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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
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)
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Canada |
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98-0442987 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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3560 Lenox Road, Suite 2000
Atlanta, GA
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30326 |
(Address of principal executive offices) |
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(Zip Code) |
(404) 760-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
N/A |
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N/A |
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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.
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Large accelerated filer |
¨ |
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Accelerated filer |
¨ |
Non-accelerated filer |
☒ |
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Smaller reporting company |
¨ |
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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 ☒
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 7, 2022, 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
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PART I—FINANCIAL INFORMATION |
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PART II—OTHER INFORMATION |
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COMMONLY USED OR DEFINED TERMS
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Term |
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Definition |
Adjusted EBITDA |
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Aleris |
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Aleris Corporation |
AluInfra |
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AluInfra Services |
Alunorf |
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Aluminium Norf GmbH |
ASC |
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FASB Accounting Standards Codification |
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Duffel |
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Exchange Act |
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Securities Exchange Act of 1934, as amended |
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fiscal 2016 |
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Fiscal year ended March 31, 2016 |
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fiscal 2020 |
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Fiscal year ended March 31, 2020 |
fiscal 2021 |
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Fiscal year ended March 31, 2021 |
fiscal 2022 |
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Fiscal year ended March 31, 2022 |
fiscal 2023 |
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Fiscal year ending March 31, 2023 |
Form 10-Q |
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Quarterly Report on Form 10-Q |
FRP |
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Flat-rolled products |
GAAP |
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Generally Accepted Accounting Principles |
Kobe |
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Kobe Steel, Ltd. |
kt |
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kilotonne (One kt is 1,000 metric tonnes.) |
Lewisport |
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LME |
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The London Metals Exchange |
LMP |
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Local market premium |
Logan |
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Logan Aluminum Inc. |
MMBtu |
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One decatherm or 1 million British Thermal Units |
OEM |
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Original equipment manufacturer |
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RSUs |
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Restricted stock units |
SARs |
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Stock appreciation rights |
SEC |
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United States Securities and Exchange Commission |
SG&A |
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Selling, general and administrative expenses |
Tri-Arrows |
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Tri-Arrows Aluminum Inc. |
UAL |
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Ulsan Aluminum Ltd. |
UBC |
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Used beverage can |
U.S. |
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United States |
U.K. |
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United Kingdom |
VIE |
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Variable interest entity |
2022 Form 10-K |
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Our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, as filed with the SEC on May 11, 2022 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
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Three Months Ended
September 30,
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Six Months Ended
September 30,
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in millions |
2022 |
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2021 |
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2022 |
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2021 |
Net sales |
$ |
4,799 |
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$ |
4,119 |
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$ |
9,888 |
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$ |
7,974 |
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Cost of goods sold (exclusive of depreciation and amortization) |
4,140 |
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3,400 |
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8,405 |
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6,537 |
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Selling, general and administrative expenses |
181 |
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142 |
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345 |
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301 |
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Depreciation and amortization |
134 |
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134 |
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272 |
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268 |
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Interest expense and amortization of debt issuance costs |
65 |
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60 |
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123 |
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119 |
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Research and development expenses |
23 |
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21 |
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46 |
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45 |
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Loss on extinguishment of debt, net |
— |
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64 |
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— |
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62 |
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Restructuring and impairment expenses (reversals), net |
1 |
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— |
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2 |
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(2) |
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Equity in net income of non-consolidated affiliates |
(4) |
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— |
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(8) |
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(1) |
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Other expenses (income), net |
10 |
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(20) |
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60 |
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(84) |
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4,550 |
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3,801 |
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9,245 |
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7,245 |
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Income from continuing operations before income tax provision |
249 |
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318 |
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643 |
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729 |
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Income tax provision |
65 |
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79 |
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152 |
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187 |
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Net income from continuing operations |
184 |
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239 |
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491 |
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542 |
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Loss from discontinued operations, net of tax |
(1) |
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(2) |
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(2) |
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(65) |
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Net income |
183 |
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237 |
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489 |
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477 |
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Net loss attributable to noncontrolling interests |
— |
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— |
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(1) |
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— |
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Net income attributable to our common shareholder |
$ |
183 |
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$ |
237 |
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$ |
490 |
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$ |
477 |
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____________________
See accompanying notes to the condensed consolidated financial statements.
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
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Three Months Ended
September 30,
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Six Months Ended
September 30,
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in millions |
2022 |
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2021 |
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2022 |
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2021 |
Net income |
$ |
183 |
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$ |
237 |
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$ |
489 |
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$ |
477 |
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Other comprehensive (loss) income: |
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Currency translation adjustment |
(188) |
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(64) |
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(361) |
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(34) |
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Net change in fair value of effective portion of cash flow hedges |
(110) |
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(190) |
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803 |
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(205) |
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Net change in pension and other benefits |
6 |
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7 |
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15 |
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10 |
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Other comprehensive (loss) income before income tax effect |
(292) |
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(247) |
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457 |
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(229) |
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Income tax (benefit) provision related to items of other comprehensive (loss) income |
(29) |
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(48) |
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205 |
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(48) |
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Other comprehensive (loss) income, net of tax |
(263) |
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(199) |
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252 |
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(181) |
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Comprehensive (loss) income |
(80) |
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38 |
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741 |
|
|
296 |
|
Comprehensive loss attributable to noncontrolling interests, net of tax |
— |
|
|
— |
|
|
(1) |
|
|
— |
|
Comprehensive (loss) income attributable to our common shareholder |
$ |
(80) |
|
|
$ |
38 |
|
|
$ |
742 |
|
|
$ |
296 |
|
____________________
See accompanying notes to the condensed consolidated financial statements.
Novelis Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
in millions, except number of shares |
September 30, 2022 |
|
March 31, 2022 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
1,145 |
|
|
$ |
1,070 |
|
Accounts receivable, net |
|
|
|
— third parties (net of allowance for credit losses of $6 as of September 30, 2022, and March 31, 2022) |
2,239 |
|
|
2,590 |
|
— related parties |
200 |
|
|
222 |
|
Inventories |
3,333 |
|
|
3,038 |
|
Prepaid expenses and other current assets |
161 |
|
|
195 |
|
Fair value of derivative instruments |
536 |
|
|
377 |
|
Assets held for sale |
5 |
|
|
5 |
|
Current assets of discontinued operations |
6 |
|
|
6 |
|
Total current assets |
7,625 |
|
|
7,503 |
|
Property, plant and equipment, net |
4,425 |
|
|
4,624 |
|
Goodwill |
1,070 |
|
|
1,081 |
|
Intangible assets, net |
590 |
|
|
623 |
|
Investment in and advances to non-consolidated affiliates |
744 |
|
|
832 |
|
Deferred income tax assets |
145 |
|
|
158 |
|
Other long-term assets |
|
|
|
— third parties |
295 |
|
|
274 |
|
— related parties |
2 |
|
|
1 |
|
|
|
|
|
Total assets |
$ |
14,896 |
|
|
$ |
15,096 |
|
|
|
|
|
LIABILITIES AND SHAREHOLDER'S EQUITY |
|
|
|
Current liabilities: |
|
|
|
Current portion of long-term debt |
$ |
63 |
|
|
$ |
26 |
|
Short-term borrowings |
858 |
|
|
529 |
|
Accounts payable |
|
|
|
— third parties |
3,242 |
|
|
3,869 |
|
— related parties |
308 |
|
|
320 |
|
Fair value of derivative instruments |
310 |
|
|
959 |
|
Accrued expenses and other current liabilities |
816 |
|
|
774 |
|
Current liabilities of discontinued operations |
17 |
|
|
21 |
|
Total current liabilities |
5,614 |
|
|
6,498 |
|
Long-term debt, net of current portion |
4,850 |
|
|
4,967 |
|
Deferred income tax liabilities |
353 |
|
|
158 |
|
Accrued postretirement benefits |
609 |
|
|
669 |
|
Other long-term liabilities |
320 |
|
|
295 |
|
|
|
|
|
Total liabilities |
11,746 |
|
|
12,587 |
|
Commitments and contingencies |
|
|
|
Shareholder's equity: |
|
|
|
Common stock, no par value; Unlimited number of shares authorized; 1,000 shares issued and outstanding as of September 30, 2022, and March 31, 2022 |
— |
|
|
— |
|
Additional paid-in capital |
1,208 |
|
|
1,308 |
|
Retained earnings |
2,304 |
|
|
1,814 |
|
Accumulated other comprehensive loss |
(368) |
|
|
(620) |
|
Total equity of our common shareholder |
3,144 |
|
|
2,502 |
|
Noncontrolling interests |
6 |
|
|
7 |
|
Total equity |
3,150 |
|
|
2,509 |
|
Total liabilities and equity |
$ |
14,896 |
|
|
$ |
15,096 |
|
____________________
See accompanying notes to the condensed consolidated financial statements. Refer to Note 4 – Consolidation for information on our consolidated VIE.
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
September 30,
|
in millions |
2022 |
|
2021 |
OPERATING ACTIVITIES |
|
|
|
Net income |
$ |
489 |
|
|
$ |
477 |
|
Net loss from discontinued operations |
(2) |
|
|
(65) |
|
Net income from continuing operations |
$ |
491 |
|
|
$ |
542 |
|
Adjustments to determine net cash provided by operating activities: |
|
|
|
Depreciation and amortization |
272 |
|
|
268 |
|
Loss on unrealized derivatives and other realized derivatives in investing activities, net |
18 |
|
|
36 |
|
|
|
|
|
|
|
|
|
Loss on sale of assets, net |
1 |
|
|
2 |
|
|
|
|
|
Loss on extinguishment of debt, net |
— |
|
|
62 |
|
Deferred income taxes, net |
19 |
|
|
54 |
|
Equity in net income of non-consolidated affiliates |
(8) |
|
|
(1) |
|
(Gain) loss on foreign exchange remeasurement of debt |
(22) |
|
|
1 |
|
Amortization of debt issuance costs and carrying value adjustments |
8 |
|
|
9 |
|
Other, net |
— |
|
|
2 |
|
Changes in assets and liabilities including assets and liabilities held for sale (net of effects from divestitures): |
|
|
|
Accounts receivable |
138 |
|
|
(540) |
|
Inventories |
(485) |
|
|
(728) |
|
Accounts payable |
(309) |
|
|
706 |
|
Other assets |
18 |
|
|
(25) |
|
Other liabilities |
55 |
|
|
(49) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities – continuing operations |
196 |
|
|
339 |
|
Net cash used in operating activities – discontinued operations |
(6) |
|
|
(5) |
|
Net cash provided by operating activities |
$ |
190 |
|
|
$ |
334 |
|
INVESTING ACTIVITIES |
|
|
|
Capital expenditures |
$ |
(284) |
|
|
$ |
(194) |
|
|
|
|
|
Acquisition of business and other investments, net of cash acquired |
(4) |
|
|
— |
|
|
|
|
|
|
|
|
|
(Outflows) proceeds from investment in and advances to non-consolidated affiliates, net |
(15) |
|
|
10 |
|
Proceeds (outflows) from the settlement of derivative instruments, net |
2 |
|
|
(4) |
|
Other |
11 |
|
|
7 |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
$ |
(290) |
|
|
$ |
(181) |
|
FINANCING ACTIVITIES |
|
|
|
Proceeds from issuance of long-term and short-term borrowings |
$ |
— |
|
|
$ |
1,520 |
|
Principal payments of long-term and short-term borrowings |
(114) |
|
|
(1,923) |
|
Revolving credit facilities and other, net |
450 |
|
|
14 |
|
Debt issuance costs |
(6) |
|
|
(24) |
|
|
|
|
|
Return of capital to our common shareholder |
(100) |
|
|
(100) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
$ |
230 |
|
|
$ |
(513) |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
130 |
|
|
(360) |
|
Effect of exchange rate changes on cash |
(57) |
|
|
6 |
|
Cash, cash equivalents and restricted cash – beginning of period |
1,084 |
|
|
1,027 |
|
Cash, cash equivalents and restricted cash – end of period |
$ |
1,157 |
|
|
$ |
673 |
|
|
|
|
|
Cash and cash equivalents |
$ |
1,145 |
|
|
$ |
659 |
|
Restricted cash (included in other long-term assets) |
12 |
|
|
14 |
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash – end of period |
$ |
1,157 |
|
|
$ |
673 |
|
|
|
|
|
Supplemental Disclosures: |
|
|
|
|
|
|
|
|
|
|
|
Accrued capital expenditures as of September 30 |
$ |
72 |
|
|
$ |
57 |
|
Leased assets obtained in exchange for new operating lease liabilities |
27 |
|
|
25 |
|
|
|
|
|
____________________
See accompanying notes to the condensed consolidated financial statements.
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity of our Common Shareholder |
|
|
|
|
|
Common Stock |
|
Additional Paid-in Capital |
|
Retained Earnings |
|
Accumulated Other Comprehensive Loss |
|
Noncontrolling Interests |
|
Total Equity |
in millions, except number of shares |
Shares |
|
Amount |
Balance as of March 31, 2021 |
1,000 |
|
|
$ |
— |
|
|
$ |
1,408 |
|
|
$ |
860 |
|
|
$ |
(366) |
|
|
$ |
(16) |
|
|
$ |
1,886 |
|
Net income attributable to our common shareholder |
— |
|
|
— |
|
|
— |
|
|
477 |
|
|
— |
|
|
— |
|
|
477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment included in other comprehensive (loss) income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(34) |
|
|
— |
|
|
(34) |
|
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $53 included in other comprehensive (loss) income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(152) |
|
|
— |
|
|
(152) |
|
Change in pension and other benefits, net of tax provision of $5 included in other comprehensive (loss) income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5 |
|
|
— |
|
|
5 |
|
Return of capital to our common shareholder |
— |
|
|
— |
|
|
(100) |
|
|
— |
|
|
— |
|
|
— |
|
|
(100) |
|
Balance as of September 30, 2021 |
1,000 |
|
|
$ |
— |
|
|
$ |
1,308 |
|
|
$ |
1,337 |
|
|
$ |
(547) |
|
|
$ |
(16) |
|
|
$ |
2,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity of our Common Shareholder |
|
|
|
|
|
Common Stock |
|
Additional Paid-in Capital |
|
Retained Earnings |
|
Accumulated Other Comprehensive Loss |
|
Noncontrolling Interests |
|
Total Equity |
|
Shares |
|
Amount |
Balance as of March 31, 2022 |
1,000 |
|
|
$ |
— |
|
|
$ |
1,308 |
|
|
$ |
1,814 |
|
|
$ |
(620) |
|
|
$ |
7 |
|
|
$ |
2,509 |
|
Net income attributable to our common shareholder |
— |
|
|
— |
|
|
— |
|
|
490 |
|
|
— |
|
|
— |
|
|
490 |
|
Net loss attributable to noncontrolling interests |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1) |
|
|
(1) |
|
Currency translation adjustment included in other comprehensive (loss) income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(361) |
|
|
— |
|
|
(361) |
|
Change in fair value of effective portion of cash flow hedges, net of tax provision of $202 included in other comprehensive (loss) income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
601 |
|
|
— |
|
|
601 |
|
Change in pension and other benefits, net of tax provision of $3 included in other comprehensive (loss) income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
12 |
|
|
— |
|
|
12 |
|
Return of capital to our common shareholder |
— |
|
|
— |
|
|
(100) |
|
|
— |
|
|
— |
|
|
— |
|
|
(100) |
|
Balance as of September 30, 2022 |
1,000 |
|
|
$ |
— |
|
|
$ |
1,208 |
|
|
$ |
2,304 |
|
|
$ |
(368) |
|
|
$ |
6 |
|
|
$ |
3,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity of our Common Shareholder |
|
|
|
|
|
Common Stock |
|
Additional Paid-in Capital |
|
Retained Earnings |
|
Accumulated Other Comprehensive Loss |
|
Noncontrolling Interests |
|
Total Equity |
|
Shares |
|
Amount |
Balance as of June 30, 2021 |
1,000 |
|
|
$ |
— |
|
|
$ |
1,408 |
|
|
$ |
1,100 |
|
|
$ |
(348) |
|
|
$ |
(16) |
|
|
$ |
2,144 |
|
Net income attributable to our common shareholder |
— |
|
|
— |
|
|
— |
|
|
237 |
|
|
— |
|
|
— |
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment included in other comprehensive (loss) income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(64) |
|
|
— |
|
|
(64) |
|
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $52 included in other comprehensive (loss) income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(138) |
|
|
— |
|
|
(138) |
|
Change in pension and other benefits, net of tax provision of $4 included in other comprehensive (loss) income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3 |
|
|
— |
|
|
3 |
|
Return of capital to our common shareholder |
— |
|
|
— |
|
|
(100) |
|
|
— |
|
|
— |
|
|
— |
|
|
(100) |
|
Balance as of September 30, 2021 |
1,000 |
|
|
$ |
— |
|
|
$ |
1,308 |
|
|
$ |
1,337 |
|
|
$ |
(547) |
|
|
$ |
(16) |
|
|
$ |
2,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity of our Common Shareholder |
|
|
|
|
|
Common Stock |
|
Additional Paid-in Capital |
|
Retained Earnings |
|
Accumulated Other Comprehensive Loss |
|
Noncontrolling Interests |
|
Total Equity |
|
Shares |
|
Amount |
Balance as of June 30, 2022 |
1,000 |
|
|
$ |
— |
|
|
$ |
1,308 |
|
|
$ |
2,121 |
|
|
$ |
(105) |
|
|
$ |
6 |
|
|
$ |
3,330 |
|
Net income attributable to our common shareholder |
— |
|
|
— |
|
|
— |
|
|
183 |
|
|
— |
|
|
— |
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment included in other comprehensive (loss) income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(188) |
|
|
— |
|
|
(188) |
|
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $30 included in other comprehensive (loss) income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(80) |
|
|
— |
|
|
(80) |
|
Change in pension and other benefits, net of tax provision of $1 included in other comprehensive (loss) income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5 |
|
|
— |
|
|
5 |
|
Return of capital to our common shareholder |
— |
|
|
— |
|
|
(100) |
|
|
— |
|
|
— |
|
|
— |
|
|
(100) |
|
Balance as of September 30, 2022 |
1,000 |
|
|
$ |
— |
|
|
$ |
1,208 |
|
|
$ |
2,304 |
|
|
$ |
(368) |
|
|
$ |
6 |
|
|
$ |
3,150 |
|
____________________
See accompanying notes to the condensed consolidated financial statements.
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. Effective September 1, 2022, Novelis Inc. and AV Metals, Inc. (which, prior to such date, was our sole shareholder and a wholly owned subsidiary of AV Minerals (Netherlands) N.V.) completed a plan of arrangement, pursuant to which AV Metals, Inc. merged with and into Novelis Inc., with Novelis Inc. surviving the merger. As of the effectiveness of the plan of arrangement, we are a direct, wholly owned subsidiary of AV Minerals (Netherlands) N.V. Prior to the effectiveness of the plan of arrangement, AV Metals, Inc. was a holding company, with its assets being comprised solely of its investment in Novelis, and without any operations. The plan of arrangement was a combination of entities under common control and resulted in a change in the reporting entity. The opening balance of additional paid-in capital has been increased and that of retained earnings reduced by $4 million in the earliest period presented.
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. As of September 30, 2022, 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 to recycle post-consumer aluminum, such as UBCs, and post-industrial aluminum, such as class scrap.
The condensed consolidated balance sheet data as of March 31, 2022, was derived from the March 31, 2022, 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 2022 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 have been prepared in accordance with U.S. GAAP and 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 attributable to our common shareholder includes our share of the 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; and (5) 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, more experience is acquired, additional information is obtained, and 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 first two quarters of fiscal 2023, the COVID-19 pandemic and its unprecedented negative economic implications have affected production and sales across a range of industries around the world.
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Our global operations, similar to those of many other large, multi-national corporations, have encountered higher costs and have felt this impact on customer demand, disruptions to our supply chain, interruptions to our production, and delays of shipments to our customers.
While much of our customer demand and shipments have 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 (including the emergence of variants of the virus) and its impact on our customers, employees, suppliers, and other partners. We believe this will be primarily driven by the severity and duration of the COVID-19 pandemic, the COVID-19 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 revision of governmental quarantine or other public health measures, medical remedies, and preventative measures.
Although we have made our best estimates based on 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.
Risks & Uncertainties resulting from Inflation, Supply Chain Disruptions and Geopolitical Instability
The first two quarters of fiscal 2023 were marked by global economic uncertainty, capital markets disruption, and supply chain interruptions, which have been impacted by inflationary cost pressures, the ongoing COVID-19 pandemic, and geopolitical instability due to the ongoing military conflict between Russia and Ukraine. We experienced increased inflationary cost pressures to date in fiscal 2023 resulting from global supply chain disruptions impacting the availability and price of materials and services including energy, freight, coatings, and alloys, such as magnesium. Rising geopolitical instability exacerbated inflationary cost pressures, which are expected to continue for the foreseeable future. We have not experienced significant direct impacts from the Russia-Ukraine conflict, as we do not have operations nor significant sales in either Russia or Ukraine. However, we have experienced indirect impacts, as the conflict has driven up energy prices globally, beginning in the fourth quarter of fiscal 2022, and we expect these costs will remain elevated until energy prices stabilize. To date, our operations have not been materially impacted by labor shortages, and we remain able to procure the necessary raw materials, parts, and equipment due to our diverse, global supplier network. We believe we are positioned to maintain production levels necessary to service our customers in the near term. However, we cannot predict how long energy prices will remain inflated, supply chains will continue to experience disruptions, or potential future financial impacts. We have been able to mitigate a portion of the higher inflationary cost impact through a combination of hedging, passing through a meaningful portion of higher costs to customers, favorable pricing environments, and increased recycling benefits. There is no assurance that we will continue to be able to mitigate these higher costs in the future.
The overall extent of the impact of these factors on our operating results, cash flows, liquidity, and financial condition will depend on certain developments, including the duration of the current inflationary environment, supply chain disruptions, and the Russia-Ukraine conflict. Although we have made our best estimates based on the current information, the effects of these factors on our business may result in future changes to our estimates and assumptions based on their 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.
Recently Adopted Accounting Standards
We did not adopt any new accounting pronouncements during the six months ended September 30, 2022, that had a material impact on our consolidated financial condition, results of operations, or cash flows.
Recently Issued Accounting Standards (Not Yet Adopted)
In September 2022, the Financial Accounting Standards Board (FASB) issued ASU 2022-04, Liabilities—Supplier Finance Programs (Topic 405-50) - Disclosure of Supplier Finance Program Obligations. This ASU requires quantitative and qualitative disclosures about the key terms of supplier finance programs, an annual rollforward of obligations to finance providers, and interim disclosure of obligations as of each reporting period presented. This ASU is effective for all entities for fiscal years beginning after December 15, 2022, on a retrospective basis, including interim periods within those fiscal years, except for the requirement to disclose rollforward information, which is effective prospectively for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently reviewing the provisions of this ASU but do not expect this guidance will have a material impact on our consolidated financial condition, results of operations, or cash flows.
There are no other recent accounting pronouncements pending adoption that we expect will have a material impact on our consolidated financial condition, results of operations, or cash flows.
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
2. 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 European Union, the U.S., and China, which were required for approval of the acquisition, we were obligated to divest Aleris' European and North American automotive assets, including the Duffel and Lewisport plants, respectively.
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 subject to the results of a binding arbitration proceeding under German law that is currently underway. In June 2022, American Industrial Partners Capital Fund VII, L.P., announced their acquisition of Duffel, which concluded in the same month. 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.
We elected to account for the contingent consideration at fair value and mark to fair value on a quarterly basis. 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. As of September 30, 2022, there has been no change to this fair value, and the receivable is included in other long-term assets in our condensed consolidated balance sheet as of September 30, 2022.
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
3. INVENTORIES
Inventories consists of the following.
|
|
|
|
|
|
|
|
|
|
|
|
in millions |
September 30, 2022 |
|
March 31, 2022 |
Finished goods |
$ |
873 |
|
|
$ |
677 |
|
Work in process |
1,457 |
|
|
1,511 |
|
Raw materials |
758 |
|
|
620 |
|
Supplies |
245 |
|
|
230 |
|
Inventories |
$ |
3,333 |
|
|
$ |
3,038 |
|
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
4. CONSOLIDATION
Variable Interest Entity
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 to the VIE.
Other than the contractually required reimbursements, we do not provide additional 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 |
September 30, 2022 |
|
March 31, 2022 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
4 |
|
|
$ |
3 |
|
Accounts receivable, net |
24 |
|
|
50 |
|
Inventories |
127 |
|
|
115 |
|
Prepaid expenses and other current assets |
5 |
|
|
8 |
|
Total current assets |
160 |
|
|
176 |
|
Property, plant and equipment, net |
25 |
|
|
22 |
|
Goodwill |
12 |
|
|
12 |
|
Deferred income tax assets |
42 |
|
|
41 |
|
Other long-term assets |
10 |
|
|
6 |
|
Total assets |
$ |
249 |
|
|
$ |
257 |
|
LIABILITIES |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
57 |
|
|
$ |
53 |
|
Accrued expenses and other current liabilities |
21 |
|
|
28 |
|
Total current liabilities |
78 |
|
|
81 |
|
Accrued postretirement benefits |
147 |
|
|
153 |
|
Other long-term liabilities |
6 |
|
|
2 |
|
Total liabilities |
$ |
231 |
|
|
$ |
236 |
|
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. 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 Speira 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 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, UAL is accounted for as an equity method investment, and Novelis is not considered the primary beneficiary. UAL currently produces flat-rolled aluminum products exclusively for Novelis and Kobe. As of September 30, 2022, Novelis and Kobe both hold a 50% interest in UAL.
AluInfra
AluInfra is a joint venture investment between Novelis Switzerland SA, a subsidiary of Novelis, and Constellium SE. 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 non-consolidated 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
September 30,
|
|
Six Months Ended
September 30,
|
in millions |
2022 |
|
2021 |
|
2022 |
|
2021 |
Net sales |
$ |
447 |
|
|
$ |
389 |
|
|
$ |
956 |
|
|
$ |
774 |
|
Costs and expenses related to net sales |
430 |
|
|
375 |
|
|
919 |
|
|
747 |
|
Income tax provision |
5 |
|
|
4 |
|
|
11 |
|
|
7 |
|
Net income |
$ |
12 |
|
|
$ |
10 |
|
|
$ |
26 |
|
|
$ |
20 |
|
|
|
|
|
|
|
|
|
Purchases of tolling services from Alunorf |
$ |
87 |
|
|
$ |
70 |
|
|
$ |
168 |
|
|
$ |
139 |
|
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 |
September 30, 2022 |
|
March 31, 2022 |
Accounts receivable, net — related parties |
$ |
200 |
|
|
$ |
222 |
|
Other long-term assets — related parties |
2 |
|
|
1 |
|
Accounts payable — related parties |
308 |
|
|
320 |
|
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Transactions with Hindalco
We occasionally have related party transactions with Hindalco. During the six months ended September 30, 2022, and 2021, we recorded net sales of less than $1 million between Novelis and Hindalco related primarily to sales of equipment and other services. As of September 30, 2022, and March 31, 2022, there was $2 million and $1 million, respectively, of outstanding accounts receivable, net — related parties net of accounts payable — related parties related to transactions with Hindalco. During the three and six months ended September 30, 2022, Novelis purchased less than $1 million in raw materials from Hindalco.
Return of Capital
We paid returns of capital to our common shareholder in the amount of $100 million during each of the second quarters of fiscal 2023 and 2022.
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
6. DEBT
Debt consists of the following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
March 31, 2022 |
in millions |
Interest Rates(1)
|
|
Principal |
|
Unamortized Carrying
Value Adjustments(2)
|
|
Carrying Value |
|
Principal |
|
Unamortized Carrying
Value Adjustments(2)
|
|
Carrying Value |
Short-term borrowings |
3.68 |
% |
|
$ |
858 |
|
|
$ |
— |
|
|
$ |
858 |
|
|
$ |
529 |
|
|
$ |
— |
|
|
$ |
529 |
|
Floating rate Term Loans, due January 2025 |
5.42 |
% |
|
756 |
|
|
(9) |
|
|
747 |
|
|
760 |
|
|
(11) |
|
|
749 |
|
Floating rate Term Loans, due March 2028 |
5.67 |
% |
|
492 |
|
|
(7) |
|
|
485 |
|
|
495 |
|
|
(8) |
|
|
487 |
|
3.25% Senior Notes, due November 2026 |
3.25 |
% |
|
750 |
|
|
(9) |
|
|
741 |
|
|
750 |
|
|
(10) |
|
|
740 |
|
3.375% Senior Notes, due April 2029 |
3.375 |
% |
|
490 |
|
|
(8) |
|
|
482 |
|
|
556 |
|
|
(10) |
|
|
546 |
|
4.75% Senior Notes, due January 2030 |
4.75 |
% |
|
1,600 |
|
|
(23) |
|
|
1,577 |
|
|
1,600 |
|
|
(25) |
|
|
1,575 |
|
3.875% Senior Notes, due August 2031 |
3.875 |
% |
|
750 |
|
|
(10) |
|
|
740 |
|
|
750 |
|
|
(10) |
|
|
740 |
|
China Bank Loans, due August 2027 |
4.55 |
% |
|
65 |
|
|
— |
|
|
65 |
|
|
76 |
|
|
— |
|
|
76 |
|
1.8% Brazil Loan, due June 2023 |
1.80 |
% |
|
30 |
|
|
— |
|
|
30 |
|
|
30 |
|
|
— |
|
|
30 |
|
1.8% Brazil Loan, due December 2023 |
1.80 |
% |
|
20 |
|
|
— |
|
|
20 |
|
|
20 |
|
|
— |
|
|
20 |
|
Finance lease obligations and other debt, due through June 2028 |
2.25 |
% |
|
26 |
|
|
— |
|
|
26 |
|