10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on February 9, 2016
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2015
Or
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-32312
Novelis Inc.
(Exact name of registrant as specified in its charter)
Canada |
98-0442987 |
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification Number)
|
|
3560 Lenox Road, Suite 2000
Atlanta, Georgia
|
30326 |
|
(Address of principal executive offices) |
(Zip Code) |
Telephone: (404) 760-4000
(Registrant’s 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 ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
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):
Large accelerated filer |
¨ |
Accelerated filer |
¨ |
|
Non-accelerated filer |
ý |
(Do not check if a smaller reporting company) |
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 ¨ No ý
As of February 8, 2016, the registrant had 1,000 shares of common stock, no par value, outstanding. All of the registrant’s outstanding shares were held indirectly by Hindalco Industries Ltd., the registrant’s parent company.
Novelis Inc.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION | ||
PART II. OTHER INFORMATION | ||
|
||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in millions)
Three Months Ended December 31, |
Nine Months Ended December 31, |
||||||||||||||
2015 |
2014 |
2015 |
2014 |
||||||||||||
Net sales |
$ |
2,354 |
$ |
2,847 |
$ |
7,470 |
$ |
8,358 |
|||||||
Cost of goods sold (exclusive of depreciation and amortization) |
2,051 |
2,498 |
6,692 |
7,310 |
|||||||||||
Selling, general and administrative expenses |
104 |
108 |
304 |
319 |
|||||||||||
Depreciation and amortization |
88 |
87 |
264 |
266 |
|||||||||||
Interest expense and amortization of debt issuance costs |
82 |
85 |
244 |
248 |
|||||||||||
Research and development expenses |
13 |
14 |
39 |
38 |
|||||||||||
Gain on assets held for sale |
— |
(12 |
) |
— |
(23 |
) |
|||||||||
Loss on extinguishment of debt |
— |
— |
13 |
— |
|||||||||||
Restructuring and impairment, net |
10 |
25 |
29 |
38 |
|||||||||||
Equity in net loss of non-consolidated affiliates |
— |
2 |
2 |
4 |
|||||||||||
Other (income) expense, net |
(16 |
) |
(9 |
) |
(78 |
) |
14 |
||||||||
2,332 |
2,798 |
7,509 |
8,214 |
||||||||||||
Income (loss) before income taxes |
22 |
49 |
(39 |
) |
144 |
||||||||||
Income tax provision |
16 |
3 |
28 |
25 |
|||||||||||
Net income (loss) |
6 |
46 |
(67 |
) |
119 |
||||||||||
Net income attributable to noncontrolling interests |
— |
— |
— |
— |
|||||||||||
Net income (loss) attributable to our common shareholder |
$ |
6 |
$ |
46 |
$ |
(67 |
) |
$ |
119 |
See accompanying notes to the condensed consolidated financial statements.
3
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
(in millions)
Three Months Ended December 31, |
|||||||
2015 |
2014 |
||||||
Net income |
$ |
6 |
$ |
46 |
|||
Other comprehensive (loss) income: |
|||||||
Currency translation adjustment |
(26 |
) |
(83 |
) |
|||
Net change in fair value of effective portion of cash flow hedges |
10 |
17 |
|||||
Net change in pension and other benefits |
12 |
5 |
|||||
Other comprehensive loss before income tax effect |
(4 |
) |
(61 |
) |
|||
Income tax provision related to items of other comprehensive income (loss) |
— |
8 |
|||||
Other comprehensive loss, net of tax |
(4 |
) |
(69 |
) |
|||
Comprehensive income (loss) |
2 |
(23 |
) |
||||
Less: Comprehensive income (loss) attributable to noncontrolling interests, net of tax |
1 |
— |
|||||
Comprehensive income (loss) attributable to our common shareholder |
$ |
1 |
$ |
(23 |
) |
Nine Months Ended December 31, |
|||||||
2015 |
2014 |
||||||
Net (loss) income |
$ |
(67 |
) |
$ |
119 |
||
Other comprehensive (loss) income: |
|||||||
Currency translation adjustment |
(45 |
) |
(189 |
) |
|||
Net change in fair value of effective portion of cash flow hedges |
— |
23 |
|||||
Net change in pension and other benefits |
12 |
2 |
|||||
Other comprehensive loss before income tax effect |
(33 |
) |
(164 |
) |
|||
Income tax provision related to items of other comprehensive loss |
1 |
9 |
|||||
Other comprehensive loss, net of tax |
(34 |
) |
(173 |
) |
|||
Comprehensive loss |
(101 |
) |
(54 |
) |
|||
Less: Comprehensive loss attributable to noncontrolling interests, net of tax |
(1 |
) |
(1 |
) |
|||
Comprehensive loss attributable to our common shareholder |
$ |
(100 |
) |
$ |
(53 |
) |
See accompanying notes to the condensed consolidated financial statements.
4
Novelis Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in millions, except number of shares)
December 31, 2015 |
March 31, 2015 |
||||||
ASSETS |
|||||||
Current assets |
|||||||
Cash and cash equivalents |
$ |
457 |
$ |
628 |
|||
Accounts receivable, net |
|||||||
— third parties (net of uncollectible accounts of $3 as of December 31, 2015 and March 31, 2015) |
1,110 |
1,289 |
|||||
— related parties |
56 |
53 |
|||||
Inventories |
1,277 |
1,431 |
|||||
Prepaid expenses and other current assets |
107 |
112 |
|||||
Fair value of derivative instruments |
64 |
77 |
|||||
Deferred income tax assets |
95 |
79 |
|||||
Assets held for sale |
5 |
6 |
|||||
Total current assets |
3,171 |
3,675 |
|||||
Property, plant and equipment, net |
3,465 |
3,542 |
|||||
Goodwill |
607 |
607 |
|||||
Intangible assets, net |
545 |
584 |
|||||
Investment in and advances to non–consolidated affiliate |
452 |
447 |
|||||
Deferred income tax assets |
109 |
95 |
|||||
Other long–term assets |
|||||||
— third parties |
109 |
137 |
|||||
— related parties |
17 |
15 |
|||||
Total assets |
$ |
8,475 |
$ |
9,102 |
|||
LIABILITIES AND SHAREHOLDER’S DEFICIT |
|||||||
Current liabilities |
|||||||
Current portion of long–term debt |
$ |
47 |
$ |
108 |
|||
Short–term borrowings |
932 |
846 |
|||||
Accounts payable |
|||||||
— third parties |
1,384 |
1,854 |
|||||
— related parties |
49 |
44 |
|||||
Fair value of derivative instruments |
111 |
149 |
|||||
Accrued expenses and other current liabilities |
514 |
572 |
|||||
Deferred income tax liabilities |
8 |
20 |
|||||
Total current liabilities |
3,045 |
3,593 |
|||||
Long–term debt, net of current portion |
4,442 |
4,349 |
|||||
Deferred income tax liabilities |
243 |
261 |
|||||
Accrued postretirement benefits |
749 |
748 |
|||||
Other long–term liabilities |
168 |
221 |
|||||
Total liabilities |
8,647 |
9,172 |
|||||
Commitments and contingencies |
|||||||
Shareholder’s deficit |
|||||||
Common stock, no par value; unlimited number of shares authorized; 1,000 shares issued and outstanding as of December 31, 2015 and March 31, 2015 |
— |
— |
|||||
Additional paid–in capital |
1,404 |
1,404 |
|||||
Accumulated deficit |
(992 |
) |
(925 |
) |
|||
Accumulated other comprehensive loss |
(594 |
) |
(561 |
) |
|||
Total deficit of our common shareholder |
(182 |
) |
(82 |
) |
|||
Noncontrolling interests |
10 |
12 |
|||||
Total deficit |
(172 |
) |
(70 |
) |
|||
Total liabilities and deficit |
$ |
8,475 |
$ |
9,102 |
See accompanying notes to the condensed consolidated financial statements.
5
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in millions)
Nine Months Ended December 31, |
|||||||
2015 |
2014 |
||||||
OPERATING ACTIVITIES |
|||||||
Net (loss) income |
$ |
(67 |
) |
$ |
119 |
||
Adjustments to determine net cash provided by operating activities: |
|||||||
Depreciation and amortization |
264 |
266 |
|||||
(Gain) loss on unrealized derivatives and other realized derivatives in investing activities, net |
(25 |
) |
6 |
||||
Gain on assets held for sale |
— |
(23 |
) |
||||
Loss on sale of assets |
2 |
4 |
|||||
Impairment charges |
8 |
7 |
|||||
Loss on extinguishment of debt |
13 |
— |
|||||
Deferred income taxes |
(60 |
) |
(46 |
) |
|||
Amortization of fair value adjustments, net |
9 |
9 |
|||||
Equity in net loss of non-consolidated affiliates |
2 |
4 |
|||||
Gain on foreign exchange remeasurement of debt |
(5 |
) |
(4 |
) |
|||
Amortization of debt issuance costs and carrying value adjustments |
15 |
19 |
|||||
Changes in assets and liabilities including assets and liabilities held for sale (net of effects from divestitures): |
|||||||
Accounts receivable |
166 |
(176 |
) |
||||
Inventories |
146 |
(437 |
) |
||||
Accounts payable |
(422 |
) |
427 |
||||
Other current assets |
6 |
(62 |
) |
||||
Other current liabilities |
(42 |
) |
(6 |
) |
|||
Other noncurrent assets |
21 |
3 |
|||||
Other noncurrent liabilities |
(30 |
) |
(23 |
) |
|||
Net cash provided by operating activities |
1 |
87 |
|||||
INVESTING ACTIVITIES |
|||||||
Capital expenditures |
(282 |
) |
(368 |
) |
|||
Proceeds from sales of assets, third party, net of transaction fees and hedging |
2 |
100 |
|||||
Outflows from investment in and advances to non-consolidated affiliates, net |
(5 |
) |
(17 |
) |
|||
(Outflows) proceeds from settlement of other undesignated derivative instruments, net |
(11 |
) |
1 |
||||
Net cash used in investing activities |
(296 |
) |
(284 |
) |
|||
FINANCING ACTIVITIES |
|||||||
Proceeds from issuance of long-term and short-term borrowings |
151 |
303 |
|||||
Principal payments of long-term and short-term borrowings |
(194 |
) |
(209 |
) |
|||
Revolving credit facilities and other, net |
178 |
238 |
|||||
Return of capital to our common shareholder |
— |
(250 |
) |
||||
Dividends, noncontrolling interest |
(1 |
) |
(1 |
) |
|||
Debt issuance costs |
(15 |
) |
(3 |
) |
|||
Net cash provided by financing activities |
119 |
78 |
|||||
Net decrease in cash and cash equivalents |
(176 |
) |
(119 |
) |
|||
Effect of exchange rate changes on cash |
5 |
(3 |
) |
||||
Cash and cash equivalents — beginning of period |
628 |
509 |
|||||
Cash and cash equivalents — end of period |
$ |
457 |
$ |
387 |
See accompanying notes to the condensed consolidated financial statements.
6
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENT OF DEFICIT (unaudited)
(in millions, except number of shares)
Deficit of our Common Shareholder |
||||||||||||||||||||||||||
Common Stock |
Additional
Paid-in Capital
|
Accumulated Deficit |
Accumulated
Other
Comprehensive
Loss (AOCI)
|
Non-
controlling Interests
|
Total Deficit |
|||||||||||||||||||||
Shares |
Amount |
|||||||||||||||||||||||||
Balance as of March 31, 2015 |
1,000 |
$ |
— |
$ |
1,404 |
$ |
(925 |
) |
$ |
(561 |
) |
$ |
12 |
$ |
(70 |
) |
||||||||||
Net loss attributable to our common shareholder |
— |
— |
— |
(67 |
) |
— |
— |
(67 |
) |
|||||||||||||||||
Currency translation adjustment, net of tax provision of $ - million included in AOCI |
— |
— |
— |
— |
(43 |
) |
(2 |
) |
(45 |
) |
||||||||||||||||
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $2 million included in AOCI |
— |
— |
— |
— |
2 |
— |
2 |
|||||||||||||||||||
Change in pension and other benefits, net of tax provision of $3 million included in AOCI |
— |
— |
— |
— |
8 |
1 |
9 |
|||||||||||||||||||
Noncontrolling interest cash dividends declared |
— |
— |
— |
— |
— |
(1 |
) |
(1 |
) |
|||||||||||||||||
Balance as of December 31, 2015 |
1,000 |
$ |
— |
$ |
1,404 |
$ |
(992 |
) |
$ |
(594 |
) |
$ |
10 |
$ |
(172 |
) |
See accompanying notes to the condensed consolidated financial statements.
7
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. Hindalco acquired Novelis in May 2007. All of the common shares of Novelis are owned directly by AV Metals Inc. and indirectly by Hindalco Industries Limited.
Organization and Description of Business
Novelis is the world's leading aluminum rolled products producer based on shipment volume in fiscal 2015. We produce aluminum sheet and light gauge products for use in the packaging market, which includes beverage and food can and foil products, as well as for use in the automotive, transportation, electronics, architectural and industrial product markets. We are also the world's largest recycler of aluminum and have recycling operations in many of our plants to recycle both post-consumer aluminum and post-industrial aluminum. As of December 31, 2015, we had manufacturing operations in 11 countries on four continents, which include 25 operating plants, and recycling operations in 11 of these plants.
The March 31, 2015 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes in our Annual Report on Form 10-K for the year ended March 31, 2015 filed with the United States Securities and Exchange Commission (SEC) on May 12, 2015. Management believes that all adjustments necessary for the fair statement of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented.
Consolidation Policy
Our condensed consolidated financial statements include the assets, liabilities, revenues and expenses of all wholly-owned subsidiaries, majority-owned subsidiaries over which we exercise control and entities in which we have a controlling financial interest or are deemed to be the primary beneficiary. We eliminate all significant intercompany accounts and transactions from our condensed consolidated financial statements.
We use the equity method to account for our investments in entities that we do not control, but where we have the ability to exercise significant influence over operating and financial policies. Consolidated “Net income (loss) attributable to our common shareholder” includes our share of net income (loss) of these entities. Our condensed consolidated financial statements include our "Investment in and advances to non-consolidated affiliates" and "Equity in net loss of non-consolidated affiliates".
Use of Estimates and Assumptions
The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The principal areas of judgment relate to (1) the fair value of derivative financial instruments; (2) impairment of goodwill; (3) impairment of long lived assets and other intangible assets; (4) impairment and assessment of consolidation of equity investments; (5) actuarial assumptions related to pension and other postretirement benefit plans; (6) tax uncertainties and valuation allowances; and (7) assessment of loss contingencies, including environmental and litigation liabilities. Future events and their effects cannot be predicted with certainty, and accordingly, our accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of our condensed consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. We evaluate and update our assumptions and estimates on an ongoing basis and may employ outside experts to assist in our evaluations. Actual results could differ from the estimates we have used.
8
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
Recently Adopted Accounting Standards
Effective for the first quarter of fiscal 2016, we adopted Financial Accounting Standards Board (FASB) ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The amendments in this update provide clarification regarding the release of a cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. Our existing accounting policy complies with this guidance; therefore, there was no impact on our financial statements.
Effective for the first quarter fiscal 2016, we adopted FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendment changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the revised standard, a discontinued operation is (1) a component of an entity or group of components that has been disposed of by sale, disposed of other than by sale or is classified as held for sale that represents a strategic shift that has or will have a major effect on an entity’s operations and financial results or (2) an acquired business or nonprofit activity that is classified as held for sale on the date of the acquisition. There was no impact upon adoption; however, the accounting treatment and classification of future disposals under this new standard could differ from our previous treatment and classification of disposals.
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which, when effective, will supersede the guidance in former ASC 605, Revenue Recognition. The new guidance requires entities to recognize revenue based on the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for annual periods beginning after December 15, 2016 and interim periods within that year. Early adoption is not permitted. In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date, which provides an optional one-year deferral of the effective date. We are currently evaluating the impact of this standard on our consolidated financial position and results of operations.
In February 2015, the FASB issued ASU No. 2015-02, Consolidations (Topic 810): Amendments to the Consolidations Analysis, which when effective, will (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with variable interest entities, particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within that year. Early adoption is permitted. We will adopt this standard in our first quarter ending June 30, 2016. Adoption of this standard is not expected to have any impact on our consolidated financial position and results of operations.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which, when effective, will require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within that year. In August 2015, the FASB issued ASU 2015-15, a clarifying amendment, allowing for debt issuance costs related to lines of credit being presented as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet or each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Early adoption is permitted. We will adopt this standard in our first quarter ending June 30, 2016. Adoption of this standard will impact the presentation of deferred debt issuance costs on our consolidated financial position. We have determined that the adoption of the standard as of December 31, 2015 would have resulted in a decrease of approximately $32 million to "Other long-term assets" and "Long-term debt, net of current portion" on the accompanying condensed consolidated Balance Sheet, and that we would continue to present debt issuance costs related to lines of credit as an asset. The future impact of the adoption on balance sheet classification may be impacted by future amortization and debt refinancing.
9
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which, when effective, will remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within those fiscal years. An entity should apply the amendments retrospectively to all periods presented. Early adoption is permitted. We will adopt this standard in our annual period ending March 31, 2017. Adoption of this standard may impact the presentation of certain pension plan assets in our postretirement benefit plans footnote disclosure.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which, when effective, will remove the requirement to measure inventory at the lower of cost or market whereas market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin, and require an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for annual periods beginning after December 15, 2016 including interim periods within those fiscal years. This update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We will adopt this standard on April 1, 2016, the start of our next fiscal year. Adoption of this standard is not expected to have any impact on our consolidated financial position and results of operations.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which when effective will require deferred tax liabilities and assets which currently are required to be allocated between current and noncurrent, to be classified as noncurrent in the statement of financial position. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted, and this amendment can be applied either prospectively or retrospectively. We are evaluating our adoption approach and timing.
10
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
2. RESTRUCTURING AND IMPAIRMENT
“Restructuring and impairment, net” for the nine months ended December 31, 2015 and 2014 was $29 million and $38 million, respectively.
The following table summarizes our restructuring liability activity and other impairment charges (in millions).
Total restructuring
liabilities
|
Other restructuring charges (A) |
Total restructuring charges |
Other impairments (B) |
Total
restructuring and impairments, net
|
||||||||||||||||
Balance as of March 31, 2015 |
$ |
32 |
||||||||||||||||||
-Provisions |
22 |
|||||||||||||||||||
-Reversal of expense |
(1 |
) |
||||||||||||||||||
Expenses, net |
21 |
$ |
7 |
$ |
28 |
$ |
1 |
$ |
29 |
|||||||||||
Cash payments |
(18 |
) |
||||||||||||||||||
Foreign currency and other (C) |
(6 |
) |
||||||||||||||||||
Balance as of December 31, 2015 |
$ |
29 |
(A) |
Other restructuring charges include period expenses that were not recorded through the restructuring liability. |
(B) |
Other impairment charges not related to a restructuring activity. |
(C) |
This primarily relates to the remeasurement of Brazilian real denominated restructuring liabilities. |
As of December 31, 2015, $23 million of restructuring liabilities was included in "Accrued expenses and other current liabilities" and $6 million was included in "Other long-term liabilities" on our condensed consolidated balance sheet. As of December 31, 2015, the restructuring liability for the North America segment was $1 million. Additionally, restructuring expenses and payments for the North America segment for the nine months ended December 31, 2015 totaled $1 million. The other regional and corporate restructuring activities are described in more detail on the subsequent pages.
11
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
Europe
The following table summarizes our restructuring activity for the Europe segment by plan (in millions).
Nine Months Ended December 31, |
Year Ended March 31, |
Prior to April 1, |
||||||||||
2015 |
2015 |
2014 |
||||||||||
Restructuring charges - Europe |
||||||||||||
Business optimization |
||||||||||||
Severance |
$ |
— |
$ |
3 |
$ |
43 |
||||||
Corporate Restructuring Program |
||||||||||||
Severance |
4 |
— |
— |
|||||||||
Total restructuring charges - Europe |
$ |
4 |
$ |
3 |
$ |
43 |
||||||
Restructuring payments - Europe |
||||||||||||
Severance |
$ |
(4 |
) |
$ |
(12 |
) |
||||||
Total restructuring payments - Europe |
$ |
(4 |
) |
$ |
(12 |
) |
The Company implemented a series of restructuring actions at the global headquarters office and in the Europe region which include staff rationalization activities and the shutdown of facilities to improve our operations in Europe. As of December 31, 2015, the restructuring liability for the Europe segment was $6 million, which relates to severance charges.
12
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
South America
The following table summarizes our restructuring activity for the South America segment by plan (in millions).
Nine Months Ended December 31, |
Year Ended March 31, |
Prior to April 1, |
||||||||||
2015 |
2015 |
2014 |
||||||||||
Restructuring charges - South America |
||||||||||||
Ouro Preto closures |
||||||||||||
Severance |
$ |
1 |
$ |
14 |
$ |
5 |
||||||
Asset impairments (A) |
— |
5 |
1 |
|||||||||
Environmental charges |
— |
6 |
16 |
|||||||||
Contract termination and other exit related costs |
2 |
5 |
6 |
|||||||||
Other past restructuring programs |
— |
1 |
20 |
|||||||||
Total restructuring charges - South America |
$ |
3 |
$ |
31 |
$ |
48 |
||||||
Restructuring payments - South America |
||||||||||||
Severance |
$ |
(2 |
) |
$ |
(12 |
) |
||||||
Other |
(2 |
) |
(4 |
) |
||||||||
Total restructuring payments - South America |
$ |
(4 |
) |
$ |
(16 |
) |
(A) These charges were not recorded through the restructuring liability.
We ceased operations at the smelter in Ouro Preto, Brazil, in December 2014. This decision was made in an effort to further align our global sustainability strategy, and exit non-core operations. Certain charges associated with this closure are reflected within the "Ouro Preto smelter closures" section above, along with our closure of a pot line in Ouro Preto, Brazil, in fiscal 2013. As of December 31, 2015, the restructuring liability for the South America segment was $18 million and related to $12 million of environmental charges, $1 million of certain labor related charges, and $5 million of other exit related costs.
For additional information on environmental charges see Note 16 – Commitments and Contingencies.
13
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
Corporate
The following table summarizes our restructuring activity for our corporate office by plan (in millions).
Nine Months Ended December 31, |
Year Ended March 31, |
Prior to April 1, |
||||||||||
2015 |
2015 |
2014 |
||||||||||
Corporate Restructuring Program |
||||||||||||
Severance |
$ |
13 |
$ |
— |
$ |
— |
||||||
Asset impairments (A) |
5 |
— |
— |
|||||||||
Period expenses (A) |
1 |
— |
— |
|||||||||
Total restructuring charges - Corporate |
$ |
19 |
$ |
— |
$ |
— |
||||||
Restructuring payments - Corporate |
||||||||||||
Severance |
$ |
(9 |
) |
$ |
— |
|||||||
Lease termination costs |
— |
(1 |
) |
|||||||||
Total restructuring payments - Corporate |
$ |
(9 |
) |
$ |
(1 |
) |
(A) These charges were not recorded through the restructuring liability.
During the first quarter of fiscal 2016, the Company implemented a series of restructuring actions at the global headquarters office and in the Europe region to better align the organization structure and corporate staffing levels with strategic priorities. As part of this plan, the Company impaired certain capitalized software assets. As of December 31, 2015, the restructuring liability for the corporate office was $4 million and related to severance charges.
14
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
3. INVENTORIES
"Inventories" consist of the following (in millions).
December 31, 2015 |
March 31, 2015 |
||||||
Finished goods |
$ |
280 |
$ |
358 |
|||
Work in process |
474 |
531 |
|||||
Raw materials |
384 |
419 |
|||||
Supplies |
139 |
123 |
|||||
Inventories |
$ |
1,277 |
$ |
1,431 |
15
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
4. ASSETS HELD FOR SALE
We are focused on capturing the global growth we see in our premium product markets of beverage can, automotive and high-end specialties. We continually analyze our product portfolio to ensure we are focused on growing in attractive market segments. The following transaction relates to exiting certain non-core operations and are steps to align our growth strategy in the premium product markets.
In April 2014, we entered into agreements to sell certain hydroelectric power generation operations in South America and our share of the joint venture of the Consorcio Candonga to two separate parties. In December 2014, we sold our share of the joint venture of the Consorcio Candonga. Additionally, we sold the majority of our hydroelectric power generation operations fully owned by the Company in February 2015. The remaining assets include two hydroelectric power generation facilities, with a net book value of $5 million as of December 31, 2015 and $6 million as of March 31, 2015, were classified as "Assets held for sale" in our condensed consolidated balance sheets. The contract for the sale of one facility is subject to final regulatory approval and resolution of certain operating license issues, and the other facility is in the final stages of being sold.
"Gain on assets held for sale" includes a $23 million gain from our sale of the joint venture of the Consorcio Candonga, $7 million from the sale of our consumer foil operations in North America and $6 million from a property and mining rights sale in South America during the nine months ended December 31, 2014. These gains were offset during the nine months ended December 31, 2014 by an estimated loss of $13 million related to the sale of certain hydroelectric assets that was completed in the fourth quarter of fiscal 2015.
16
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
5. CONSOLIDATION
Variable Interest Entities (VIE)
The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and consolidates the VIE. An entity is deemed to have a controlling financial interest and is the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
We have a joint interest in Logan Aluminum Inc. (Logan) with Tri-Arrows Aluminum Inc. (Tri-Arrows). Logan processes metal received from Novelis and Tri-Arrows and charges the respective partner a fee to cover expenses. Logan is thinly capitalized and relies on the regular reimbursement of costs and expenses by Novelis and Tri-Arrows to fund its operations. This reimbursement is considered a variable interest as it constitutes a form of financing the activities of Logan. Other than these contractually required reimbursements, we do not provide other material support to Logan. Logan's creditors do not have recourse to our general credit.
We have the ability to make decisions regarding Logan’s production operations. We also have the ability to take the majority share of production and associated costs. These facts qualify us as Logan’s primary beneficiary and this entity is consolidated for all periods presented. All significant intercompany transactions and balances have been eliminated.
The following table summarizes the carrying value and classification of assets and liabilities owned by the Logan joint venture and consolidated in our condensed consolidated balance sheets (in millions). There are significant other assets used in the operations of Logan that are not part of the joint venture, as they are directly owned and consolidated by Novelis or Tri-Arrows.
December 31, 2015 |
March 31, 2015 |
||||||
Assets |
|||||||
Current assets |
|||||||
Cash and cash equivalents |
$ |
2 |
$ |
2 |
|||
Accounts receivable |
31 |
40 |
|||||
Inventories |
62 |
52 |
|||||
Prepaid expenses and other current assets |
2 |
1 |
|||||
Total current assets |
97 |
95 |
|||||
Property, plant and equipment, net |
15 |
20 |
|||||
Goodwill |
12 |
12 |
|||||
Deferred income taxes |
73 |
65 |
|||||
Other long-term assets |
5 |
4 |
|||||
Total assets |
$ |
202 |
$ |
196 |
|||
Liabilities |
|||||||
Current liabilities |
|||||||
Accounts payable |
$ |
26 |
$ |
33 |
|||
Accrued expenses and other current liabilities |
16 |
12 |
|||||
Total current liabilities |
42 |
45 |
|||||
Accrued postretirement benefits |
172 |
166 |
|||||
Other long-term liabilities |
2 |
2 |
|||||
Total liabilities |
$ |
216 |
$ |
213 |
17
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
6. |
INVESTMENT IN AND ADVANCES TO NON-CONSOLIDATED AFFILIATES AND RELATED PARTY TRANSACTIONS |
We have a non-consolidated affiliate, Aluminium Norf GmbH (Alunorf), which serves our Europe region with rolling and remelt tolling services. We also had a non-consolidated affiliate, Consorcio Candonga (Candonga), which we sold in December 2014, that provided hydroelectric power generation operations. Included in the accompanying condensed consolidated financial statements are transactions and balances arising from business we conducted with these non-consolidated affiliates, which we classify as related party transactions and balances. We account for these affiliates using the equity method.
The following table summarizes the results of operations of these equity method affiliates, and the nature and amounts of significant transactions we had with our non-consolidated affiliates (in millions). The amounts in the table below are disclosed at 100% of the operating results of these affiliates.
Three Months Ended December 31, |
Nine Months Ended December 31, |
||||||||||||||
2015 |
2014 |
2015 |
2014 |
||||||||||||
Net sales |
$ |
116 |
$ |
135 |
$ |
350 |
$ |
411 |
|||||||
Costs and expenses related to net sales |
119 |
141 |
352 |
428 |
|||||||||||
(Benefit) provision for taxes on income |
(3 |
) |
1 |
(1 |
) |
(4 |
) |
||||||||
Net loss |
$ |
— |
$ |
(7 |
) |
$ |
(1 |
) |
$ |
(13 |
) |
||||
Purchases of tolling services from Alunorf |
$ |
58 |
$ |
67 |
$ |
175 |
$ |
205 |
Additionally, we earned less than $1 million of interest income on a loan due from Alunorf.
The following table describes the period-end account balances that we had with our remaining non-consolidated affiliate, Alunorf, shown as related party balances in the accompanying condensed consolidated balance sheets (in millions). We had no other material related party balances with Alunorf.
December 31, 2015 |
March 31, 2015 |
||||||
Accounts receivable-related parties |
$ |
56 |
$ |
53 |
|||
Other long-term assets-related parties |
$ |
17 |
$ |
15 |
|||
Accounts payable-related parties |
$ |
49 |
$ |
44 |
As noted above, we have a loan due from Alunorf, which is presented in "Other long-term assets-related parties" during each of the periods in the table above. We believe collection of the full receivable from Alunorf is probable; thus no allowance for loan loss was recorded as of December 31, 2015 and March 31, 2015.
We have guaranteed the indebtedness for a credit facility on behalf of Alunorf. The guarantee is limited to 50% of the outstanding debt, not to exceed 6 million euros. As of December 31, 2015, there were no amounts outstanding under our guarantee with Alunorf as there were no outstanding borrowings. We have also guaranteed the payment of early retirement benefits on behalf of Alunorf. As of December 31, 2015, this guarantee totaled $2 million, though a separate associated liability for Novelis is not currently probable.
18
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
Transactions with Hindalco and AV Metals Inc.
We occasionally have related party transactions with Hindalco. During the nine months ended December 31, 2015 and 2014, “Net sales” were less than $1 million between Novelis and Hindalco. As of December 31, 2015 and March 31, 2015, there were less than $1 million and $1 million in "Accounts receivable, net" outstanding, respectively, related to transactions with Hindalco.
During the nine months ended December 31, 2015, Novelis purchased $3 million in raw materials from Hindalco that were fully paid for during the quarter ended December 31, 2015. There were no such comparable purchases in the prior year.
On April 30, 2014, we paid a return of capital to our direct shareholder, AV Metals Inc., in the amount of $250 million.
19
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
7. DEBT
Debt consisted of the following (in millions).
December 31, 2015 |
March 31, 2015 |
|||||||||||||||||||||||||||||
Interest
Rates (A)
|
Principal |
Unamortized
Carrying Value
Adjustments
|
Carrying
Value
|
Principal |
Unamortized
Carrying Value
Adjustments
|
Carrying
Value
|
||||||||||||||||||||||||
Third party debt: |
||||||||||||||||||||||||||||||
Short-term borrowings |
3.60 |
% |
$ |
932 |
$ |
— |
$ |
932 |
$ |
846 |
$ |
— |
$ |
846 |
||||||||||||||||
Novelis Inc. |
||||||||||||||||||||||||||||||
Floating rate Term Loan Facility, due through June 2022 |
4.00 |
% |
1,791 |
(17 |
) |
(B) |
1,774 |
1,731 |
(13 |
) |
(B) |
1,718 |
||||||||||||||||||
8.375% Senior Notes, due December 2017 |
8.375 |
% |
1,100 |
— |
1,100 |
1,100 |
— |
1,100 |
||||||||||||||||||||||
8.75% Senior Notes, due December 2020 |
8.75 |
% |
1,400 |
— |
1,400 |
1,400 |
— |
1,400 |
||||||||||||||||||||||
Capital lease obligations, due through July 2017 |
3.64 |
% |
6 |
— |
6 |
9 |
— |
9 |
||||||||||||||||||||||
Novelis Korea Limited |
||||||||||||||||||||||||||||||
Bank loans, due through September 2020 (KRW 212 billion) |
2.78 |
% |
181 |
— |
181 |
192 |
— |
192 |
||||||||||||||||||||||
Novelis Switzerland S.A. |
||||||||||||||||||||||||||||||
Capital lease obligation, due through December 2019 (Swiss francs (CHF) 24 million) |
7.50 |
% |
24 |
(1 |
) |
(C) |
23 |
28 |
(1 |
) |
(C) |
27 |
||||||||||||||||||
Novelis do Brasil Ltda. |
||||||||||||||||||||||||||||||
BNDES loans, due through April 2021 (BRL 18 million) |
5.92 |
% |
5 |
(1 |
) |
(D) |
4 |
7 |
(1 |
) |
(D) |
6 |
||||||||||||||||||
Other |
||||||||||||||||||||||||||||||
Other debt, due through December 2020 |
3.59 |
% |
1 |
— |
1 |
5 |
— |
5 |
||||||||||||||||||||||
Total debt |
5,440 |
(19 |
) |
5,421 |
5,318 |
(15 |
) |
5,303 |
||||||||||||||||||||||
Less: Short-term borrowings |
(932 |
) |
— |
(932 |
) |
(846 |
) |
— |
(846 |
) |
||||||||||||||||||||
Current portion of long term debt |
(47 |
) |
— |
(47 |
) |
(108 |
) |
— |
(108 |
) |
||||||||||||||||||||
Long-term debt, net of current portion |
$ |
4,461 |
$ |
(19 |
) |
$ |
4,442 |
$ |
4,364 |
$ |
(15 |
) |
$ |
4,349 |
20
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
(A) |
Interest rates are the fixed or variable rates as specified in the debt instruments (not the effective interest rate) as of December 31, 2015, and therefore, exclude the effects of related interest rate swaps, accretion/amortization of fair value adjustments as a result of purchase accounting in connection with Hindalco's purchase of Novelis and accretion/amortization of debt issuance costs related to the debt exchange completed in fiscal 2009 and the series of refinancing transactions and additional borrowings we completed in fiscal 2011 through 2016. We present stated rates of interest because they reflect the rate at which cash will be paid for future debt service.
|
(B) |
Debt existing at the time of Hindalco's purchase of Novelis was recorded at fair value. In connection with a series of refinancing transactions, a portion of the historical fair value adjustments was allocated to the Term Loan Facility, resulting in carrying value adjustments on this debt obligation. The unamortized carrying value also includes issuance discounts from subsequent refinancings. |
(C) |
Debt existing at the time of Hindalco's purchase of Novelis was recorded at fair value resulting in carrying value adjustments to our capital lease obligations in Novelis Switzerland. |
(D) |
The unamortized carrying value includes issuance discounts related to the difference resulting from the contractual rates of interest specified in the instruments that are lower than the market rates of interest upon issuance. |
Principal repayment requirements for our total debt over the next five years and thereafter (excluding unamortized carrying value adjustments and using exchange rates as of December 31, 2015 for our debt denominated in foreign currencies) are as follows (in millions).
As of December 31, 2015 |
Amount |
||
Short-term borrowings and current portion of long-term debt due within one year |
$ |
979 |
|
2 years |
1,189 |
||
3 years |
125 |
||
4 years |
25 |
||
5 years |
1,421 |
||
Thereafter |
1,701 |
||
Total |
$ |
5,440 |
Senior Secured Credit Facilities
As of December 31, 2015, the senior secured credit facilities consisted of (i) a $1.8 billion seven-year secured term loan credit facility (Term Loan Facility), (ii) a $1.2 billion five-year asset based loan facility (ABL Revolver) and (iii) a $200 million 15-month subordinated secured lien revolving facility (Subordinated Lien Revolver). As of December 31, 2015, $18 million of the Term Loan Facility is due within one year.
In June 2015, we entered into the Subordinated Lien Revolver with a maturity date of September 10, 2016. The interest rate for a loan under the Subordinated Lien Revolver is either equal to (i) a prime rate plus a spread of 2.5% or 2.25 depending on the total net leverage ratio then in effect or (ii) the higher of LIBOR and 0.75% plus a spread of 3.50% or 3.25% depending on the total net leverage ratio then in effect. The Subordinated Lien Revolver requires us to maintain a secured net leverage ratio of 4 to 1. Pursuant to the terms of the Term Loan Facility, such secured net leverage maintenance covenant will automatically apply to the Term Loan Facility as well for so long as the Subordinated Lien Revolver is in effect.
In June 2015, we entered into a Refinancing Amendment Agreement with respect to our Term Loan Facility. The Amendment increases the principal amount of the Term Loan Facility from $1.7 billion to $1.8 billion and extends the final maturity from December 17, 2017 to June 2, 2022; provided that, in the event that any series of our senior unsecured notes remain outstanding 92 days prior to its maturity date, then the Term Loan Facility will mature on such date, subject to limited exceptions. The loans under the Term Loan Facility accrue interest at the higher of LIBOR and 0.75% plus a 3.25% spread. The Amendment eliminates the senior secured net leverage covenant that requires us to maintain a minimum senior secured net leverage ratio (subject to the terms disclosed in the preceding paragraph). In addition, certain negative covenants were amended to increase the Company’s operational flexibility, including increasing flexibility to enter into working capital management programs and incur other debt.
21
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
In October 2014, we amended and extended our ABL Revolver by entering into a $1.2 billion, five-year, senior secured ABL Revolver. The interest rate for a loan under the ABL Revolver is either (i) prime rate plus a spread of 0.50% to 1.00% based on excess availability or (ii) of LIBOR plus a spread of 1.50% to 2.00% based on excess availability. The ABL Revolver has a provision that allows the facility to be increased by an additional $500 million. The ABL Revolver has various customary covenants including maintaining a minimum fixed charge coverage ratio of 1.25 to 1 if excess availability is less than the greater of (1) $110 million and (2) 12.5% of the lesser of (a) the maximum size of the ABL Revolver and (b) the borrowing base. The fixed charge coverage ratio will be equal to the ratio of (1) (a) ABL Revolver defined Earnings Before Interest, Taxes, Depreciation and Amortization less (b) maintenance capital expenditures less (c) cash taxes; to (2) (a) interest expense plus (b) scheduled principal payments plus (c) dividends to the Company's direct holding company to pay certain taxes, operating expenses and management fees and repurchases of equity interests from employees, officers and directors. The ABL Revolver matures on October 6, 2019; provided that, in the event that any of the Notes, the Term Loan Facility, or certain other indebtedness are outstanding (and not refinanced with a maturity date later than April 6, 2020) 90 days prior to their respective maturity dates, then the ABL Revolver will mature 90 days prior to the maturity date for the Notes, the Term Loan Facility or such other indebtedness, as applicable; unless excess availability under the ABL Revolver is at least (i) 25% of the lesser of (x) the total ABL Revolver commitment and (y) the then applicable borrowing base and (ii) 20% of the lesser of (x) the total ABL Revolver commitment and (y) the then applicable borrowing base, and a minimum fixed charge ratio test of at least 1.25 to 1 is met.
The senior secured credit facilities contain various affirmative covenants, including covenants with respect to our financial statements, litigation and other reporting requirements, insurance, payment of taxes, employee benefits and (subject to certain limitations) causing new subsidiaries to pledge collateral and guarantee our obligations. The senior secured credit facilities also include various customary negative covenants and events of default, including limitations on our ability to (1) make certain restricted payments, (2) incur additional indebtedness, (3) sell certain assets, (4) enter into sale and leaseback transactions, (5) make investments, loans and advances, (6) pay dividends or returns of capital and distributions beyond certain amounts, (7) engage in mergers, amalgamations or consolidations, (8) engage in certain transactions with affiliates, and (9) prepay certain indebtedness. Substantially all of our assets are pledged as collateral under the senior secured credit facilities. As of December 31, 2015, we were in compliance with the covenants in the Term Loan Facility, ABL Revolver and Subordinated Lien Revolver.
Short-Term Borrowings
As of December 31, 2015, our short-term borrowings were $932 million, consisting of $594 million of loans under our ABL Revolver, $115 million under our Subordinated Lien Revolver, $77 million in Novelis Brazil loans, $49 million (KRW 58 billion) in Novelis Korea loans, $43 million (CNY 280 million) in Novelis China loans, $40 million in Novelis Middle East and Africa loans, $11 million (VND 247 billion) in Novelis Vietnam loans and $3 million of other short-term borrowings.
As of December 31, 2015, $6 million of the ABL Revolver availability was utilized for letters of credit, and we had $199 million in remaining availability under the ABL Revolver.
As of December 31, 2015, $85 million under the Subordinated Lien Revolver was available.
Novelis Korea has entered into various short-term facilities, including revolving loan facilities and committed credit lines. As of December 31, 2015, we had $201 million (KRW 236 billion) in remaining availability under these facilities.
In fiscal year 2016, Novelis Middle East and Africa entered into various short-term facilities, including revolving facility agreements totaling $40 million. As of December 31, 2015, we had fully drawn on these facilities.
In fiscal year 2015, Novelis China entered into a committed facility. On September 16, 2015 the committed facility for Novelis China was increased to $31 million (200 million CNY). As of December 31, 2015, we had $4 million (CNY 26 million) in remaining availability under this facility.
Senior Notes
On December 17, 2010, we issued $1.1 billion in aggregate principal amount of 8.375% Senior Notes Due 2017 (the 2017 Notes) and $1.4 billion in aggregate principal amount of 8.75% Senior Notes Due 2020 (the 2020 Notes, and together with the 2017 Notes, the Notes).
22
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
The Notes contain customary covenants and events of default that will limit our ability and, in certain instances, the ability of certain of our subsidiaries to (1) incur additional debt and provide additional guarantees, (2) pay dividends or return capital beyond certain amounts and make other restricted payments, (3) create or permit certain liens, (4) make certain asset sales, (5) use the proceeds from the sales of assets and subsidiary stock, (6) create or permit restrictions on the ability of certain of the Company's subsidiaries to pay dividends or make other distributions to the Company, (7) engage in certain transactions with affiliates, (8) enter into sale and leaseback transactions, (9) designate subsidiaries as unrestricted subsidiaries and (10) consolidate, merge or transfer all or substantially all of our assets and the assets of certain of our subsidiaries. During any future period in which either Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. have assigned an investment grade credit rating to the Notes and no default or event of default under the indenture has occurred and is continuing, most of the covenants will be suspended. The Notes include a cross-acceleration event of default triggered if any other indebtedness with an aggregate principal amount of more than $100 million is (1) accelerated prior to its maturity or (2) not repaid at its maturity. As of December 31, 2015, we were in compliance with the covenants in the Notes. The Notes also contain customary call protection provisions for our bond holders that extend through December 2016 for the 2017 Notes and through December 2018 for the 2020 Notes.
Korean Bank Loans
As of December 31, 2015, Novelis Korea had $17 million (KRW 20 billion) of outstanding long-term loans with various banks due within one year. All loans have variable interest rates with base rates tied to Korea's 91-day CD rate plus an applicable spread ranging from 0.91% to 1.58%.
Brazil BNDES Loans
Novelis Brazil entered into loan agreements with Brazil’s National Bank for Economic and Social Development (the BNDES long-term loans) related to the plant expansion in Pindamonhangaba, Brazil (Pinda). As of December 31, 2015 there are $1 million of BNDES long-term loans due within one year.
Other Long-term debt
In December 2004, we entered into a 15-year capital lease obligation with Alcan Inc. for assets in Sierre, Switzerland, which has an interest rate of 7.5% and fixed quarterly payments of CHF 1.7 million, (USD $1.7 million).
During fiscal 2013 and 2014, Novelis Inc. entered into various capital lease arrangements to upgrade and expand our information technology infrastructure.
As of December 31, 2015, we had $1 million of other debt, including certain capital lease obligations, with due dates through December 2020.
Interest Rate Swaps
We use interest rate swaps to manage our exposure to changes in benchmark interest rates which impact our variable-rate debt. See Note 11- Financial Instruments and Commodity Contracts for further information about these interest rate swaps.
23
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
8. SHARE-BASED COMPENSATION
The Company's board of directors has authorized long term incentive plans (LTIPs), under which Hindalco stock appreciation rights (Hindalco SARs), Novelis stock appreciation rights (Novelis SARs), and phantom restricted stock units (RSUs) are granted to certain executive officers and key employees. The RSUs are based on Hindalco's stock price. The Hindalco SARs and Novelis SARs vest at the rate of 25% per year, subject to the achievement of an annual performance target, and expire seven years from their original grant date. The performance criterion for vesting of both the Hindalco SARs and Novelis SARs is based on the actual overall Novelis operating EBITDA compared to the target established and approved each fiscal year. The RSUs vest in full three years from the grant date, subject to continued employment with the Company, but are not subject to performance criteria.
During the nine months ended December 31, 2015, we granted 2,239,448 RSUs, 7,802,749 Hindalco SARs, and 681,551 Novelis SARs. Total compensation expense (benefit) related to these plans for the respective periods was $3 million and $4 million for the three months ended December 31, 2015, and 2014; and $(4) million and $11 million for the nine months ended December 31, 2015 and 2014, respectively. These amounts are included in “Selling, general and administrative expenses” or "Cost of goods sold (exclusive of depreciation and amortization)" in our condensed consolidated statements of operations. As the performance criteria for fiscal years 2017, 2018 and 2019 have not yet been established, measurement periods for Hindalco SARs and Novelis SARs relating to those periods have not yet commenced. As a result, only compensation expense for vested and current year Hindalco SARs and Novelis SARs has been recorded.
The cash payments made to settle SAR liabilities were $2 million and $7 million in the nine months ended December 31, 2015 and 2014, respectively. Total cash payments made to settle Hindalco RSUs were $5 million and $3 million in the nine months ended December 31, 2015 and 2014, respectively. Unrecognized compensation expense related to the non-vested Hindalco SARs (assuming all future performance criteria are met) was $4 million, which is expected to be recognized over a weighted average period of 2.5 years. Unrecognized compensation expense related to the non-vested Novelis SARs (assuming all future performance criteria are met) was $14 million, which is expected to be recognized over a weighted average period of 2.6 years. Unrecognized compensation expense related to the RSUs was $4 million, which will be recognized over the remaining weighted average vesting period of 1.5 years.
24
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
9. POSTRETIREMENT BENEFIT PLANS
Our pension obligations relate to: (1) funded defined benefit pension plans in the U.S., Canada, Switzerland and the U.K.; (2) unfunded defined benefit pension plans in Germany; (3) unfunded lump sum indemnities payable upon retirement to employees in France, Malaysia and Italy; and (4) partially funded lump sum indemnities in South Korea. Our other postretirement obligations (Other Benefits, as shown in certain tables below) include unfunded health care and life insurance benefits provided to retired employees in the U.S., Canada and Brazil.
Components of net periodic benefit cost (credit) for all of our postretirement benefit plans are shown in the tables below (in millions).
Pension Benefit Plans |
Other Benefit Plans |
||||||||||||||
Three Months Ended December 31, |
Three Months Ended December 31, |
||||||||||||||
2015 |
2014 |
2015 |
2014 |
||||||||||||
Service cost |
$ |
12 |
$ |
11 |
$ |
2 |
$ |
2 |
|||||||
Interest cost |
15 |
17 |
1 |
1 |
|||||||||||
Expected return on assets |
(17 |
) |
(17 |
) |
— |
— |
|||||||||
Amortization — losses, net |
10 |
5 |
1 |
3 |
|||||||||||
Amortization — prior service credit, net |
(1 |
) |
(1 |
) |
(6 |
) |
(9 |
) |
|||||||
Net periodic benefit cost (credit) |
$ |
19 |
$ |
15 |
$ |
(2 |
) |
$ |
(3 |
) |
Pension Benefit Plans |
Other Benefits |
||||||||||||||
Nine Months Ended December 31, |
Nine Months Ended December 31, |
||||||||||||||
2015 |
2014 |
2015 |
2014 |
||||||||||||
Service cost |
$ |
36 |
$ |
33 |
$ |
4 |
$ |
4 |
|||||||
Interest cost |
44 |
51 |
4 |
4 |
|||||||||||
Expected return on assets |
(51 |
) |
(52 |
) |
— |
— |
|||||||||
Amortization — losses |
28 |
17 |
3 |
7 |
|||||||||||
Amortization — prior service credit, net |
(2 |
) |
(2 |
) |
(20 |
) |
(29 |
) |
|||||||
Termination benefits / (curtailments) |
— |
1 |
— |
(2 |
) |
||||||||||
Net periodic benefit cost (credit) |
$ |
55 |
$ |
48 |
$ |
(9 |
) |
$ |
(16 |
) |
The average expected long-term rate of return on plan assets is 5.6% in fiscal 2016.
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 Ended December 31, |
Nine Months Ended December 31, |
||||||||||||||
2015 |
2014 |
2015 |
2014 |
||||||||||||
Funded pension plans |
$ |
13 |
$ |
11 |
$ |
19 |
$ |
23 |
|||||||
Unfunded pension plans |
3 |
2 |
8 |
9 |
|||||||||||
Savings and defined contribution pension plans |
5 |
5 |
18 |
13 |
|||||||||||
Total contributions |
$ |
21 |
$ |
18 |
$ |
45 |
$ |
45 |
During the remainder of fiscal 2016, we expect to contribute an additional $7 million to our funded pension plans, $3 million to our unfunded pension plans and $5 million to our savings and defined contribution plans.
25
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
10. CURRENCY GAINS
The following currency losses (gains) are included in “Other (income) expense, net” in the accompanying condensed consolidated statements of operations (in millions).
Three Months Ended December 31, |
Nine Months Ended December 31, |
||||||||||||||
2015 |
2014 |
2015 |
2014 |
||||||||||||
Loss (gain) on remeasurement of monetary assets and liabilities, net |
$ |
3 |
$ |
(17 |
) |
$ |
(48 |
) |
$ |
(19 |
) |
||||
Loss released from accumulated other comprehensive loss |
— |
— |
1 |
1 |
|||||||||||
(Gain) loss recognized on balance sheet remeasurement currency exchange contracts, net |
(7 |
) |
13 |
42 |
15 |
||||||||||
Currency gains, net |
$ |
(4 |
) |
$ |
(4 |
) |
$ |
(5 |
) |
$ |
(3 |
) |
The following currency losses are included in “Accumulated other comprehensive loss, net of tax” and “Noncontrolling interests” in the accompanying condensed consolidated balance sheets (in millions).
Nine Months Ended December 31, 2015 |
Year Ended March 31, 2015 |
||||||
Cumulative currency translation adjustment — beginning of period |
$ |
(214 |
) |
$ |
90 |
||
Effect of changes in exchange rates |
(45 |
) |
(304 |
) |
|||
Cumulative currency translation adjustment — end of period |
$ |
(259 |
) |
$ |
(214 |
) |
26
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
11. FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS
The following tables summarize the gross fair values of our financial instruments and commodity contracts as of December 31, 2015 and March 31, 2015 (in millions).
December 31, 2015 |
|||||||||||||||||||
Assets |
Liabilities |
Net Fair Value
|
|||||||||||||||||
Current |
Noncurrent (A) |
Current |
Noncurrent (A) |
Assets / (Liabilities) |
|||||||||||||||
Derivatives designated as hedging instruments: |
|||||||||||||||||||
Cash flow hedges |
|||||||||||||||||||
Aluminum contracts |
$ |
18 |
$ |
— |
$ |
(3 |
) |
$ |
— |
$ |
15 |
||||||||
Currency exchange contracts |
2 |
3 |
(33 |
) |
(12 |
) |
(40 |
) |
|||||||||||
Energy contracts |
— |
— |
(5 |
) |
(1 |
) |
(6 |
) |
|||||||||||
Net investment hedges |
|||||||||||||||||||
Currency exchange contracts |
2 |
— |
— |
— |
2 |
||||||||||||||
Total derivatives designated as hedging instruments |
22 |
3 |
(41 |
) |
(13 |
) |
(29 |
) |
|||||||||||
Derivatives not designated as hedging instruments |
|||||||||||||||||||
Aluminum contracts |
27 |
— |
(28 |
) |
— |
(1 |
) |
||||||||||||
Currency exchange contracts |
13 |
— |
(28 |
) |
— |
(15 |
) |
||||||||||||
Energy contracts |
2 |
— |
(14 |
) |
— |
(12 |
) |
||||||||||||
Total derivatives not designated as hedging instruments |
42 |
— |
(70 |
) |
— |
(28 |
) |
||||||||||||
Total derivative fair value |
$ |
64 |
$ |
3 |
$ |
(111 |
) |
$ |
(13 |
) |
$ |
(57 |
) |
March 31, 2015 |
|||||||||||||||||||
Assets |
Liabilities |
Net Fair Value
|
|||||||||||||||||
Current |
Noncurrent (A) |
Current |
Noncurrent(A) |
Assets / (Liabilities) |
|||||||||||||||
Derivatives designated as hedging instruments: |
|||||||||||||||||||
Cash flow hedges |
|||||||||||||||||||
Aluminum contracts |
$ |
15 |
$ |
— |
$ |
(5 |
) |
$ |
— |
$ |
10 |
||||||||
Currency exchange contracts |
4 |
— |
(42 |
) |
(15 |
) |
(53 |
) |
|||||||||||
Energy contracts |
— |
— |
(6 |
) |
(2 |
) |
(8 |
) |
|||||||||||
Interest rate swaps |
— |
— |
(1 |
) |
— |
(1 |
) |
||||||||||||
Net investment hedges |
|||||||||||||||||||
Currency exchange contracts |
5 |
— |
— |
— |
5 |
||||||||||||||
Total derivatives designated as hedging instruments |
24 |
— |
(54 |
) |
(17 |
) |
(47 |
) |
|||||||||||
Derivatives not designated as hedging instruments: |
|||||||||||||||||||
Aluminum contracts |
24 |
— |
(26 |
) |
— |
(2 |
) |
||||||||||||
Currency exchange contracts |
26 |
— |
(54 |
) |
— |
(28 |
) |
||||||||||||
Energy contracts |
3 |
— |
(15 |
) |
(7 |
) |
(19 |
) |
|||||||||||
Total derivatives not designated as hedging instruments |
53 |
— |
(95 |
) |
(7 |
) |
(49 |
) |
|||||||||||
Total derivative fair value |
$ |
77 |
$ |
— |
$ |
(149 |
) |
$ |
(24 |
) |
$ |
(96 |
) |
(A) |
The noncurrent portions of derivative assets and liabilities are included in “Other long-term assets-third parties” and in “Other long-term liabilities”, respectively, in the accompanying condensed consolidated balance sheets. |
27
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
Aluminum
We use derivative instruments to preserve our conversion margins and manage the timing differences associated with metal price lag. We use over-the-counter derivatives indexed to the London Metals Exchange (LME) (referred to as our "aluminum derivative forward contracts") to reduce our exposure to fluctuating metal prices associated with the period of time between the pricing of our purchases of inventory and the pricing of the sale of that inventory to our customers, which is known as "metal price lag." We also purchase forward LME aluminum contracts simultaneously with our sales contracts with customers that contain fixed metal prices. These LME aluminum forward contracts directly hedge the economic risk of future metal price fluctuations to better match the selling price of the metal with the purchase price of the metal. The volatility in local market premiums also results in metal price lag, although we do not have derivative contracts associated with local market premiums as these are not prevalent in the market.
Price risk exposure arises from commitments to sell aluminum in future periods at fixed prices. We identify and designate certain LME aluminum forward contracts as fair value hedges of the metal price risk associated with fixed price sales commitments that qualify as firm commitments. Such exposures do not extend beyond two years in length. We had 1 kt and 2 kt of outstanding aluminum forward purchase contracts designated as fair value hedges as of December 31, 2015 and March 31, 2015, respectively. One kilotonne (kt) is 1,000 metric tonnes.
The following table summarizes the amount of gain (loss) recognized on fair value hedges of metal price risk (in millions).
Amount of Gain (Loss)
Recognized on Changes in Fair Value
|
Amount of Gain (Loss)
Recognized on Changes in Fair Value
|
||||||||||||||
Three Months Ended December 31, |
Nine Months Ended December 31, |
||||||||||||||
2015 |
2014 |
2015 |
2014 |
||||||||||||
Fair Value Hedges of Metal Price Risk |
|||||||||||||||
Derivative Contracts |
$ |
(1 |
) |
$ |
(1 |
) |
$ |
(2 |
) |
$ |
— |
||||
Designated Hedged Items |
1 |
1 |
2 |
— |
|||||||||||
Net Ineffectiveness (A) |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
(A) |
Effective portion is recorded in "Net sales" and net ineffectiveness in "Other (income) expense, net." There was no amount excluded from the assessment of hedge effectiveness related to Fair Value Hedges. |
Price risk arises due to fluctuating aluminum prices between the time the sales order is committed and the time the order is shipped. We identify and designate certain LME aluminum forward purchase contracts as cash flow hedges of the metal price risk associated with our future metal purchases that vary based on changes in the price of aluminum. Such exposures do not extend beyond two years in length. We had 2 kt and 1 kt of outstanding aluminum forward purchase contracts designated as cash flow hedges as of December 31, 2015 and March 31, 2015, respectively.
Price risk exposure arises due to the timing lag between the LME based pricing of raw material aluminum purchases and the LME based pricing of finished product sales. We identify and designate certain LME aluminum forward sales contracts as cash flow hedges of the metal price risk associated with our future metal sales that vary based on changes in the price of aluminum. Generally, such exposures do not extend beyond two years in length. We had 312 kt and 285 kt of outstanding aluminum forward sales contracts designated as cash flow hedges as of December 31, 2015 and March 31, 2015, respectively.
The remaining aluminum derivative contracts are not designated as accounting hedges. As of December 31, 2015 and March 31, 2015, we had 55 kt and 36 kt, respectively, of outstanding aluminum sales contracts not designated as hedges. The average duration of undesignated contracts is less than six months.
The following table summarizes our notional amount (in kt).
28
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
December 31, 2015 |
March 31, 2015 |
||||
Hedge Type |
|||||
Purchase (Sale) |
|||||
Cash flow purchases |
2 |
1 |
|||
Cash flow sales |
(312 |
) |
(285 |
) |
|
Fair value |
1 |
2 |
|||
Not designated |
(55 |
) |
(36 |
) |
|
Total, net |
(364 |
) |
(318 |
) |
Foreign Currency
We use foreign exchange forward contracts, cross-currency swaps and options 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 operations.
We use foreign currency contracts to hedge expected future foreign currency transactions, which include capital expenditures. These contracts cover the same periods as known or expected exposures. We had total notional amounts of $645 million and $590 million in outstanding foreign currency forwards designated as cash flow hedges as of December 31, 2015 and March 31, 2015, respectively.
We use foreign currency contracts to hedge our foreign currency exposure to our net investment in foreign subsidiaries. We had $12 million and $28 million of outstanding foreign currency forwards designated as net investment hedges as of December 31, 2015 and March 31, 2015, respectively.
As of December 31, 2015 and March 31, 2015, we had outstanding currency exchange contracts with a total notional amount of $561 million and $868 million, respectively, to primarily hedge balance sheet remeasurement risk, which were not designated as hedges. Contracts representing the majority of this notional amount will mature during the fourth quarter of fiscal 2016 and offset the remeasurement impact.
Energy
We own an interest in an electricity swap, which we formerly designated as a cash flow hedge of our exposure to fluctuating electricity prices. As of March 31, 2011, due to significant credit deterioration of our counterparty, we discontinued hedge accounting for this electricity swap. Less than 1 million of notional megawatt hours remained outstanding as of December 31, 2015, and the fair value of this swap was a liability of $10 million as of December 31, 2015. As of March 31, 2015, the fair value of this electricity swap was a liability of $16 million.
We use natural gas forward purchase contracts to manage our exposure to fluctuating energy prices in North America. We had 6 million MMBTUs designated as cash flow hedges as of December 31, 2015, and the fair value was a liability of $6 million. There were 7 million MMBTUs of natural gas forward purchase contracts designated as cash flow hedges as of March 31, 2015 and the fair value was a liability of $8 million. As of December 31, 2015 and March 31, 2015, we had 1 million and 2 million of MMBTUs, respectively, of natural gas forward purchase contracts that were not designated as hedges. The fair value as of December 31, 2015 and March 31, 2015 was a liability of $2 million and a liability of $3 million, respectively, for the forward purchase contracts not designated as hedges. The average duration of undesignated contracts is less than two years in length. One MMBTU is the equivalent of one decatherm, or one million British Thermal Units.
Interest Rate
As of December 31, 2015, we swapped $113 million (KRW 133 billion) floating rate loans to a weighted average fixed rate of 2.92%. All swaps expire concurrent with the maturity of the related loans. As of December 31, 2015 and March 31, 2015, $113 million (KRW 133 billion) and $78 million (KRW 86 billion), respectively, were designated as cash flow hedges.
29
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - (Continued)
Gain (Loss) Recognition
The following table summarizes the gains (losses) associated with the change in fair value of derivative instruments not designated as hedges and the ineffectiveness of designated derivatives recognized in “Other (income) expense, net” (in millions). Gains (losses) recognized in other line items in the condensed consolidated statement of operations are separately disclosed within this footnote.
Three Months Ended December 31, |
Nine Months Ended December 31, |
||||||||||||||
2015 |
2014 |
2015 |
2014 |
||||||||||||
Derivative Instruments Not Designated as Hedges |
|||||||||||||||
Aluminum contracts (C) |
$ |
8 |
$ |
— |
$ |
48 |
$ |
(27 |
) |
||||||
Currency exchange contracts |
7 |
(11 |
) |
(47 |
) |
(13 |
) |
||||||||
Energy contracts (A) |
— |
(2 |
) |
2 |
2 |
||||||||||
Gain (loss) recognized in "Other (income) expense, net" |
15 |
(13 |
) |
3 |
(38 |
) |
|||||||||
Derivative Instruments Designated as Hedges |
|||||||||||||||
Gain recognized in "Other (income) expense, net" (B) |
6 |
6 |
22 |
14 |
|||||||||||
Total gain (loss) recognized in "Other (income) expense, net" |
$ |
21 |
$ |
(7 |
) |
$ |
25 |
$ |
(24 |
) |
|||||
Balance sheet remeasurement currency exchange contract gains (losses) |
$ |
7 |
$ |
(13 |
) |
$ |
(43 |
) |
$ |
(16 |
) |
||||
Realized gains (losses), net |
16 |
(6 |
) |
50 |
(20 |
) |
|||||||||
Unrealized (losses) gains on other derivative instruments, net (C) |
(2 |
) |
12 |
18 |
12 |
||||||||||
Total gain (loss) recognized in "Other (income) expense, net" |
$ |
21 |
$ |
(7 |
) |
$ |
25 |
$ |
(24 |
) |
(A) |
Includes amounts related to de-designated electricity swap and natural gas swaps not designated as hedges. |
(B) |
Amount includes: forward market premium/discount excluded from hedging relationship and ineffectiveness on designated aluminum and foreign currency capital expenditure contracts; releases to income from AOCI on balance sheet remeasurement contracts; and ineffectiveness of fair value hedges involving aluminum derivatives. |
(C) |
During the three and nine months ended December 31, 2015, the level of undesignated aluminum derivatives was higher due to the recent volatility in the local market premium component of our net selling prices.
|
The following table summarizes the impact on AOCI and earnings of derivative instruments designated as cash flow and net investment hedges (in millions). Within the next twelve months, we expect to reclassify $43 million of losses from AOCI to earnings, before taxes.
Amount of Gain (Loss)
Recognized in OCI
(Effective Portion)
|
Amount of Gain (Loss)
Recognized in OCI
(Effective Portion)
|
Amount of Gain (Loss)
Recognized in “Other (Income) Expense, net” (Ineffective and
Excluded Portion) |
Amount of Gain (Loss)
Recognized in “Other (Income) Expense, net” (Ineffective and
Excluded Portion) |
||||||||||||||||||||||||||||
Three Months Ended December 31, |
Nine Months Ended December 31, |
Three Months Ended December 31, |
Nine Months Ended December 31, |
||||||||||||||||||||||||||||
2015 |
2014 |
2015 |
2014 |
2015 |
2014 |
2015 |
2014 |
||||||||||||||||||||||||
Cash flow hedging derivatives |
|||||||||||||||||||||||||||||||
Aluminum contracts |
$ |
12 |
$ |
26 |
$ |
71 |
$ |
(22 |
) |
$ |
6 |
$ |
7 |
$ |
22 |
$ |
17 |
||||||||||||||
Currency exchange contracts |
11 |
(16 |
) |
(32 |
) |
(3 |
) |
— |
(1 |
) |
— |
(2 |
) |
||||||||||||||||||
Energy contracts |
(2 |
) |
(7 |
) |
(4 |
) |
(10 |
) |
— |
— |
— |
— |
|||||||||||||||||||
Interest Rate Swaps |
— |
(1 |
) |
— |
(1 |
) |
— |
— |
— |
— |
|||||||||||||||||||||
Total cash flow hedging derivatives |
$ |
21 |
$ |
2 |
$ |
35 |
$ |
(36 |
) |
$ |
6 |