
(22
|
)
|
|
|
7,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for taxes on loss and minority
interests share
|
|
|
(88
|
)
|
|
|
22
|
|
|
|
(66
|
)
|
Income tax provision
|
|
|
4
|
|
|
|
69
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interests share
|
|
|
(92
|
)
|
|
|
(47
|
)
|
|
|
(139
|
)
|
Minority interests share
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(90
|
)
|
|
|
(47
|
)
|
|
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
50
|
|
|
|
|
|
|
|
50
|
|
Change in fair value of effective portion of hedges, net
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before income tax effect
|
|
|
55
|
|
|
|
|
|
|
|
55
|
|
Income tax benefit related to items of other comprehensive income
|
|
|
(15
|
)
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(20
|
)
|
|
$
|
(47
|
)
|
|
$
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
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 December 31, 2007 is
restated as follows (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2007
|
|
|
|
Through
|
|
|
|
December 31, 2007
|
|
|
|
As Previously
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Restatements
|
|
|
Restated
|
|
|
|
Successor
|
|
|
|
|
|
Successor
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(90
|
)
|
|
$
|
(47
|
)
|
|
$
|
(137
|
)
|
Adjustments to determine net cash provided by (used in)
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
260
|
|
|
|
4
|
|
|
|
264
|
|
Loss on change in fair value of derivative instruments, net
|
|
|
72
|
|
|
|
|
|
|
|
72
|
|
Deferred income taxes
|
|
|
(46
|
)
|
|
|
68
|
|
|
|
22
|
|
Amortization of debt issuance costs
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
Write-off and amortization of fair value adjustments, net
|
|
|
(156
|
)
|
|
|
|
|
|
|
(156
|
)
|
Provision for uncollectible accounts receivable
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Equity in net (income) loss of non-consolidated affiliates
|
|
|
9
|
|
|
|
(25
|
)
|
|
|
(16
|
)
|
Minority interests share
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
Changes in assets and liabilities (net of effects from
acquisitions and divestitures):
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
76
|
|
|
|
|
|
|
|
76
|
|
related parties
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Inventories
|
|
|
190
|
|
|
|
|
|
|
|
190
|
|
Prepaid expenses and other current assets
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Other long-term assets
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
|
|
third parties
|
|
|
(260
|
)
|
|
|
|
|
|
|
(260
|
)
|
related parties
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Accrued expenses and other current liabilities
|
|
|
(53
|
)
|
|
|
|
|
|
|
(53
|
)
|
Accrued postretirement benefits
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
Other long-term liabilities
|
|
|
17
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
31
|
|
|
|
(2
|
)
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(120
|
)
|
|
|
|
|
|
|
(120
|
)
|
Net proceeds from settlement of derivative instruments
|
|
|
56
|
|
|
|
|
|
|
|
56
|
|
Proceeds from sales of property, plant and equipment and business
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Changes to investment in and advances to non-consolidated
affiliates
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Proceeds from related parties loans receivable, net
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(43
|
)
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
92
|
|
|
|
|
|
|
|
92
|
|
Proceeds from issuance of debt
|
|
|
1,100
|
|
|
|
|
|
|
|
1,100
|
|
Principal repayments
|
|
|
(1,005
|
)
|
|
|
|
|
|
|
(1,005
|
)
|
Short-term borrowings, net
|
|
|
(103
|
)
|
|
|
|
|
|
|
(103
|
)
|
Dividends minority interests
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Debt issuance costs
|
|
|
(37
|
)
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
46
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
34
|
|
|
|
(2
|
)
|
|
|
32
|
|
Effect of exchange rate changes on cash balances held in
foreign currencies
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
102
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
133
|
|
|
$
|
(2
|
)
|
|
$
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
4.
|
Impairment
of Goodwill and Investment in Affiliate
|
In accordance with FASB Statement No. 142, Goodwill and
Intangible Assets (FASB 142), we evaluate the carrying value
of goodwill for potential impairment annually during the fourth
fiscal quarter of each year or on an interim basis if an event
occurs or circumstances change that indicate that the fair value
of a reporting unit is likely to be below its carrying value.
During the third fiscal quarter of 2009, we concluded that
interim impairment testing was required due to the recent
deterioration in the global economic environment and the
resulting significant decrease in both the market capitalization
of our parent company and the valuation of our publicly traded
7.25% Senior Notes.
We test consolidated goodwill for impairment using a fair value
approach at the reporting unit level. We use our operating
segments as our reporting units and perform our goodwill
impairment test in two steps. Step one compares the fair value
of each reporting unit (operating segment) to its carrying
amount. If step one indicates that an impairment potentially
exists, the second step is performed to measure the amount of
impairment, if any. Goodwill impairment exists when the
estimated fair value of goodwill is less than its carrying value.
For purposes of our step one analysis, our estimate of fair
value for each reporting unit is based on a combination of
(1) quoted market prices/relationships (the market
approach), (2) discounted cash flows (the
income approach) and (3) a stock price
build-up
approach (the
build-up
approach). Under the market approach, the fair value of
each reporting unit is determined based upon comparisons to
public companies engaged in similar businesses. Under the income
approach, the fair value of each reporting unit was based on the
present value of estimated future cash flows. The income
approach is dependent on a number of significant management
assumptions including estimated demand in each geographic market
and the discount rate. The discount rate is commensurate with
the risk inherent in the projected cash flows and reflects the
rate of return required by an investor in the current economic
conditions. Under the
build-up
approach, which is a variation of the market approach, we
estimate the fair value of each reporting unit based on the
estimated contribution of each of the reporting units to
Hindalcos total business enterprise value. The estimated
fair value for each reporting unit is within the range of fair
values yielded under each approach. The results of our step one
test indicated a potential impairment.
Due to the complexities involved in determining the implied fair
value of the goodwill of each reporting unit, we have not
finalized our evaluation as of the filing of this Quarterly
Report on
Form 10-Q
for the third quarter of fiscal 2009. However, based upon the
work performed to date, we have concluded that an impairment is
probable and can be reasonably estimated. Accordingly, we have
recorded a $1.3 billion charge representing our best
estimate of the impairment of consolidated goodwill for the
quarter ended December 31, 2008. We also evaluated the
carrying value of our investment in Aluminium Norf GmbH for
impairment. This resulted in an impairment charge of
$160 million, which is reported in Equity in net
(income) loss of non-consolidated affiliates on the
condensed consolidated statement of operations.
The table below summarizes goodwill by reporting unit (in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
Other
|
|
|
December 31,
|
|
Reporting Unit
|
|
2008(A)
|
|
|
Impairments
|
|
|
Adjustments(B)
|
|
|
2008
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
Successor
|
|
|
North America
|
|
$
|
1,149
|
|
|
$
|
(860
|
)
|
|
$
|
(1
|
)
|
|
$
|
288
|
|
Europe
|
|
|
518
|
|
|
|
(330
|
)
|
|
|
(5
|
)
|
|
|
183
|
|
South America
|
|
|
263
|
|
|
|
(150
|
)
|
|
|
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,930
|
|
|
$
|
(1,340
|
)
|
|
$
|
(6
|
)
|
|
$
|
584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
|
(A) |
|
See Note 1 Business and Summary of Significant
Accounting Policies (Reclassifications) for
discussion of goodwill balance reclassification at
March 31, 2008. |
|
(B) |
|
Other adjustments include: (1) an adjustment in North
America for final payment related to the transfer of pension
plans in Canada for employees who elected to transfer their past
service to Novelis during the quarter ended June 30, 2008
and (2) adjustments in Europe related to tax audits during
the quarters ended September 30, 2008 and December 31,
2008. |
We expect to finalize our goodwill impairment testing during the
fourth quarter of fiscal 2009. Any adjustments to our estimates
recorded in the third quarter as a result of completing this
evaluation will be recorded in our financial statements for the
quarter ended March 31, 2009.
We recorded charges of $34 million and $38 million
related to the write down of aluminum inventory to the lower of
cost or market for the three and nine months ended
December 31, 2008, respectively. Inventories consist of the
following (in millions).
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
March 31, 2008
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Finished goods
|
|
$
|
290
|
|
|
$
|
381
|
|
Work in process
|
|
|
408
|
|
|
|
638
|
|
Raw materials
|
|
|
387
|
|
|
|
362
|
|
Supplies
|
|
|
88
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,173
|
|
|
|
1,456
|
|
Allowances
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
1,170
|
|
|
$
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Property,
Plant and Equipment
|
Property, plant and equipment, net, consists of the following
(in millions).
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
March 31, 2008
|
|
|
|
|
|
|
(Restated)
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Land and property rights
|
|
$
|
224
|
|
|
$
|
258
|
|
Buildings
|
|
|
751
|
|
|
|
826
|
|
Machinery and equipment
|
|
|
2,461
|
|
|
|
2,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,436
|
|
|
|
3,544
|
|
Accumulated depreciation and amortization
|
|
|
(612
|
)
|
|
|
(331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,824
|
|
|
|
3,213
|
|
Construction in progress
|
|
|
96
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
2,920
|
|
|
$
|
3,357
|
|
|
|
|
|
|
|
|
|
|
16
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Total depreciation expense is shown in the table below (in
millions). We capitalized no material amounts of interest on
construction projects related to property, plant and equipment
for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Depreciation expense related to property, plant and equipment
|
|
$
|
96
|
|
|
$
|
97
|
|
|
$
|
299
|
|
|
$
|
239
|
|
|
|
$
|
28
|
|
The components of amortization expense related to intangible
assets are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Total Amortization expense related to intangible assets
|
|
$
|
16
|
|
|
$
|
17
|
|
|
$
|
46
|
|
|
$
|
39
|
|
|
|
$
|
|
|
Less: Amortization expense related to intangible assets included
in Cost of goods sold(A)
|
|
|
(5
|
)
|
|
|
(6
|
)
|
|
|
(15
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to intangible assets included in
Depreciation and amortization
|
|
$
|
11
|
|
|
$
|
11
|
|
|
$
|
31
|
|
|
$
|
25
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Relates to amortization of favorable energy and other supply
contracts. |
|
|
7.
|
Restructuring
Programs
|
The following table summarizes the activity in our restructuring
reserves (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Exit
|
|
|
|
|
|
|
Severance Reserves
|
|
|
Related Reserves
|
|
|
Total
|
|
|
|
|
|
|
North
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
Restructuring
|
|
|
|
Europe
|
|
|
America
|
|
|
and Other
|
|
|
Total
|
|
|
Europe
|
|
|
America
|
|
|
Total
|
|
|
Reserves
|
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2008
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
16
|
|
|
$
|
1
|
|
|
$
|
17
|
|
|
$
|
24
|
|
Provisions (recoveries), net
|
|
|
|
|
|
|
11
|
|
|
|
3
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Cash payments
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
(8
|
)
|
Other adjustments
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
1
|
|
|
$
|
13
|
|
|
$
|
3
|
|
|
$
|
17
|
|
|
$
|
10
|
|
|
$
|
1
|
|
|
$
|
11
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended December 31, 2008, we recorded
$15 million severance charge related to voluntary and
involuntary separation programs for salaried employees in North
America and Corporate aimed at reducing staff levels.
|
|
8.
|
Consolidation
of Variable Interest Entities
|
FASB Interpretation No. 46 (Revised) (FIN 46(R))
addresses the consolidation of business enterprises to which the
usual condition (ownership of a majority voting interest) of
consolidation does not apply. FIN 46(R)
17
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
requires a variable interest entity (VIE) to be consolidated if
a party with an ownership, contractual or other financial
interest in the VIE (1) is obligated to absorb a majority
of the expected losses from the VIEs activities,
(2) is entitled to receive a majority of the VIEs
residual returns (if no party absorbs a majority of the
VIEs losses), or (3) both, even if the company does
not have clear voting control. Variable interests in a variable
interest entity are contractual, ownership, or other interests
in an entity that change with change in the fair value of the
entitys net assets exclusive of variable interests. In
December 2008, the FASB issued FSP No. FIN 46(R)-8
which requires enhanced disclosures about interests in VIEs.
As of December 31, 2008, we have a variable interest in
Logan Aluminum, Inc. (Logan) and consolidate the entity pursuant
to FIN 46(R). All significant intercompany transactions and
balances have been eliminated.
Logan
Organization and Operations
In 1985, Alcan purchased an interest in Logan to provide tolling
services jointly with ARCO Aluminum, Inc. (ARCO). Logan also
produces approximately one-third of the can sheet utilized in
the U.S. can sheet market. According to the joint venture
agreements between Alcan and ARCO, Alcan owned 40 shares of
Class A common stock and ARCO owned 60 shares of
Class B common stock in Logan. Each share provides its
holder with one vote, regardless of class. However, Class A
shareholders have the right to select four directors, and
Class B shareholders have the right to select three
directors. Generally, a majority vote is required for the Logan
board of directors to take action. In connection with our
spin-off from Alcan in January 2005, Alcan transferred all of
its rights and obligations under a joint venture agreement and
subsequent ancillary agreements (collectively, the JV
Agreements) to us. On May 24, 2007, ARCO filed a complaint
against us regarding a perceived dispute over management and
control of Logan following Hindalcos acquisition of
Novelis (see ARCO Aluminum Complaint in
Note 19 Commitments and Contingencies).
Logan processes metal received from Novelis and ARCO and charges
the respective partner a fee to cover expenses. Logan has no
equity and relies on the regular reimbursement of costs and
expenses by Novelis and ARCO to fund its operations. This
reimbursement is considered a variable interest as it
constitutes a form of financing of the activities of Logan.
Other than these contractually required reimbursements, we do
not provide other additional support to Logan. We are obligated
to absorb a majority of the risk of loss; however, Logans
creditors do not have recourse to our general credit.
Primary
Beneficiary
A variable interest holder that consolidates the VIE is called
the primary beneficiary. Upon consolidation, the primary
beneficiary generally must initially record all of the
VIEs assets, liabilities and non-controlling interests at
fair value. Generally, the primary beneficiary is the reporting
enterprise with a variable interest in the entity that is
obligated to absorb the majority (greater than 50%) of the
VIEs expected loss.
In a 1989 restructuring program, Alcan acquired the right to use
the excess capacity that existed on the hot mill at Logan. To
utilize this excess capacity, in 1992 Alcan installed a cold
mill that ARCO did not participate in. Subsequent to the
installation of the cold mill, we gained the ability to take the
majority share of production and costs, which qualifies Novelis
as Logans primary beneficiary under FIN 46(R).
18
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Carrying
Value
The following table summarizes the carrying value and
classification of assets and liabilities on our condensed
consolidated balance sheets owned by the Logan joint venture and
consolidated under FIN 46(R). There are significant other assets
used in the operations of Logan that are not part of the joint
venture (in millions).
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
March 31, 2008
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Current assets
|
|
$
|
36
|
|
|
$
|
35
|
|
Total assets
|
|
$
|
63
|
|
|
$
|
60
|
|
Current liabilities
|
|
$
|
(26
|
)
|
|
$
|
(21
|
)
|
Total liabilities
|
|
$
|
(71
|
)
|
|
$
|
(57
|
)
|
Net carrying value
|
|
$
|
(8
|
)
|
|
$
|
3
|
|
|
|
9.
|
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 December 31, 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
|
%
|
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. These results also do not include the
$160 million impairment charge to reduce the carrying value
of our investment in Aluminium Norf GmbH. (See
Note 4 Impairment of Goodwill and Investment in
Affiliate.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
Net sales
|
|
$
|
115
|
|
|
$
|
161
|
|
|
$
|
439
|
|
|
$
|
384
|
|
|
$
|
45
|
|
Costs, expenses and provisions for taxes on income
|
|
|
112
|
|
|
|
137
|
|
|
|
400
|
|
|
|
348
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3
|
|
|
$
|
24
|
|
|
$
|
39
|
|
|
$
|
36
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
The table below summarizes our incremental depreciation and
amortization expense on our equity method investments due to the
Arrangement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Incremental depreciation and amortization expense
|
|
$
|
12
|
|
|
$
|
15
|
|
|
$
|
38
|
|
|
$
|
27
|
|
|
|
$
|
|
|
Tax benefit(A)
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(12
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental depreciation and amortization expense, net
|
|
$
|
8
|
|
|
$
|
14
|
|
|
$
|
26
|
|
|
$
|
2
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The tax benefits for the three months ended December 31,
2007 and the period from May 16, 2007 through
December 31, 2007 includes tax benefits associated with
amortization and a statutory tax rate change recorded as part of
our equity method accounting for these investments. There were
no such statutory tax rate changes in the other periods noted in
the table above. |
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 payable
to us from Aluminium Norf GmbH during each of the periods
presented in the table below. The following table describes the
nature and amounts of significant transactions that we had with
related parties (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Purchases of tolling services and electricity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminium Norf GmbH(A)
|
|
$
|
56
|
|
|
$
|
77
|
|
|
$
|
203
|
|
|
$
|
182
|
|
|
|
$
|
21
|
|
Consorcio Candonga(B)
|
|
|
2
|
|
|
|
4
|
|
|
|
15
|
|
|
|
9
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchases from related parties
|
|
$
|
58
|
|
|
$
|
81
|
|
|
$
|
218
|
|
|
$
|
191
|
|
|
|
$
|
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.
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
March 31, 2008
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Accounts receivable(A)
|
|
$
|
22
|
|
|
$
|
31
|
|
Other long-term receivables(A)
|
|
$
|
25
|
|
|
$
|
41
|
|
Accounts payable(B)
|
|
$
|
51
|
|
|
$
|
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. |
20
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
10.
|
Accrued
Expenses and Other Current Liabilities
|
Accrued expenses and other current liabilities are comprised of
the following (in millions).
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
March 31, 2008
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Accrued compensation and benefits
|
|
$
|
97
|
|
|
$
|
141
|
|
Accrued settlement of legal claim
|
|
|
|
|
|
|
39
|
|
Accrued interest payable
|
|
|
41
|
|
|
|
15
|
|
Accrued income taxes
|
|
|
39
|
|
|
|
37
|
|
Current portion of fair value of unfavorable sales contracts
|
|
|
208
|
|
|
|
242
|
|
Other current liabilities
|
|
|
212
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
$
|
597
|
|
|
$
|
704
|
|
|
|
|
|
|
|
|
|
|
Debt consists of the following (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
|
$
|
61
|
|
|
$
|
1,460
|
|
|
$
|
1,399
|
|
|
$
|
67
|
|
|
$
|
1,466
|
|
Floating rate Term Loan facility, due July 2014(E)
|
|
|
3.44
|
%
|
|
|
295
|
|
|
|
|
|
|
|
295
|
|
|
|
298
|
|
|
|
|
|
|
|
298
|
|
Novelis Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate Term Loan facility, due July 2014(E)
|
|
|
3.44
|
%(C)
|
|
|
650
|
|
|
|
|
|
|
|
650
|
|
|
|
655
|
|
|
|
|
|
|
|
655
|
|
Novelis Switzerland S.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation, due January 2020 (Swiss francs (CHF)
52 million)
|
|
|
7.50
|
%
|
|
|
48
|
|
|
|
(3
|
)
|
|
|
45
|
|
|
|
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 loan, due May 2009 (Korean won (KRW) 10 billion)
|
|
|
7.47
|
%
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans, due September 2010 through June 2011 (KRW
400 million)
|
|
|
3.50
|
%(D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt, due April 2009 through December 2012
|
|
|
1.08
|
%(D)
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
|
|
|
|
2,504
|
|
|
|
58
|
|
|
|
2,562
|
|
|
|
2,512
|
|
|
|
63
|
|
|
|
2,575
|
|
Less: current portion
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
(22
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
|
|
|
$
|
2,482
|
|
|
$
|
58
|
|
|
$
|
2,540
|
|
|
$
|
2,497
|
|
|
$
|
63
|
|
|
$
|
2,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
|
(A) |
|
Interest rates are as of December 31, 2008 and exclude the
effects of accretion/amortization of fair value adjustments as a
result of the Arrangement. |
|
(B) |
|
Debt was recorded at fair value as a result of the Arrangement. |
|
(C) |
|
Excludes the effect of related interest rate swaps. |
|
(D) |
|
Weighted average interest rate. |
|
(E) |
|
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 Senior Secured Credit Facilities) providing
for aggregate borrowings of up to $1.76 billion. The New
Senior Secured 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). |
Due to the change in the market price of our 7.25% Senior
Notes from 89.25% of par value as of March 31, 2008 to
57.5% of par value as of December 31, 2008, the estimated
fair value of this debt has decreased $444 million to
$805 million.
Interest
Rate Swaps
During the three months ended December 31, 2007, we entered
into interest rate swaps to fix the variable London Interbank
Offered Rate (LIBOR) interest rate for up to $500 million
of our floating rate Term Loan facility at effective weighted
average interest rates and amounts as follows: (i) 4.0% on
$500 million through March 31, 2009 and (ii) 4.0%
on $400 million through March 31, 2010. An interest
rate swap at an interest rate of 4.38% on $100 million of
our Term Loan facility expired on September 30, 2008. We
are still obligated to pay any applicable margin, as defined in
our New Senior Secured Credit Facilities in addition to these
interest rates.
In January 2009, we entered into two interest rate swaps to fix
the variable LIBOR interest rate on an additional
$300 million of our floating Term Loan facility at a rate
of 1.49%, plus any applicable margin. These interest rate swaps
are effective from March 31, 2009 through March 31,
2011.
As of December 31, 2008 approximately 75% of our debt was
fixed rate and approximately 25% was variable rate.
Short-Term
Borrowings and Lines of Credit
As of December 31, 2008, our short-term borrowings were
$292 million consisting of (1) $235 million of
short-term loans under our ABL facility, (2) an
$11 million short-term loan in Italy, (3) a
$24 million short-term loan in Korea and
(4) $22 million in bank overdrafts. As of
December 31, 2008, $35 million of our ABL facility was
utilized for letters of credit and we had $323 million in
remaining availability under this revolving credit facility
before the covenant related restriction discussed below.
The New Senior Secured Credit Facilities include customary
affirmative and negative covenants. Under the ABL facility, if
our excess availability, as defined under the borrowing, is less
than $80 million, we are required to maintain a minimum
fixed charge coverage ratio of 1 to 1. As of December 31,
2008, our fixed charge coverage ratio is less than 1 to 1,
resulting in a reduction of availability under our ABL facility
of $80 million.
As of December 31, 2008, we had an additional
$176 million outstanding under letters of credit in Korea
not included in our revolving credit facility. The weighted
average interest rate on our total short-term borrowings was
4.15% and 4.12% as of December 31, 2008 and March 31,
2008, respectively.
22
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Subsequent
event
In February 2009, we entered into a credit facility of
$100 million with a scheduled maturity date of
January 15, 2015 on an unsecured basis from a company
affiliated with the Aditya Birla group, and we have drawn down
$75 million of this facility.
|
|
12.
|
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, 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 (every
June 19th)
subject to performance criteria (see below), and expire seven
years from the date the plan was authorized by the board. 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 the
participants payroll currency 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. SARs that do not vest as a result of
failure to achieve a performance criterion will be cancelled.
Generally, all vested SARs expire 90 days after termination
of employment, except (1) in the case of death or
disability, when any unvested SARs will vest immediately and
expire within one year and (2) in the case of retirement,
when, if retirement occurs more than one year from the grant
date, the SARs would continue to vest and expire three years
following retirement. All awards vest upon a change in control
of the Company (as defined in the 2009 LTIP).
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. This performance
condition has no impact on the fair value of the SARs.
On October 29, 2008, our board of directors approved an
amendment to the 2009 LTIP. The design elements of the amended
2009 LTIP are largely unchanged from the original 2009 LTIP.
However, the amended 2009 LTIP now specifies that (a) the
plan shall be administered by the Compensation Committee of the
Board of Directors, (b) all payments shall be made in cash
upon exercise (less applicable withholdings), and (c) the
Compensation Committee has the authority to make adjustments in
the number and price of SARs covered by the plan in order to
prevent dilution or enlargement of the rights of employees that
would otherwise result from a change in the capital structure of
the Company (e.g., dividends, stock splits, rights issuances,
reorganizations, liquidation of assets, etc.).
On November 19, 2008, grants totaling 21,534,619 SARs at an
exercise price of 60.50 Indian Rupees ($1.23 at the
December 31, 2008 exchange rate) per SAR were made to our
executive officers and key employees. There were no forfeitures
during the three months ended December 31, 2008.
At December 31, 2008, for outstanding SARs, the average
remaining contractual term is 6.5 years and the aggregate
intrinsic value is zero as the market value of a share of
Hindalco stock was less than the SAR exercise price. No SARs
were exercisable at December 31, 2008.
The fair value of each SAR is based on the difference between
the fair value of a long call and a short call option. The fair
value of each of these call options was determined using the
Black-Scholes valuation method. We used historical stock price
volatility data of Hindalco on the Bombay Stock Exchange to
23
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
determine expected volatility assumptions. The annual expected
dividend yield is based on Hindalco dividend payments of $0.04
(1.85 Indian Rupees) per annum. Risk-free interest rates are
based on treasury yields in India, consistent with the expected
remaining lives of the SARs. Because we do not have a sufficient
history of SAR exercise or cancellation, we estimated the
expected remaining life of the SARs based on an extension of the
simplified method as prescribed by Staff Accounting
Bulletin No. 107, Share-Based Payment.
The fair value of each SAR under the 2009 LTIP was estimated as
of December 31, 2008 using the following assumptions:
|
|
|
|
Expected volatility
|
|
46.9 51.9%
|
Weighted average volatility
|
|
48.9%
|
Dividend yield
|
|
3.6%
|
Risk-free interest rate
|
|
5.3 5.4%
|
Expected life
|
|
3.5 5.0 years
|
The fair value of the SARs is being recognized over the
requisite performance and service period of each tranche,
subject to the achievement of any performance criterion. As of
December 31, 2008, management believes that the annual
performance criterion for the 2009 fiscal year is unlikely to be
met. Accordingly, no compensation expense for this performance
period has been recorded in the three and nine months ended
December 31, 2008. Additionally, since the performance
criteria for the fiscal years 2010 to 2012 have not yet been
established and therefore, no measurement periods have
commenced, no expense has been recorded for those tranches in
the three and nine month periods ended December 31, 2008.
Unrecognized compensation expense related to the non-vested SARs
(assuming all future performance criteria are met except for the
2009 performance period) is $3 million which is expected to
be realized over a weighted average period of 3.5 years.
Recognition
Awards
On September 25, 2006, we entered into Recognition
Agreements and granted Recognition Awards to certain executive
officers and other key employees (Executives) to retain and
reward them for continued dedication towards corporate
objectives. Under the terms of these agreements, Executives who
remained continuously employed by us through the vesting dates
of December 31, 2007 and 2008, were entitled to receive
one-half of their total Recognition Awards on each vesting date.
The number of Recognition Awards payable under the agreements
varied by Executive. As a result of the Arrangement, all
Recognition awards were payable in cash at a value of $44.93 per
share upon vesting.
On December 31, 2007, one-half of the outstanding
Recognition Awards vested and were settled for approximately
$3 million in cash in January 2008. On December 31,
2008, the remaining outstanding Recognition Awards vested and
were settled for approximately $2 million in cash in
January 2009.
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. Compensation expense of
$1 million was recognized during the period from
May 16, 2007 through December 31, 2007.
24
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
For each of the three and nine months ended December 31,
2008 and for the three months ended December 31, 2007,
compensation expense related to share-based awards was less than
$1 million.
|
|
13.
|
Postretirement
Benefit Plans
|
Components of net periodic benefit cost for all of our
significant postretirement benefit plans are shown in the tables
below (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Pension Benefit Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
11
|
|
|
$
|
10
|
|
|
$
|
32
|
|
|
$
|
28
|
|
|
|
$
|
6
|
|
Interest cost
|
|
|
16
|
|
|
|
12
|
|
|
|
46
|
|
|
|
30
|
|
|
|
|
6
|
|
Expected return on assets
|
|
|
(14
|
)
|
|
|
(11
|
)
|
|
|
(40
|
)
|
|
|
(27
|
)
|
|
|
|
(5
|
)
|
Amortization prior service cost
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Curtailment/settlement losses
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
13
|
|
|
$
|
12
|
|
|
$
|
38
|
|
|
$
|
32
|
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Other Postretirement Benefit Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
3
|
|
|
|
$
|
1
|
|
Interest cost
|
|
|
3
|
|
|
|
2
|
|
|
|
8
|
|
|
|
5
|
|
|
|
|
1
|
|
Amortization actuarial losses
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Curtailment/settlement losses
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
5
|
|
|
$
|
3
|
|
|
$
|
12
|
|
|
$
|
8
|
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected long-term rate of return on plan assets is 6.9% in
fiscal 2009.
25
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
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 (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Funded pension plans
|
|
$
|
8
|
|
|
$
|
10
|
|
|
$
|
19
|
|
|
$
|
25
|
|
|
|
$
|
4
|
|
Unfunded pension plans
|
|
|
4
|
|
|
|
4
|
|
|
|
12
|
|
|
|
10
|
|
|
|
|
2
|
|
Savings and defined contribution pension plans
|
|
|
4
|
|
|
|
4
|
|
|
|
13
|
|
|
|
10
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contributions
|
|
$
|
16
|
|
|
$
|
18
|
|
|
$
|
44
|
|
|
$
|
45
|
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the remainder of fiscal 2009, we expect to contribute an
additional $15 million to our funded pension plans,
$5 million to our unfunded pension plans and
$5 million to our savings and defined contribution plans.
For the nine months ended December 31, 2008, actual returns
for our worldwide funded pension plans were significantly below
our expected rate of return of 6.9% due to adverse conditions in
the equity markets. Continued actual returns below our expected
rate may unfavorably impact the amount and timing of future
contributions to funded plans.
|
|
14.
|
Currency
(Gains) Losses
|
The following currency (gains) losses are included in the
accompanying condensed consolidated statements of operations (in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Net (gain) loss on change in fair value of currency derivative
instruments(A)
|
|
$
|
50
|
|
|
$
|
23
|
|
|
$
|
11
|
|
|
$
|
5
|
|
|
|
$
|
(10
|
)
|
Net (gain) loss on remeasurement of monetary assets and
liabilities(B)
|
|
|
17
|
|
|
|
(17
|
)
|
|
|
73
|
|
|
|
(2
|
)
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
67
|
|
|
$
|
6
|
|
|
$
|
84
|
|
|
$
|
3
|
|
|
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Included in (Gain) loss on change in fair value of derivative
instruments, net.
|
|
(B) |
|
Included in Other (income) expenses, net.
|
26
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16,
|
|
|
|
Nine Months
|
|
|
2007
|
|
|
|
Ended
|
|
|
Through
|
|
|
|
December 31, 2008
|
|
|
March 31, 2008
|
|
|
|
|
|
|
(Restated)
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Cumulative currency translation adjustment at beginning of period
|
|
$
|
59
|
|
|
$
|
|
|
Effect of changes in exchange rates
|
|
|
(90
|
)
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
Cumulative currency translation adjustment at end of period
|
|
$
|
(31
|
)
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
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. Our ultimate gain or loss
on these derivatives may differ from the amount recognized in
the accompanying December 31, 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, the
relative costs of the instruments and capacity to hedge. The
duration is always linked to the timing of the underlying
exposure, with the connection between the two being regularly
monitored.
The current and noncurrent portions of derivative assets and the
current portion of derivative liabilities are presented on the
face of our accompanying condensed consolidated balance sheets.
The noncurrent portions of derivative liabilities are included
in Other long-term liabilities in the accompanying
condensed consolidated balance sheets.
27
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
The fair values of our financial instruments and commodity
contracts as of December 31, 2008 and March 31, 2008
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Net Fair Value
|
|
|
|
Current
|
|
|
Noncurrent
|
|
|
Current
|
|
|
Noncurrent
|
|
|
Assets/(Liabilities)
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
(10
|
)
|
|
$
|
(11
|
)
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(5
|
)
|
|
|
(14
|
)
|
Electricity swap
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(7
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
(22
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
31
|
|
|
|
2
|
|
|
|
(103
|
)
|
|
|
(26
|
)
|
|
|
(96
|
)
|
Currency options
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Cross-currency swaps
|
|
|
16
|
|
|
|
1
|
|
|
|
(19
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
Interest rate currency swaps
|
|
|
(1
|
)
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Aluminum forward contracts
|
|
|
134
|
|
|
|
33
|
|
|
|
(754
|
)
|
|
|
(7
|
)
|
|
|
(594
|
)
|
Aluminum options
|
|
|
|
|
|
|
9
|
|
|
|
(71
|
)
|
|
|
|
|
|
|
(62
|
)
|
Embedded derivative instruments
|
|
|
148
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
130
|
|
Heating oil swaps
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Natural gas swaps
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
328
|
|
|
|
71
|
|
|
|
(983
|
)
|
|
|
(34
|
)
|
|
|
(618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative fair value
|
|
$
|
328
|
|
|
$
|
71
|
|
|
$
|
(996
|
)
|
|
$
|
(56
|
)
|
|
$
|
(653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Net Fair Value
|
|
|
|
Current
|
|
|
Noncurrent
|
|
|
Current
|
|
|
Noncurrent
|
|
|
Assets/(Liabilities)
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(184
|
)
|
|
$
|
(184
|
)
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(12
|
)
|
|
|
(15
|
)
|
Electricity swap
|
|
|
3
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
3
|
|
|
|
11
|
|
|
|
(3
|
)
|
|
|
(196
|
)
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
43
|
|
|
|
4
|
|
|
|
(112
|
)
|
|
|
(4
|
)
|
|
|
(69
|
)
|
Cross-currency swaps
|
|
|
19
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
14
|
|
Interest rate currency swaps
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Aluminum forward contracts
|
|
|
130
|
|
|
|
4
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
125
|
|
Aluminum options
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Embedded derivative instruments
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
(20
|
)
|
Natural gas swaps
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
200
|
|
|
|
10
|
|
|
|
(145
|
)
|
|
|
(5
|
)
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative fair value
|
|
$
|
203
|
|
|
$
|
21
|
|
|
$
|
(148
|
)
|
|
$
|
(201
|
)
|
|
$
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Investment Hedges
We use cross-currency swaps to manage our exposure to
fluctuating exchange rates arising from our loans to and
investments in our European operations. We have designated these
as net investment hedges. The effective portion of gain or loss
on the derivative is included in Other comprehensive income
(loss). The ineffective portion of gain or loss on the
derivative is included in (Gain) loss on change in fair value
of derivative instruments, net.
The following table summarizes the amount of gain (loss) we
recognized in Other comprehensive income (loss) related
to our net investment hedge derivatives (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Cross-currency swaps
|
|
$
|
50
|
|
|
$
|
(5
|
)
|
|
$
|
170
|
|
|
$
|
(33
|
)
|
|
|
$
|
(8
|
)
|
Cash Flow
Hedges
We own an interest in an electricity swap which we have
designated as a cash flow hedge against our exposure to
fluctuating electricity prices. The effective portion of gain or
loss on the derivative is included in
29
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Other comprehensive income (loss) and reclassified into
(Gain) loss on change in fair value of derivatives, net
in our accompanying condensed consolidated statements of
operations and comprehensive loss.
We use interest rate swaps to manage our exposure to changes in
the benchmark LIBOR interest rate arising from our variable rate
debt. We have designated these as cash flow hedges. The
effective portion of gain or loss on the derivative is included
in Other comprehensive income (loss) and reclassified
into Interest expense and amortization of debt issuance
costs, net in our accompanying condensed consolidated
statements of operations and comprehensive loss.
For all derivatives designated as cash flow hedges, gains or
losses representing hedge ineffectiveness are recognized in
(Gain) loss on change in fair value of derivative
instruments, net in our current period earnings. If
at any time during the life of a cash flow hedge relationship we
determine that the relationship is no longer effective, the
derivative will be de-designated as a cash flow hedge. This
could occur if the underlying hedged exposure is determined to
no longer be probable, or if our ongoing assessment of hedge
effectiveness determines that the hedge relationship no longer
meets the measures we have established at the inception of the
hedge. Gains or losses recognized to date in Accumulated
other comprehensive income (loss) would be immediately
reclassified into current period earnings, as would any
subsequent changes in the fair value of any such derivative.
During the next twelve months we expect to realize
$2 million in effective net losses from our cash flow
hedges. The maximum period over which we have hedged our
exposure to cash flow variability is through 2017.
The following table summarizes (1) the amount of gain or
(loss) recognized in Other comprehensive income (loss) (OCI),
(2) the amount of gain or (loss) reclassified from
Accumulated OCI into income and (3) the amount of
gain or (loss) recognized in income (ineffective portion)
related to our cash flow hedge derivatives (in millions).
Three Month Comparison:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss)
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss)
|
|
|
Recognized in Income on
|
|
|
|
Amount of Gain or (Loss)
|
|
|
Reclassified from Accumulated
|
|
|
Derivative (Ineffective Portion
|
|
|
|
Recognized in OCI on Derivative
|
|
|
OCI into Income
|
|
|
and Amount Excluded from
|
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
Effectiveness Testing)
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Electricity swap
|
|
$
|
(16
|
)
|
|
$
|
6
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
|
|
Interest rate swaps
|
|
$
|
(9
|
)
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Nine
Month Comparison:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss)
|
|
|
|
Amount of Gain or (Loss)
|
|
|
Amount of Gain or (Loss)
|
|
|
Recognized in Income on
|
|
|
|
Recognized in OCI on
|
|
|
Reclassified from Accumulated
|
|
|
Derivative (Ineffective Portion
|
|
|
|
Derivative
|
|
|
OCI into Income
|
|
|
and Amount Excluded from
|
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
Effectiveness Testing)
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Electricity swap
|
|
$
|
(16
|
)
|
|
$
|
10
|
|
|
$
|
2
|
|
Interest rate swaps
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
30
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss)
|
|
|
|
|
|
|
|
|
|
Recognized in Income on
|
|
|
|
|
|
|
Amount of Gain or (Loss)
|
|
|
Derivative
|
|
|
|
Amount of Gain or (Loss)
|
|
|
Reclassified from Accumulated
|
|
|
(Ineffective Portion and Amount
|
|
|
|
Recognized in OCI on
|
|
|
OCI into Income (Effective
|
|
|
Excluded from Effectiveness
|
|
|
|
Derivative (Effective Portion)
|
|
|
Portion)
|
|
|
Testing)
|
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Through
|
|
|
|
Through
|
|
|
Through
|
|
|
|
Through
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2007
|
|
|
|
2007
|
|
|
2007
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Foreign exchange forward contracts
|
|
$
|
|
|
|
|
$
|
3
|
|
|
$
|
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
|
$
|
|
|
Electricity swap
|
|
$
|
12
|
|
|
|
$
|
4
|
|
|
$
|
5
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
$
|
|
|
Interest rate swaps
|
|
$
|
(2
|
)
|
|
|
$
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
$
|
|
|
Derivative
Instruments Not Designated as Hedges
We use foreign exchange forward contracts and cross currency
swaps to manage our exposure to changes in exchange rates. These
exposures arise from recorded assets and liabilities, firm
commitments and forecasted cash flows denominated in currencies
other than the functional currency of certain of our operations.
We use aluminum forward contracts and options to hedge our
exposure to changes in the LME price of aluminum. These
exposures arise from firm commitments to sell aluminum in future
periods at fixed or capped prices, the forecasted output of our
smelter operations in South America, and the forecasted metal
price lag associated with firm commitments to sell aluminum in
future periods at prices based on the LME.
We have an embedded derivative which arises from a contractual
relationship with a customer that entitles us to pass-through
the economic effect of trading positions that we take with other
third parties on our customers behalf.
We use natural gas swaps to manage our exposure to fluctuating
energy prices in North America.
While each of these derivatives is intended to be effective in
helping us manage risk, they have not been designated as hedging
instruments under FASB 133. The change in fair value of these
derivatives is included in (Gain) loss on change in fair
value of derivative instruments, net in the condensed
consolidated statement of operations and comprehensive loss.
31
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
The following table summarizes the gains (losses) recognized in
current period earnings (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Derivative Instruments Not Designated as Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
21
|
|
|
$
|
(24
|
)
|
|
$
|
28
|
|
|
$
|
(12
|
)
|
|
|
$
|
11
|
|
Interest rate currency swaps
|
|
|
(82
|
)
|
|
|
1
|
|
|
|
(58
|
)
|
|
|
(1
|
)
|
|
|
|
(1
|
)
|
Currency options
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Aluminum forward contracts
|
|
|
(415
|
)
|
|
|
(54
|
)
|
|
|
(606
|
)
|
|
|
(88
|
)
|
|
|
|
9
|
|
Aluminum options
|
|
|
(47
|
)
|
|
|
|
|
|
|
(72
|
)
|
|
|
1
|
|
|
|
|
|
|
Embedded derivative instruments
|
|
|
113
|
|
|
|
16
|
|
|
|
171
|
|
|
|
28
|
|
|
|
|
2
|
|
Heating oil swaps
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Natural gas swaps
|
|
|
(7
|
)
|
|
|
(1
|
)
|
|
|
(16
|
)
|
|
|
(4
|
)
|
|
|
|
1
|
|
Cross currency swaps
|
|
|
17
|
|
|
|
3
|
|
|
|
25
|
|
|
|
(3
|
)
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized
|
|
|
(409
|
)
|
|
|
(59
|
)
|
|
|
(537
|
)
|
|
|
(79
|
)
|
|
|
|
19
|
|
Derivative Instruments Designated as Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity swap
|
|
|
4
|
|
|
|
3
|
|
|
|
13
|
|
|
|
7
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on change in fair value of derivative instruments,
net
|
|
$
|
(405
|
)
|
|
$
|
(56
|
)
|
|
$
|
(524
|
)
|
|
$
|
(72
|
)
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
Fair
Value Measurements
|
FASB 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 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) during the three months 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 15 Financial
Instruments and Commodity Contracts).
FASB 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 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 13, for purposes of lease
classification or measurement. FASB 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
32
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
lowest priority to unobservable inputs (Level 3). The three
levels of the fair value hierarchy under FASB 157 are described
as follows:
Level 1 Unadjusted quoted prices in
active markets for identical, unrestricted assets or liabilities
that we have the ability to access at the measurement date;
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 Unobservable inputs for which
there is little or no market data, which require us to develop
our own assumptions based on the best information available as
what market participants would use in pricing the asset or
liability.
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).
We classify derivative contracts that are valued based on models
with significant unobservable market inputs as Level 3 of
the valuation hierarchy. These derivatives include certain of
our energy-related forward contracts (e.g., electricity) and
certain foreign currency forward contracts. Models for these
fair value measurements include inputs based on estimated future
prices for periods beyond the term of the quoted prices.
FASB 157 requires that for Level 2 and 3 of the fair value
hierarchy, where appropriate, valuations are adjusted for
various factors such as liquidity, bid/offer spreads and credit
considerations (nonperformance risk).
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 December 31, 2008 (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Derivative instruments
|
|
$
|
|
|
|
$
|
399
|
|
|
$
|
|
|
|
$
|
399
|
|
Liabilities Derivative instruments
|
|
$
|
|
|
|
$
|
(1,022
|
)
|
|
$
|
(30
|
)
|
|
$
|
(1,052
|
)
|
Financial instruments classified as Level 3 in the fair
value hierarchy represent derivative contracts (primarily
energy-related and certain foreign currency forward contracts)
in which at least one significant unobservable input is used in
the valuation model. We incurred $20 million of unrealized
losses related to Level 3 financial instruments that were
still held as of December 31, 2008. These unrealized losses
are
33
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
included in (Gain) loss on change in fair value of derivative
instruments, net. The following table presents a
reconciliation of fair value activity for Level 3
derivative contracts on a net basis (in millions).
|
|
|
|
|
|
|
Level 3
|
|
|
|
Derivative
|
|
|
|
Instruments(A)
|
|
Successor:
|
|
|
|
|
Balance as of April 1, 2008
|
|
$
|
11
|
|
Net realized/unrealized (losses) included in earnings(B)
|
|
|
(3
|
)
|
Net realized/unrealized (losses) included in Other
Comprehensive Income (Loss)(C)
|
|
|
(36
|
)
|
Net purchases, issuances and settlements
|
|
|
(3
|
)
|
Net transfers in and/or (out) of Level 3
|
|
|
1
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
(30
|
)
|
|
|
|
|
|
|
|
|
(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.
|
|
|
17.
|
Other
(Income) Expenses, net
|
Other (income) expenses, net is comprised of the following (in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
Predecessor
|
|
Exchange (gains) losses, net
|
|
$
|
17
|
|
|
$
|
(17
|
)
|
|
$
|
73
|
|
|
$
|
(2
|
)
|
|
|
$
|
4
|
|
Gain on reversal of accrued legal claim(A)
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
Gain on partial reversal of accrued social contribution tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
Other, net
|
|
|
3
|
|
|
|
|
|
|
|
6
|
|
|
|
7
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expenses, net
|
|
$
|
20
|
|
|
$
|
(17
|
)
|
|
$
|
53
|
|
|
$
|
(9
|
)
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
On September 4, 2008, Novelis, our insurers, and Alcan
entered into a settlement agreement to resolve the insurance
coverage dispute related to the Reynolds boat case. Pursuant to
that settlement agreement, we paid approximately
$13 million to our insurers on September 8, 2008 and
recognized a non-cash pre-tax gain of $26 million upon the
reversal of our previously recorded $39 million liability.
Our insurers returned our letter of credit that had been on
deposit pending the outcome of settlement discussions. |
The Income tax provision (benefit) for the three and nine
months ended December 31, 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 Income tax provision
(benefit) for the periods from May 16, 2007 through
December 31, 2007 (as restated) and April 1, 2007
through May 15, 2007 were based on the
34
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
estimated effective tax rates applicable for the year ended
March 31, 2008, after considering items specifically
related to the interim periods.
A reconciliation of the Canadian statutory tax rates to our
effective tax rates is as follows (in millions, except
percentages).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Pre-tax loss before equity in net (income) loss of
non-consolidated affiliates and minority interests share
|
|
$
|
(1,862
|
)
|
|
$
|
(44
|
)
|
|
$
|
(2,072
|
)
|
|
$
|
(82
|
)
|
|
|
$
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian statutory tax rate
|
|
|
31
|
%
|
|
|
33
|
%
|
|
|
31
|
%
|
|
|
33
|
%
|
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) at the Canadian statutory rate
|
|
|
(577
|
)
|
|
|
(15
|
)
|
|
|
(642
|
)
|
|
|
(27
|
)
|
|
|
|
(31
|
)
|
Increase (decrease) for taxes on income (loss) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible goodwill impairment
|
|
|
415
|
|
|
|
|
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
Exchange translation items
|
|
|
(64
|
)
|
|
|
12
|
|
|
|
(77
|
)
|
|
|
61
|
|
|
|
|
23
|
|
Exchange remeasurement of deferred income taxes
|
|
|
(30
|
)
|
|
|
18
|
|
|
|
(51
|
)
|
|
|
25
|
|
|
|
|
3
|
|
Change in valuation allowances
|
|
|
23
|
|
|
|
14
|
|
|
|
41
|
|
|
|
54
|
|
|
|
|
13
|
|
Expense (income) items not subject to tax
|
|
|
22
|
|
|
|
|
|
|
|
28
|
|
|
|
(19
|
)
|
|
|
|
(9
|
)
|
Enacted statutory tax rate changes
|
|
|
1
|
|
|
|
(17
|
)
|
|
|
3
|
|
|
|
(42
|
)
|
|
|
|
|
|
Tax rate differences on foreign earnings
|
|
|
11
|
|
|
|
11
|
|
|
|
(57
|
)
|
|
|
11
|
|
|
|
|
2
|
|
Uncertain tax positions
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
5
|
|
|
|
10
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
(199
|
)
|
|
$
|
26
|
|
|
$
|
(333
|
)
|
|
$
|
73
|
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
11
|
%
|
|
|
(59
|
)%
|
|
|
16
|
%
|
|
|
(89
|
)%
|
|
|
|
(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; (4) items of
expense (income) that are not subject to tax;
(5) differences between the Canadian statutory and foreign
effective tax rates applied to entities in different
jurisdictions shown above as tax rate differences on foreign
earnings and (6) non-deductible impairment of goodwill.
As of December 31, 2008, we had a net deferred tax
liability of $242 million, including deferred tax assets of
approximately $378 million for net operating loss and tax
credit carryforwards. The carryforwards begin expiring between
now and the year 2028 with some amounts being carried
forward indefinitely. As of December 31, 2008, valuation
allowances of $120 million had been recorded against net
operating loss carryforwards and tax credit carryforwards, where
it appeared more likely than not that such benefits will not be
realized. Realization is dependent on generating sufficient
taxable income prior to expiration of the tax attribute
carryforwards.
35
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Although realization is not assured, management believes it is
more likely than not that all the remaining net deferred tax
assets will be realized. In the near term, the amount of
deferred tax assets considered realizable could be reduced if we
do not generate sufficient taxable income in certain
jurisdictions.
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 three months ended December 31, 2008, our
unrecognized tax benefits decreased $1 million as a result
of foreign exchange translation. Our reserves for uncertain tax
positions totaled $53 million and $61 million as of
December 31, 2008 and March 31, 2008, respectively. As
of December 31, 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 was $47 million in both
periods.
Tax authorities are currently examining certain of our prior
years tax returns for
2004-2007.
We are evaluating potential adjustments related to these
examinations and do not anticipate that settlement of the
examinations will result in a material payment.
During the nine month period ended December 31, 2008,
taxing authorities in Germany concluded their audit of the tax
years
1999-2003.
As a result of this settlement, we reduced our unrecognized tax
benefits by $10 million, including cash payments to taxing
authorities of $6 million and a reduction to Goodwill
of $4 million.
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
$10 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 not currently under examination by any income tax
authorities for years before 2004. With few exceptions, our tax
returns for all tax years before 2003 are no longer 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 income tax provision. As of December 31, 2008 and
March 31, 2008, we had $11 million and
$14 million (as restated) accrued for potential interest on
income taxes, respectively. For the three and nine months ended
December 31, 2008, our income tax provision included an
additional charge of $1 and $2 million of potential
interest, respectively, which was offset in its entirety by
current period foreign exchange movement. For the three months
ended December 31, 2007 and the periods from May 16,
2007 through December 31, 2007 and from April 1, 2007
through May 15, 2007, our income tax provision included a
reduction of less than $1 million, charges for an
additional $2 million, and $1 million of potential
interest, respectively.
36
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
19.
|
Commitments
and Contingencies
|
Primary
Supplier
Alcan is our primary supplier of metal inputs, including prime
and sheet ingot. The table below shows our purchases from Alcan
as a percentage of our total combined metal purchases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Purchases from Alcan as a percentage of total metal purchases in
kt(A)
|
|
|
40
|
%
|
|
|
33
|
%
|
|
|
36
|
%
|
|
|
35
|
%
|
|
|
|
34
|
%
|
|
|
|
(A) |
|
One kilotonne (kt) is 1,000 metric tonnes. One metric tonne is
equivalent to 2,204.6 pounds. |
Legal
Proceedings
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 Georgia
state court. CCBSS is a consortium of
Coca-Cola
bottlers across the United States, including
Coca-Cola
Enterprises Inc. CCBSS alleges that Novelis Corporation breached
an aluminum can stock supply agreement between the parties, and
seeks monetary damages in an amount to be determined at trial
and a declaration of its rights under the agreement. The
agreement includes a most favored nations provision
regarding certain pricing matters. CCBSS alleges that Novelis
Corporation breached the terms of the most favored
nations provision. The dispute will likely turn on the
facts that are presented to the court by the parties and the
courts finding as to how certain provisions of the
agreement ought to be interpreted. If CCBSS were to prevail in
this litigation, the amount of damages would likely be material.
Novelis Corporation has filed its answer and the parties are
proceeding with discovery.
ARCO Aluminum Complaint. On May 24, 2007,
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 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.
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 JV Agreement by
not seeking ARCOs consent. On July 30, 2007, Novelis
filed a motion to hold ARCOs motion for summary judgment
in abeyance (pending
37
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
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
December 31, 2008 will be approximately $38 million.
Of this amount, $20 million is included in Other
long-term liabilities, with the remaining $18 million
included in Accrued expenses and other current liabilities
in our condensed consolidated balance sheet as of
December 31, 2008. Management has reviewed the
environmental matters, including those for which we assumed
liability as a result of our spin-off from Alcan. As a result of
this review, management has determined that the currently
anticipated costs associated with these environmental matters
will not, individually or in the aggregate, materially impair
our operations or materially adversely affect our financial
condition, results of operations or liquidity.
With respect to environmental loss contingencies, we record a
loss contingency on a non-discounted basis whenever such
contingency is probable and reasonably estimable. The evaluation
model includes all asserted and unasserted claims that can be
reasonably identified. Under this evaluation model, the
liability and the related costs are quantified based upon the
best available evidence regarding actual liability loss and cost
estimates. Except for those loss contingencies where no estimate
can reasonably be made, the evaluation model is fact-driven and
attempts to estimate the full costs of each claim. Management
reviews the status of, and estimated liability related to,
pending claims and civil actions on a quarterly basis. The
estimated costs in respect of such reported liabilities are not
offset by amounts related to cost-sharing between parties,
insurance, indemnification arrangements or contribution from
other potentially responsible parties (PRPs) unless otherwise
noted.
Butler Tunnel Site. Novelis Corporation was a
party in a 1989 U.S. Environmental Protection Agency (EPA)
lawsuit before the U.S. District Court for the Middle
District of Pennsylvania involving the Butler Tunnel Superfund
site, a third-party disposal site. In May 1991, the court
granted summary judgment against Novelis Corporation for alleged
disposal of hazardous waste. After unsuccessful appeals, Novelis
Corporation paid the entire judgment plus interest.
38
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
The EPA filed a second cost recovery action against Novelis
Corporation seeking recovery of expenses associated with the
installation of an early warning and response system for
potential future releases from the Butler Tunnel site. In
January 2008, Novelis Corporation and the Department of Justice,
on behalf of the EPA, entered into a consent decree whereby
Novelis Corporation agreed to pay $1.9 million in three
installments in settlement of its liability with the
U.S. government.
Prior to the execution of the Novelis Corporation consent
decree, the EPA entered into consent decrees with the other
Butler Tunnel PRPs to finance and construct the early warning
and response system. On October 30, 2008, the trustee for
the PRPs provided a detailed analysis of the past and future
costs associated with the implementation of the early warning
system and advised us of their intention to file a contribution
action against us. Given the success of these types of civil
claims in environmental cases and our prior adverse court
rulings, we have recognized a liability for $2 million
included in our condensed consolidated balance sheet as of
December 31, 2008, reflecting our portion of the previous
and remaining costs to complete the early warning and response
system.
Brazil
Tax Matters
Primarily as a result of legal proceedings with Brazils
Ministry of Treasury regarding certain taxes in South America,
as of December 31, 2008 and March 31, 2008, we had
cash deposits aggregating approximately $29 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 $6 million to
$82 million as of December 31, 2008. In total, these
reserves approximate $98 million and $111 million as
of December 31, 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. On
August 11, 2008, we requested a clarification of the
courts order to better understand the reasoning behind the
decision and prepare our appeal. The request for clarification
suspends the deadline for appeal, which usually must be filed
within 30 days of receiving the order. While we are fully
reserved for these disputed credits, we must make a judicial
deposit of $5.5 million at the time we file the 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 FIN 46(R).
In the case of our wholly-owned subsidiaries, the indebtedness
guaranteed is for trade accounts payable to third parties. Some
of the guarantees have annual terms while others have no
expiration and have termination notice requirements. Neither we
nor any of our subsidiaries or non-consolidated affiliates holds
any assets of any third parties as collateral to offset the
potential settlement of these guarantees.
Since we consolidate wholly-owned and majority-owned
subsidiaries in our condensed consolidated financial statements,
all liabilities associated with trade payables and short-term
debt facilities for these entities are already included in our
condensed consolidated balance sheets.
39
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
The following table discloses information about our obligations
under guarantees of indebtedness of others as of
December 31, 2008 (in millions). We did not have any
obligations under guarantees of indebtedness related to our
majority-owned subsidiaries as of December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
Liability
|
|
|
|
Potential
|
|
|
Carrying
|
|
Type of Entity
|
|
Future Payment
|
|
|
Value
|
|
|
Wholly-owned subsidiaries
|
|
$
|
51
|
|
|
$
|
25
|
|
Aluminium Norf GmbH
|
|
$
|
14
|
|
|
$
|
|
|
We have no retained or contingent interest in assets transferred
to an unconsolidated entity or similar entity or similar
arrangement that serves as credit, liquidity or market risk
support to that entity for such assets.
|
|
20.
|
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. 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 must
remove our proportional share of each line item that we included
in the segment amounts. See Note 9 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.
40
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Selected
Segment Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Proportional
|
|
|
Corporate
|
|
|
|
|
Total Assets
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Consolidation
|
|
|
and Other
|
|
|
Total
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
$
|
3,156
|
|
|
$
|
3,135
|
|
|
$
|
934
|
|
|
$
|
1,289
|
|
|
$
|
(194
|
)
|
|
$
|
51
|
|
|
$
|
8,371
|
|
March 31, 2008 (Restated)
|
|
$
|
3,957
|
|
|
$
|
4,355
|
|
|
$
|
1,080
|
|
|
$
|
1,485
|
|
|
$
|
(199
|
)
|
|
$
|
59
|
|
|
$
|
10,737
|
|
Comparison
of Three Month Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Proportional
|
|
|
Corporate
|
|
|
|
|
Three Months Ended December 31, 2008
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Consolidation
|
|
|
and Other
|
|
|
Total
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (to third parties)
|
|
$
|
898
|
|
|
$
|
729
|
|
|
$
|
344
|
|
|
$
|
205
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,176
|
|
Intersegment sales
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
Segment income
|
|
|
1
|
|
|
|
48
|
|
|
|
55
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
138
|
|
Depreciation and amortization
|
|
|
41
|
|
|
|
54
|
|
|
|
12
|
|
|
|
17
|
|
|
|
(18
|
)
|
|
|
1
|
|
|
|
107
|
|
Capital expenditures
|
|
|
13
|
|
|
|
21
|
|
|
|
5
|
|
|
|
6
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Proportional
|
|
|
Corporate
|
|
|
|
|
Three Months Ended December 31, 2007
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Consolidation
|
|
|
and Other
|
|
|
Total
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (to third parties)
|
|
$
|
995
|
|
|
$
|
1,010
|
|
|
$
|
483
|
|
|
$
|
247
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,735
|
|
Intersegment sales
|
|
|
5
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
Segment income (Restated)
|
|
|
82
|
|
|
|
44
|
|
|
|
11
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
171
|
|
Depreciation and amortization (Restated)
|
|
|
37
|
|
|
|
58
|
|
|
|
13
|
|
|
|
22
|
|
|
|
(23
|
)
|
|
|
1
|
|
|
|
108
|
|
Capital expenditures
|
|
|
13
|
|
|
|
35
|
|
|
|
11
|
|
|
|
8
|
|
|
|
(5
|
)
|
|
|
1
|
|
|
|
63
|
|
Comparison
of Nine Month Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Proportional
|
|
|
Corporate
|
|
|
|
|
Nine Months Ended December 31, 2008
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Consolidation
|
|
|
and Other
|
|
|
Total
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (to third parties)
|
|
$
|
3,090
|
|
|
$
|
3,039
|
|
|
$
|
1,311
|
|
|
$
|
800
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
8,238
|
|
Intersegment sales
|
|
|
2
|
|
|
|
9
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
Segment income
|
|
|
45
|
|
|
|
221
|
|
|
|
83
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
478
|
|
Depreciation and amortization
|
|
|
124
|
|
|
|
171
|
|
|
|
40
|
|
|
|
53
|
|
|
|
(60
|
)
|
|
|
2
|
|
|
|
330
|
|
Capital expenditures
|
|
|
30
|
|
|
|
57
|
|
|
|
16
|
|
|
|
21
|
|
|
|
(18
|
)
|
|
|
1
|
|
|
|
107
|
|
41
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminate
|
|
|
|
|
|
|
|
Selected Operating Results
|
|
North
|
|
|
|
|
|
|
|
|
South
|
|
|
Proportional
|
|
|
Corporate
|
|
|
|
|
May 16, 2007 Through December 31, 2007
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
America
|
|
|
Consolidation
|
|
|
and Other
|
|
|
Total
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (to third parties)
|
|
$
|
2,619
|
|
|
$
|
2,695
|
|
|
$
|
1,167
|
|
|
$
|
622
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,103
|
|
Intersegment sales
|
|
|
8
|
|
|
|
2
|
|
|
|
10
|
|
|
|
27
|
|
|
|
|
|
|
|
(47
|
)
|
|
|
|
|
Segment income (Restated)
|
|
|
194
|
|
|
|
155
|
|
|
|
27
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
478
|
|
Depreciation and amortization (Restated)
|
|
|
98
|
|
|
|
130
|
|
|
|
37
|
|
|
|
44
|
|
|
|
(46
|
)
|
|
|
1
|
|
|
|
264
|
|
Capital expenditures
|
|
|
26
|
|
|
|
63
|
|
|
|
21
|
|
|
|
18
|
|
|
|
(11
|
)
|
|
|
3
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
42
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
The following table shows the reconciliation from Total Segment
income to Net loss (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Total Segment income
|
|
$
|
138
|
|
|
$
|
171
|
|
|
$
|
478
|
|
|
$
|
478
|
|
|
|
$
|
32
|
|
Interest expense and amortization of debt issuance costs, net
|
|
|
(44
|
)
|
|
|
(47
|
)
|
|
|
(125
|
)
|
|
|
(128
|
)
|
|
|
|
(26
|
)
|
Unrealized gains (losses) on change in fair value of derivative
instruments, net(A)
|
|
|
(472
|
)
|
|
|
(24
|
)
|
|
|
(672
|
)
|
|
|
(126
|
)
|
|
|
|
5
|
|
Realized gains (losses) on corporate derivative instruments, net
|
|
|
4
|
|
|
|
2
|
|
|
|
4
|
|
|
|
40
|
|
|
|
|
(3
|
)
|
Depreciation and amortization
|
|
|
(107
|
)
|
|
|
(108
|
)
|
|
|
(330
|
)
|
|
|
(264
|
)
|
|
|
|
(28
|
)
|
Impairment of goodwill
|
|
|
(1,340
|
)
|
|
|
|
|
|
|
(1,340
|
)
|
|
|
|
|
|
|
|
|
|
Impairment charges on long-lived assets
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Minority interests share
|
|
|
9
|
|
|
|
|
|
|
|
7
|
|
|
|
2
|
|
|
|
|
1
|
|
Adjustment to eliminate proportional consolidation(B)
|
|
|
(174
|
)
|
|
|
(15
|
)
|
|
|
(210
|
)
|
|
|
(17
|
)
|
|
|
|
(7
|
)
|
Restructuring (charges) recoveries, net
|
|
|
(15
|
)
|
|
|
(1
|
)
|
|
|
(14
|
)
|
|
|
(2
|
)
|
|
|
|
(1
|
)
|
Gain (loss) on sales of property, plant and equipment and
businesses, net
|
|
|
(1
|
)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Corporate selling, general and administrative expenses
|
|
|
(12
|
)
|
|
|
(18
|
)
|
|
|
(42
|
)
|
|
|
(42
|
)
|
|
|
|
(35
|
)
|
Other costs, net(C)
|
|
|
(5
|
)
|
|
|
(7
|
)
|
|
|
13
|
|
|
|
(5
|
)
|
|
|
|
1
|
|
Sale transaction fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
Income tax (provision) benefit
|
|
|
199
|
|
|
|
(26
|
)
|
|
|
333
|
|
|
|
(73
|
)
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,820
|
)
|
|
$
|
(73
|
)
|
|
$
|
(1,898
|
)
|
|
$
|
(137
|
)
|
|
|
$
|
(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. |
|
(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 9 Investment in and Advances to
Non-Consolidated Affiliates and Related Party Transactions for
further information about these non-consolidated affiliates. |
|
(C) |
|
Other costs, net includes a $26 million gain on the
reversal of a legal accrual for the Reynolds Boat Case during
the nine months ended December 31, 2008. See
Note 17 Other (Income) Expenses, net. |
43
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
(Gains) losses on change in fair value of derivative
instruments, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized (gains) losses included in Segment income
|
|
$
|
(63
|
)
|
|
$
|
34
|
|
|
$
|
(144
|
)
|
|
$
|
(14
|
)
|
|
|
$
|
(18
|
)
|
Realized (gains) losses on corporate derivative instruments
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
(40
|
)
|
|
|
|
3
|
|
Unrealized losses
|
|
|
472
|
|
|
|
24
|
|
|
|
672
|
|
|
|
126
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gains) losses on change in fair value of derivative
instruments, net
|
|
$
|
405
|
|
|
$
|
56
|
|
|
$
|
524
|
|
|
$
|
72
|
|
|
|
$
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
Nine Months
|
|
|
May 16, 2007
|
|
|
|
April 1, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Through
|
|
|
|
Through
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
May 15,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
2007
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
Predecessor
|
|
Net sales to Rexam as a percentage of total net sales
|
|
|
16.7
|
%
|
|
|
15.6
|
%
|
|
|
16.4
|
%
|
|
|
14.7
|
%
|
|
|
|
13.5
|
%
|
|
|
21.
|
Supplemental
Guarantor Information
|
In connection with the issuance of our 7.25% Senior Notes,
certain of our wholly-owned subsidiaries provided guarantees of
the 7.25% 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 7.25% Senior Notes.
44
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
The following information presents condensed consolidating
statements of operations, balance sheets and statements of cash
flows of the Parent, the Guarantors, and the Non-Guarantors.
Investments include investment in and advances to
non-consolidated affiliates as well as investments in net assets
of divisions included in the Parent, and have been presented
using the equity method of accounting.
Novelis
Inc.
Condensed
Consolidating Statement of Operations
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2008
(Successor)
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
254
|
|
|
$
|
1,751
|
|
|
$
|
601
|
|
|
$
|
(430
|
)
|
|
$
|
2,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
252
|
|
|
|
1,648
|
|
|
|
553
|
|
|
|
(430
|
)
|
|
|
2,023
|
|
Selling, general and administrative expenses
|
|
|
(8
|
)
|
|
|
66
|
|
|
|
15
|
|
|
|
|
|
|
|
73
|
|
Depreciation and amortization
|
|
|
6
|
|
|
|
80
|
|
|
|
21
|
|
|
|
|
|
|
|
107
|
|
Research and development expenses
|
|
|
8
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
11
|
|
Interest expense and amortization of debt issuance costs, net
|
|
|
9
|
|
|
|
31
|
|
|
|
4
|
|
|
|
|
|
|
|
44
|
|
(Gain) loss on change in fair value of derivative instruments,
net
|
|
|
1
|
|
|
|
355
|
|
|
|
49
|
|
|
|
|
|
|
|
405
|
|
Impairment of goodwill
|
|
|
|
|
|
|
1,340
|
|
|
|
|
|
|
|
|
|
|
|
1,340
|
|
Restructuring charges, net
|
|
|
5
|
|
|
|
9
|
|
|
|
1
|
|
|
|
|
|
|
|
15
|
|
Equity in net (income) loss of affiliates
|
|
|
1,811
|
|
|
|
166
|
|
|
|
|
|
|
|
(1,811
|
)
|
|
|
166
|
|
Other (income) expenses, net
|
|
|
11
|
|
|
|
(17
|
)
|
|
|
26
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,095
|
|
|
|
3,680
|
|
|
|
670
|
|
|
|
(2,241
|
)
|
|
|
4,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interests
share
|
|
|
(1,841
|
)
|
|
|
(1,929
|
)
|
|
|
(69
|
)
|
|
|
1,811
|
|
|
|
(2,028
|
)
|
Income tax provision (benefit)
|
|
|
(21
|
)
|
|
|
(170
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests share
|
|
|
(1,820
|
)
|
|
|
(1,759
|
)
|
|
|
(61
|
)
|
|
|
1,811
|
|
|
|
(1,829
|
)
|
Minority interests share
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,820
|
)
|
|
$
|
(1,759
|
)
|
|
$
|
(52
|
)
|
|
$
|
1,811
|
|
|
$
|
(1,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Novelis
Inc.
Condensed
Consolidating Statement of Operations
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2007
(Successor)
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
Restated
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
334
|
|
|
$
|
2,211
|
|
|
$
|
783
|
|
|
$
|
(593
|
)
|
|
$
|
2,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation and amortization
shown below)
|
|
|
337
|
|
|
|
1,993
|
|
|
|
737
|
|
|
|
(593
|
)
|
|
|
2,474
|
|
Selling, general and administrative expenses
|
|
|
20
|
|
|
|
61
|
|
|
|
18
|
|
|
|
|
|
|
|
99
|
|
Depreciation and amortization
|
|
|
6
|
|
|
|
93
|
|
|
|
9
|
|
|
|
|
|
|
|
108
|
|
Research and development expenses
|
|
|
9
|
|
|
|
6
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
11
|
|
Interest expense and amortization of debt issuance costs, net
|
|
|
8
|
|
|
|
32
|
|
|
|
7
|
|
|
|
|
|
|
|
47
|
|
(Gain) loss on change in fair value of derivative instruments,
net
|
|
|
(8
|
)
|
|
|
56
|
|
|
|
8
|
|
|
|
|
|
|
|
56
|
|
Restructuring charges, net
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Equity in net (income) loss of affiliates
|
|
|
46
|
|
|
|
3
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
3
|
|
Other (income) expenses, net
|
|
|
(12
|
)
|
|
|
(15
|
)
|
|
|
10
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
406
|
|
|
|
2,230
|
|
|
|
785
|
|
|
|
(639
|
)
|
|
|
2,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interests
share
|
|
|
(72
|
)
|
|
|
(19
|
)
|
|
|
(2
|
)
|
|
|
46
|
|
|
|
(47
|
)
|
Income tax provision (benefit)
|
|
|
1
|
|
|
|
24
|
|
|
|
1
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests share
|
|
|
(73
|
)
|
|
|
(43
|
)
|
|
|
(3
|
)
|
|
|
46
|
|
|
|
(73
|
)
|
Minority interests share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(73
|
)
|
|
$
|
(43
|
)
|
|
$
|
(3
|
)
|
|
$
|
46
|
|
|
$
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Novelis
Inc.
NOTES TO
THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) (Continued)
Novelis
Inc.
Condensed
Consolidating Statement of Operations
(In
millions)