10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 4, 2021
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
For the quarterly period ended June 30, 2021
or
For the transition period from to
Commission File Number: 001-32312
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
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(Address of principal executive offices) | (Zip Code) |
(404 ) 760-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
N/A | N/A | N/A |
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 ¨ No ☒
The registrant is a voluntary filer and is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. However, the registrant 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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ |
Accelerated filer | ¨ |
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☒ | Smaller reporting company | |||||||||||||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ☒
As of August 3, 2021, 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.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION | ||||||||
PART II. OTHER INFORMATION | ||||||||
2
COMMONLY USED OR DEFINED TERMS
Term | Definition | |||||||
Aleris | Aleris Corporation | |||||||
AluInfra | AluInfra Services | |||||||
Alunorf | Aluminium Norf GmbH | |||||||
Duffel |
Plant located in Duffel, Belgium required to be divested (Refer to Note 3 – Discontinued Operations)
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Adjusted EBITDA |
Equivalent to segment income as defined in Note 18 – Segment, Geographical Area, Major Customer and Major Supplier Information
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Exchange Act | Securities Exchange Act of 1934, as amended | |||||||
fiscal 2019 | Fiscal year ended March 31, 2019 | |||||||
fiscal 2020 | Fiscal year ended March 31, 2020 | |||||||
fiscal 2021 | Fiscal year ended March 31, 2021 | |||||||
fiscal 2022 | Fiscal year ending March 31, 2022 | |||||||
FRP | Flat-rolled products | |||||||
GAAP | Generally Accepted Accounting Principles | |||||||
Hindalco SARs | Hindalco Stock Appreciation Rights | |||||||
kt | kilotonne (One kt is 1,000 metric tonnes.) | |||||||
Kobe | Kobe Steel, Ltd. | |||||||
Lewisport |
Plant located in Lewisport, Kentucky required to be divested (Refer to Note 3 – Discontinued Operations)
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Logan | Logan Aluminum Inc. | |||||||
LME | The London Metals Exchange | |||||||
LMP | Local market premium | |||||||
MMBtu | One decatherm or 1 million British Thermal Units | |||||||
OEM | Original equipment manufacturer | |||||||
RSU | Restricted stock unit | |||||||
SEC | United States Securities and Exchange Commission | |||||||
Segment income | ||||||||
SG&A | Selling, general and administrative expenses | |||||||
SPE | Special purpose entity | |||||||
Tri-Arrows | Tri-Arrows Aluminum Inc. | |||||||
UAL | Ulsan Aluminum Ltd. | |||||||
UBC | Used beverage can | |||||||
U.S. | United States | |||||||
VIE | Variable interest entity | |||||||
2021 Form 10-K | Our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 as filed with the SEC on May 12, 2021 |
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended
June 30,
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in millions | 2021 | 2020 | |||||||||
Net sales | $ | $ | |||||||||
Cost of goods sold (exclusive of depreciation and amortization) | |||||||||||
Selling, general and administrative expenses | |||||||||||
Depreciation and amortization | |||||||||||
Interest expense and amortization of debt issuance costs | |||||||||||
Research and development expenses | |||||||||||
Gain on extinguishment of debt |
( |
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Restructuring and impairment (reversal) expenses, net |
( |
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Equity in net income of non-consolidated affiliates |
( |
( |
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Business acquisition and other related costs | |||||||||||
Other (income) expenses, net |
( |
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Income (loss) from continuing operations before income tax provision |
( |
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Income tax provision (benefit) |
( |
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Net income (loss) from continuing operations |
( |
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Loss from discontinued operations, net of tax |
( |
( |
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Net income (loss) |
( |
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Net income attributable to noncontrolling interests |
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Net income (loss) attributable to our common shareholder |
$ | $ | ( |
____________________
See accompanying notes to the condensed consolidated financial statements.
4
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
Three Months Ended
June 30,
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in millions | 2021 | 2020 | |||||||||
Net income (loss) |
$ | $ | ( |
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Other comprehensive income: |
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Currency translation adjustment | |||||||||||
Net change in fair value of effective portion of cash flow hedges | ( |
( |
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Net change in pension and other benefits | |||||||||||
Other comprehensive income (loss) before income tax effect |
( |
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Income tax benefit related to items of other comprehensive income |
( |
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Other comprehensive income, net of tax |
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Comprehensive income (loss) |
( |
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Comprehensive income attributable to noncontrolling interests, net of tax |
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Comprehensive income (loss) attributable to our common shareholder |
$ | $ | ( |
____________________
See accompanying notes to the condensed consolidated financial statements.
5
Novelis Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
in millions, except number of shares | June 30, 2021 |
March 31, 2021 |
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ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net | |||||||||||
— third parties (net of allowance for credit losses of $ |
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— related parties | |||||||||||
Inventories | |||||||||||
Prepaid expenses and other current assets | |||||||||||
Fair value of derivative instruments | |||||||||||
Assets held for sale | |||||||||||
Current assets of discontinued operations | |||||||||||
Total current assets | |||||||||||
Property, plant and equipment, net | |||||||||||
Goodwill | |||||||||||
Intangible assets, net | |||||||||||
Investment in and advances to non–consolidated affiliates | |||||||||||
Deferred income tax assets | |||||||||||
Other long–term assets | |||||||||||
— third parties | |||||||||||
— related parties | |||||||||||
Total assets | $ | $ | |||||||||
LIABILITIES AND SHAREHOLDER’S EQUITY | |||||||||||
Current liabilities: | |||||||||||
Current portion of long–term debt | $ | $ | |||||||||
Short–term borrowings | |||||||||||
Accounts payable | |||||||||||
— third parties | |||||||||||
— related parties | |||||||||||
Fair value of derivative instruments | |||||||||||
Accrued expenses and other current liabilities | |||||||||||
Current liabilities of discontinued operations | |||||||||||
Total current liabilities | |||||||||||
Long–term debt, net of current portion | |||||||||||
Deferred income tax liabilities | |||||||||||
Accrued postretirement benefits | |||||||||||
Other long–term liabilities | |||||||||||
Total liabilities | |||||||||||
Commitments and contingencies | |||||||||||
Shareholder’s equity: | |||||||||||
Common stock, no par value; |
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Additional paid–in capital | |||||||||||
Retained earnings | |||||||||||
Accumulated other comprehensive loss | ( |
( |
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Total equity of our common shareholder | |||||||||||
Noncontrolling interests | ( |
( |
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Total equity | |||||||||||
Total liabilities and equity | $ | $ |
____________________
See accompanying notes to the condensed consolidated financial statements. Refer to Note 6 – Consolidation for information on our consolidated VIE.
6
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended
June 30,
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in millions | 2021 | 2020 | |||||||||
OPERATING ACTIVITIES | |||||||||||
Net income (loss) | $ | $ | ( |
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Net loss from discontinued operations | ( |
( |
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Net income (loss) from continuing operations | $ | $ | ( |
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Adjustments to determine net cash provided by operating activities: | |||||||||||
Depreciation and amortization | |||||||||||
Loss on unrealized derivatives and other realized derivatives in investing activities, net |
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Gain on sale of assets |
( |
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Impairment charges | |||||||||||
Gain on extinguishment of debt |
( |
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Deferred income taxes, net | ( |
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Equity in net income of non-consolidated affiliates | ( |
( |
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Loss on foreign exchange remeasurement of debt |
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Amortization of debt issuance costs and carrying value adjustments | |||||||||||
Other, net | |||||||||||
Changes in assets and liabilities including assets and liabilities held for sale (net of effects from divestitures): | |||||||||||
Accounts receivable | ( |
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Inventories | ( |
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Accounts payable | ( |
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Other assets | ( |
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Other liabilities | ( |
( |
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Net cash provided by (used in) operating activities - continuing operations |
( |
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Net cash used in operating activities - discontinued operations |
( |
( |
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Net cash provided by (used in) operating activities |
$ | $ | ( |
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INVESTING ACTIVITIES | |||||||||||
Capital expenditures | $ | ( |
$ | ( |
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Acquisition of business, net of cash and restricted cash acquired | ( |
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Proceeds from sales of assets, third party, net of transaction fees and hedging |
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Proceeds from investment in and advances to non-consolidated affiliates, net |
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(Outflows) proceeds from the settlement of derivative instruments, net |
( |
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Other | |||||||||||
Net cash used in investing activities - continuing operations |
( |
( |
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Net cash provided by investing activities - discontinued operations |
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Net cash used in investing activities |
$ | ( |
$ | ( |
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FINANCING ACTIVITIES | |||||||||||
Proceeds from issuance of long-term and short-term borrowings | $ | $ | |||||||||
Principal payments of long-term and short-term borrowings | ( |
( |
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Revolving credit facilities and other, net | |||||||||||
Debt issuance costs | ( |
( |
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Net cash (used in) provided by financing activities - continuing operations |
( |
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Net cash used in financing activities - discontinued operations |
( |
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Net cash (used in) provided by financing activities |
$ | ( |
$ | ||||||||
Net decrease in cash, cash equivalents and restricted cash |
( |
( |
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Effect of exchange rate changes on cash | |||||||||||
Cash, cash equivalents and restricted cash — beginning of period | |||||||||||
Cash, cash equivalents and restricted cash — end of period | $ | $ | |||||||||
Cash and cash equivalents | $ | $ | |||||||||
Restricted cash (Included in other long–term assets) |
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Restricted cash (Included in prepaid expenses and other current assets) |
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Cash and cash equivalents of discontinued operations | |||||||||||
Cash, cash equivalents and restricted cash — end of period | $ | $ | |||||||||
Supplemental Disclosures: | |||||||||||
Accrued capital expenditures as of June 30 |
$ | $ | |||||||||
Accrued merger consideration as of June 30 |
____________________
See accompanying notes to the condensed consolidated financial statements.
7
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (unaudited)
Equity of our Common Shareholder | |||||||||||||||||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital |
Retained Earnings | Accumulated Other Comprehensive Income (Loss) |
Non- controlling Interests |
Total Equity | ||||||||||||||||||||||||||||||||||||
in millions, except number of shares | Shares | Amount | |||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2020 |
$ | $ | $ | $ | ( |
$ | ( |
$ | |||||||||||||||||||||||||||||||||
Net loss attributable to our common shareholder |
— | — | — | ( |
— | — | ( |
||||||||||||||||||||||||||||||||||
Currency translation adjustment included in accumulated other comprehensive loss |
— | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $ |
— | — | — | — | ( |
— | ( |
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Change in pension and other benefits, net of tax provision of $ |
— | — | — | — | |||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2020 |
$ | $ | $ | $ | ( |
$ | ( |
$ | |||||||||||||||||||||||||||||||||
Equity of our Common Shareholder | |||||||||||||||||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital |
Retained Earnings | Accumulated Other Comprehensive Income (Loss) |
Non- controlling Interests |
Total Equity | ||||||||||||||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2021 |
$ | $ | $ | $ | ( |
$ | ( |
$ | |||||||||||||||||||||||||||||||||
Net income attributable to our common shareholder |
— | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Currency translation adjustment included in accumulated other comprehensive loss |
— | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $ |
— | — | — | — | ( |
— | ( |
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Change in pension and other benefits, net of tax provision of $ |
— | — | — | — | |||||||||||||||||||||||||||||||||||||
Balance as of |
$ | $ | $ | $ | ( |
$ | ( |
$ | |||||||||||||||||||||||||||||||||
____________________
See accompanying notes to the condensed consolidated financial statements.
8
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.
Organization and Description of Business
We produce aluminum plate, 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, aerospace, electronics, architectural, and industrial product markets. We have recycling operations in many of our plants to recycle post-consumer aluminum, such as used-beverage cans, and post-industrial aluminum, such as class scrap. As of June 30, 2021, we had manufacturing operations in nine countries on four continents: North America, South America, Asia, and Europe, through 33 operating facilities, which may include any combination of hot or cold rolling, finishing, casting, or recycling capabilities. We have recycling operations in 15 of our operating facilities.
The March 31, 2021 condensed consolidated balance sheet data was derived from the March 31, 2021 audited financial statements but does not include all disclosures required by 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 2021 Form 10-K. 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 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 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. The difference between consolidation and the equity method impacts certain of our financial ratios because of the presentation of the detailed line items reported in the condensed consolidated financial statements for consolidated entities, compared to a two-line presentation of investment in and advances to non–consolidated affiliates and equity in net income 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) impairment of goodwill; (2) actuarial assumptions related to pension and other postretirement benefit plans; (3) tax uncertainties and valuation allowances; (4) assessment of loss contingencies, including environmental and litigation liabilities; (5) the fair value of derivative financial instruments; and (6) the fair value of the contingent consideration resulting from the sale of Duffel. 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.
Risks & Uncertainty resulting from COVID-19
Beginning late in the fourth quarter of fiscal 2020 and carrying into the current fiscal year, the COVID-19 pandemic and its unprecedented negative economic implications have affected production and sales across a range of industries around the world.
Our global operations, similar to those of many other large, multi-national corporations, primarily felt this impact in early fiscal 2021 as we adjusted schedules at some of our facilities based on customer demand, resulting in disruptions to our supply chain, interruptions to our production, and delays of shipments to our customers, mainly during the first quarter of fiscal 2021.
9
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
While much of our customer demand and shipments recovered in the majority of our end markets, the overall extent of the impact of the COVID-19 pandemic on our operating results, cash flows, liquidity, and financial condition will depend on certain developments, including the duration and spread of the outbreak and its impact on our customers, employees, and vendors. We believe this will be primarily driven by the severity and duration of the pandemic, the pandemic’s impact on the U.S. and global economies and the timing, scope, and effectiveness of federal, state, and local governmental responses, including the distribution and adoption of vaccines.
Although we have made our best estimates based upon current information, the effects of the COVID-19 pandemic on our business may result in future changes to our estimates and assumptions based on its duration. Actual results could materially differ from the estimates and assumptions developed by management. If so, we may be subject to future impairment charges as well as changes to recorded reserves and valuations.
Reclassifications and Revisions of Previously Issued Financial Statements
We identified a misstatement related to the calculation of accrued capital expenditures within the statement of cash flows in our previously issued Form 10-Qs for the quarterly period ended June 30, 2020. As a result, the previously reported amounts for capital expenditures were understated by $6 million, changes in accounts payable were overstated by $4 million, changes in other liabilities were overstated by $2 million, and accrued capital expenditures, presented in supplemental disclosures, were overstated by $43 million for the three months ended June 30, 2020.
We assessed the materiality of the misstatement and concluded it was not material to the company's previously issued financial statements for the quarterly period ended June 30, 2020. However, we elected to revise the previously reported amounts for capital expenditures and changes in accounts payable and other liabilities within the condensed consolidated statement of cash flows, accrued capital expenditures within the supplemental disclosures to the condensed consolidated statement of cash flows, and capital expenditures within Note 18 – Segment, Geographical Area, Major Customer and Major Supplier Information.
Recently Issued Accounting Standards (Not yet adopted)
There are no recent accounting pronouncements pending adoption that we expect will have a material impact on our consolidated financial condition, results of operations, or cash flows.
10
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
2. BUSINESS COMBINATION
On April 14, 2020, Novelis completed its acquisition of 100 % of the issued and outstanding shares of Aleris Corporation, a global supplier of rolled aluminum products.
The Company's condensed consolidated statement of operations for the three months ended June 30, 2020 includes the results of operations for Aleris Corporation from the acquisition date of April 14, 2020 to June 30, 2020. The following unaudited supplemental pro forma combined financial information presents the Company’s results of operations for the three months ended June 30, 2020 as if the acquisition of Aleris had occurred on April 1, 2019. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the Company’s operating results that may have actually occurred had the acquisition of Aleris been completed on April 1, 2019. In addition, the unaudited pro forma financial information does not give effect to any anticipated cost savings, operating efficiencies or other synergies that may be associated with the acquisition, or any estimated costs that have been or will be incurred by the Company to integrate the assets and operations of Aleris.
Three Months Ended June 30, |
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in millions | 2020 | ||||
Net sales | $ | ||||
Net loss | ( |
||||
The unaudited pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the acquisition had occurred on April 1, 2019 to give effect to certain events the Company believes to be directly attributable to the acquisition. These pro forma adjustments primarily include:
•the elimination of Aleris historical depreciation and amortization expense and the recognition of new depreciation and amortization expense;
•an adjustment to interest expense to reflect (i) the additional borrowings of the Company in conjunction with the acquisition (ii) the repayment of Aleris’ historical debt in conjunction with the acquisition;
•an adjustment to present acquisition-related transaction costs and other one-time costs directly attributable to the acquisition as if they were incurred in the earliest period presented; and
•the related income tax effects of the adjustments noted above.
11
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
3. DISCONTINUED OPERATIONS
On April 14, 2020, we closed the acquisition of Aleris for $2.8 billion. As a result of the antitrust review processes in the EU, the U.S., and China required for approval of the acquisition, we were obligated to divest Aleris' European and North American automotive assets, including the Duffel and Lewisport plants.
On September 30, 2020, we completed the sale of Duffel to Liberty House Group through its subsidiary, ALVANCE, the international aluminum business of the GFG Alliance. Upon closing, we received €210 million ($246 million as of September 30, 2020) in cash and a €100 million ($117 million as of September 30, 2020) receivable that was deemed to be contingent consideration. In addition, we recorded a €15 million ($18 million) receivable for net debt and working capital adjustments.
As of June 30, 2021, Novelis marked all outstanding receivables related to the sale of Duffel to an estimated fair value of €45 million ($53 million), which resulted in a loss of €51 million ($61 million) recorded in loss from discontinued operations, net of tax. There is no assurance as to when we expect the post-closing arbitration process to conclude or whether we will receive any of the contingent consideration.
On November 8, 2020, we entered into a definitive agreement with American Industrial Partners for the sale of Lewisport and closed the sale on November 30, 2020. Upon closing, we received $180 million in cash proceeds. In addition, we have recorded a $17 million receivable for net working capital adjustments, which remains outstanding as of June 30, 2021.
In addition to the $61 million loss from discontinued operations, net of tax related to the fair value adjustment of Duffel receivables in the period, Novelis incurred $2 million of additional costs to sell primarily related to litigation expenses. These costs are recorded within loss from discontinued operations, net of tax.
12
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
4. RESTRUCTURING AND IMPAIRMENT
Restructuring and impairment (reversal) expenses, net includes restructuring costs, impairments, and other related expenses or reversal of expenses. Restructuring and impairment (reversal) expenses, net for the three months ended June 30, 2021 totaled a net reversal of $2 million primarily related to a partial release of certain restructuring liabilities as a result of changes in estimated costs. Restructuring and impairment (reversal) expenses, net for the three months ended June 30, 2020 totaled $1 million in expenses.
The following table summarizes our restructuring liability activity.
in millions | North America | Europe | Asia | South America | Other Operations | Total | |||||||||||||||||||||||||||||
Restructuring liability balance as of March 31, 2020 |
$ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Restructuring and impairment (reversal) expenses, net |
— | — | — | — | |||||||||||||||||||||||||||||||
Cash payments | — | ( |
— | — | ( |
( |
|||||||||||||||||||||||||||||
Foreign currency and other | — | — | — | ( |
— | ( |
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Restructuring liability balance as of June 30, 2020 |
$ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
in millions | North America | Europe | Asia | South America | Other Operations | Total | |||||||||||||||||||||||||||||
Restructuring liability balance as of March 31, 2021 |
$ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Restructuring and impairment (reversal) expenses, net |
— | ( |
— | — | — | ( |
|||||||||||||||||||||||||||||
Cash payments | ( |
( |
— | — | — | ( |
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Foreign currency and other | — | — | — | ( |
— | ( |
|||||||||||||||||||||||||||||
Restructuring liability balance as of |
$ | $ | $ | $ | $ | $ |
____________________
(1)As of June 30, 2021, the restructuring liability totaled $26 million with $20 million included in accrued expenses and other current liabilities and the remaining is within other long–term liabilities on our accompanying condensed consolidated balance sheet.
13
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. INVENTORIES
Inventories consists of the following.
in millions | June 30, 2021 |
March 31, 2021 |
|||||||||
Finished goods | $ | $ | |||||||||
Work in process | |||||||||||
Raw materials | |||||||||||
Supplies | |||||||||||
Inventories | $ | $ |
14
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
6. CONSOLIDATION
Variable Interest Entities
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.
Logan is a consolidated joint venture in which we hold 40 % ownership. Our joint venture partner is Tri-Arrows. Logan processes metal received from Novelis and Tri-Arrows and charges the respective partner a fee to cover expenses. Logan is a thinly capitalized VIE that relies on the regular reimbursement of costs and expenses from Novelis and Tri-Arrows to fund its operations. Novelis is considered the primary beneficiary and consolidates Logan since it has the power to direct activities that most significantly impact Logan's economic performance, an obligation to absorb expected losses, and the right to receive benefits that could potentially be significant.
Other than the contractually required reimbursements, we do not provide other material support to Logan. Logan's creditors do not have recourse to our general credit. 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.
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 | June 30, 2021 |
March 31, 2021 |
|||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net | |||||||||||
Inventories | |||||||||||
Prepaid expenses and other current assets | |||||||||||
Total current assets | |||||||||||
Property, plant and equipment, net | |||||||||||
Goodwill | |||||||||||
Deferred income tax assets | |||||||||||
Other long–term assets | |||||||||||
Total assets | $ | $ | |||||||||
LIABILITIES | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | $ | |||||||||
Accrued expenses and other current liabilities | |||||||||||
Total current liabilities | |||||||||||
Accrued postretirement benefits | |||||||||||
Other long–term liabilities | |||||||||||
Total liabilities | $ | $ |
15
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
7. INVESTMENT IN AND ADVANCES TO NON-CONSOLIDATED AFFILIATES AND RELATED PARTY TRANSACTIONS
Included in the accompanying condensed consolidated financial statements are transactions and balances arising from business we conducted with our equity method non-consolidated affiliates.
Alunorf
Alunorf is a joint venture investment between Novelis Deutschland GmbH, a subsidiary of Novelis, and Hydro Aluminum Deutschland GmbH. Each of the parties to the joint venture holds a 50 % interest in the equity, profits and losses, shareholder voting, management control, and rights to use the production capacity of the facility. Alunorf tolls aluminum and charges the respective partner a fee to cover the associated expenses.
UAL
UAL is a joint venture investment between Novelis Korea Ltd., a subsidiary of Novelis, and Kobe. UAL is a thinly capitalized VIE that relies on the regular reimbursement of costs and expenses from its investors, Novelis and Kobe. UAL is controlled by an equally represented Board of Directors in which neither entity has sole decision-making ability regarding production operations or other significant decisions. Furthermore, neither entity has the ability to take the majority share of production or associated costs over the life of the joint venture. Our risk of loss is limited to the carrying value of our investment in and inventory-related receivables from UAL. UAL's creditors do not have recourse to our general credit. Therefore, Novelis is not considered the primary beneficiary, and UAL is accounted for as an equity method investment. UAL currently produces flat-rolled aluminum products exclusively for Novelis and Kobe. As of June 30, 2021, each of the parties to the joint venture holds a 50 % interests in the equity of UAL.
AluInfra
AluInfra is a joint venture investment between Novelis Switzerland SA, a subsidiary of Novelis, and Constellium N.V. Each of the parties to the joint venture holds a 50 % interest in the equity, profits and losses, shareholder voting, management control, and rights to use the facility.
The following table summarizes the results of operations of our equity method affiliates in the aggregate and the nature and amounts of significant transactions we have with our non-consolidated affiliates. The amounts in the table below are disclosed at 100% of the operating results of these affiliates.
Three Months Ended
June 30,
|
|||||||||||
in millions | 2021 | 2020 | |||||||||
Net sales | $ | $ | |||||||||
Costs and expenses related to net sales | |||||||||||
Income tax provision | |||||||||||
Net income | $ | $ | |||||||||
Purchases of tolling services from Alunorf | $ | $ |
The following table describes related party balances in the accompanying condensed consolidated balance sheets. We had no other material related party balances with non-consolidated affiliates.
in millions | June 30, 2021 |
March 31, 2021 |
|||||||||
Accounts receivable, net — related parties |
$ | $ | |||||||||
Other long–term assets — related parties |
|||||||||||
Accounts payable — related parties |
Transactions with Hindalco
We occasionally have related party transactions with Hindalco. During the three months ended June 30, 2021 and 2020, we recorded net sales of less than $1 million between Novelis and Hindalco related primarily to sales of equipment and other services. As of June 30, 2021 and March 31, 2021, there was $2 million of outstanding accounts receivable, net — related parties net of accounts payable — related parties related to transactions with Hindalco. During the three months ended June 30, 2021, Novelis purchased $2 million in raw materials from Hindalco.
16
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
8. DEBT
Debt consists of the following.
June 30, 2021 | March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
in millions |
Interest Rates(1)
|
Principal |
Unamortized Carrying
Value Adjustments(2)
|
Carrying Value | Principal |
Unamortized Carrying
Value Adjustments(2)
|
Carrying Value | ||||||||||||||||||||||||||||||||||
Short–term borrowings | % | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Floating rate Term Loan Facility, due June 2022 | % | ( |
( |
||||||||||||||||||||||||||||||||||||||
Floating rate Term Loan Facility, due January 2025 | % | ( |
( |
||||||||||||||||||||||||||||||||||||||
Floating rate Term Loan Facility, due March 2028 | % | ( |
( |
||||||||||||||||||||||||||||||||||||||
Zhenjiang Term Loans, due May 2024 |
|||||||||||||||||||||||||||||||||||||||||
% | ( |
( |
|||||||||||||||||||||||||||||||||||||||
% | ( |
( |
|||||||||||||||||||||||||||||||||||||||
% | ( |
( |
|||||||||||||||||||||||||||||||||||||||
China Bank loans, due August 2027 | % | ||||||||||||||||||||||||||||||||||||||||
Finance lease obligations and other debt, due through June 2028 | % | ||||||||||||||||||||||||||||||||||||||||
Total debt | $ | $ | ( |
$ | $ | $ | ( |
$ | |||||||||||||||||||||||||||||||||
Less: Short–term borrowings |
( |
( |
( |
( |
|||||||||||||||||||||||||||||||||||||
Less: Current portion of long–term debt |
( |
( |
( |
( |
|||||||||||||||||||||||||||||||||||||
Long–term debt, net of current portion | $ | $ | ( |
$ | $ | $ | ( |
$ |
____________________
(1)Interest rates are the stated rates of interest on the debt instrument (not the effective interest rate) as of June 30, 2021 and therefore exclude the effects of accretion and amortization of debt issuance costs related to refinancing transactions and additional borrowings. We present stated rates of interest because they reflect the rate at which cash will be paid for future debt service.
(2)Amounts include unamortized debt issuance costs, fair value adjustments, and debt discounts.
Principal repayment requirements for our total debt over the next five years and thereafter using exchange rates as of June 30, 2021 for our debt denominated in foreign currencies are as follows (in millions).
As of June 30, 2021 |
Amount | ||||
Short-term borrowings and current portion of long-term debt due within one year | $ | ||||
2 years | |||||
3 years | |||||
4 years | |||||
5 years | |||||
Thereafter | |||||
Total | $ |
Short-Term Borrowings
As of June 30, 2021, our short-term borrowings totaled $359 million, which consisted of $225 million of borrowings on our ABL Revolver, $83 million in China loans (CNY 537 million), $50 million in Brazil loans (BRL 250 millions), and $1 million in other short-term borrowings.
Term Loan Facility
As of June 30, 2021, we were in compliance with the covenants of our Term Loan Facility.
ABL Revolver
As of June 30, 2021, we had $225 million in borrowings under our ABL Revolver and were in compliance with debt covenants. We utilized $32 million of our ABL Revolver for letters of credit. We had availability of $1.2 billion on the ABL Revolver, including $143 million of remaining availability which can be utilized for letters of credit.
17
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Zhenjiang Term Loans
In May 2021, the Zhenjiang Term Loans were repaid in full, and the covenants under the agreement are no longer in effect. As a result of this transaction, we recorded a gain on extinguishment of debt of $2 million.
Senior Notes
As of June 30, 2021, we were in compliance with the covenants of our Senior Notes.
18
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
9. SHARE-BASED COMPENSATION
During the three months ended June 30, 2021, we granted 1,759,942 Hindalco phantom RSUs and 2,285,816 Hindalco SARs. Total compensation expense was $12 million for the three months ended June 30, 2021 and $7 million for the three months ended June 30, 2020. As of June 30, 2021, the outstanding liability related to share-based compensation was $23 million.
The cash payments made to settle all Hindalco SAR liabilities were $9 million and $1 million in the three months ended June 30, 2021 and 2020, respectively. Total cash payments made to settle RSUs were $16 million and $4 million in the three months ended June 30, 2021 and 2020, respectively. Unrecognized compensation expense related to the non-vested Hindalco SARs (assuming all future performance criteria are met) was $12 million, which is expected to be recognized over a weighted average period of 1.4 years. Unrecognized compensation expense related to the RSUs was $18 million, which will be recognized over the remaining weighted average vesting period of 1.6 years.
19
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
10. POSTRETIREMENT BENEFIT PLANS
The Company recognizes actuarial gains and losses and prior service costs in the condensed consolidated balance sheet and recognizes changes in these amounts during the year in which changes occur through other comprehensive income (loss). The Company uses various assumptions when computing amounts relating to its defined benefit pension plan obligations and their associated expenses (including the discount rate and the expected rate of return on plan assets).
During the quarter, Novelis announced the freeze of future benefit accruals under the Canada Pension Plan, effective for union participants as of December 31, 2021 and for non-union participants as of December 31, 2023. Novelis remeasured the plan’s assets and obligations as of April 30, 2021, which is the nearest calendar month-end to the announcement of this freeze. A curtailment gain of $3 million was recorded related to the Canada Pension Plan.
Components of net periodic benefit cost for all of our postretirement benefit plans are shown in the table below.
Pension Benefit Plans | Other Benefit Plans | ||||||||||||||||||||||
Three Months Ended
June 30,
|
Three Months Ended
June 30,
|
||||||||||||||||||||||
in millions | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Service cost | $ | $ | $ | $ | |||||||||||||||||||
Interest cost | |||||||||||||||||||||||
Expected return on assets | ( |
( |
|||||||||||||||||||||
Amortization — losses, net | |||||||||||||||||||||||
Termination/curtailment (benefit) cost | ( |
||||||||||||||||||||||
Net periodic benefit cost(1)
|
$ | $ | $ | $ | |||||||||||||||||||
____________________
(1)Service cost is included within cost of goods sold (exclusive of depreciation and amortization) and selling, general and administrati