UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-K
| x | ||
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2011
Or
| ¨ | ||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number 001-32312
Novelis Inc.
(Exact name of registrant as specified in its charter)
| Canada | 98-0442987 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
3560 Lenox Road, Suite 2000, Atlanta, GA | 30326 | |
| (Address of principal executive offices) | (Zip Code) | |
(404) 814-4200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of
1933. Yeso¨ Noþx
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”). Yeso¨ Noþx
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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. Yesþx Noo¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesox Noo¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ¨ | Accelerated filer | ¨ | |||||
| Non-accelerated filer | ||||||||
| Smaller reporting company | ¨ | |||||||
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso¨ Noþx
As of May 26, 2011,24, 2012, the registrant had 1,000 common shares outstanding. All of the Registrant’s outstanding shares were held indirectly by Hindalco Industries Ltd., the Registrant’s parent company.
DOCUMENTS INCORPORATED BY REFERENCE
None
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This document contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about the industry in which we operate, and beliefs and assumptions made by our management. Such statements include, in particular, statements about our plans, strategies and prospects under the headings “Item 1. Business,” “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and variations of such words and similar expressions are intended to identify such forward-looking statements. Examples of forward-looking statements in this Annual Report on Form 10-K include, but are not limited to, our expectations with respect to the impact of metal price movements on our financial performance; the effectiveness of our hedging programs and controls; and our future borrowing availability. These statements are based on beliefs and assumptions of Novelis’ management, which in turn are based on currently available information. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed, implied or forecasted in such forward-looking statements. We do not intend, and we disclaim any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.
This document also contains information concerning our markets and products generally, which is forward-looking in nature and is based on a variety of assumptions regarding the ways in which these markets and product categories will develop. These assumptions have been derived from information currently available to us and to the third party industry analysts quoted herein. This information includes, but is not limited to, product shipments and share of production. Actual market results may differ from those predicted. We do not know what impact any of these differences may have on our business, our results of operations, financial condition, and cash flow. Factors that could cause actual results or outcomes to differ from the results expressed or implied by forward-looking statements include, among other things:
relationships with, and financial and operating conditions of, our customers, suppliers and other stakeholders;
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changes in the prices and availability of aluminum (or premiums associated with aluminum prices) or other materials and raw materials we use;
fluctuations in the supply of, and prices for, energy in the areas in which we maintain production facilities;
our ability to access financing to fund current operations and for future capital requirements;
the level of our indebtedness and our ability to generate cash;
lowering of our ratings by a credit rating agency;
changes in the relative values of various currencies and the effectiveness of our currency hedging activities;
union disputes and other employee relations issues;
factors affecting our operations, such as litigation (including product liability claims), environmental remediation and clean-up costs, labor relations and negotiations, breakdown of equipment and other events;
changes in general economic conditions, including deterioration in the global economy;
changes in the fair value of derivative instruments or the failure of counterparties to our derivative instruments to honor their agreements;
the capacity and effectiveness of our metal hedging activities;
availability of production capacity;
impairment of our goodwill and other intangible assets;
loss of key management and other personnel, or an inability to attract such management and other personnel;
risks relating to future acquisitions or divestitures;
our inability to successfully implement our growth initiatives;
changes in interest rates that have the effect of increasing the amounts we pay under our senior secured credit facilities, other financing agreements and our defined benefit pension plans;
risks relating to certain joint ventures and subsidiaries that we do not entirely control;
the effect of new derivatives legislation on our ability to hedge risks associated with our business;
competition from other aluminum rolled products producers as well as from substitute materials such as steel, glass, plastic and composite materials;
cyclical demand and pricing within the principal markets for our products as well as seasonality in certain of our customers’ industries;
economic, regulatory and political factors within the countries in which we operate or sell our products, including changes in duties or tariffs; and
changes in government regulations, particularly those affecting taxes and tax rates, health care reform, climate change, environmental, health or safety compliance.
The above list of factors is not exhaustive. These and other factors are discussed in more detail under “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
In this Annual Report on Form 10-K, unless otherwise specified, the terms “we,” “our,” “us,” “Company,” “Novelis” and “Novelis Group” refer to Novelis Inc., a company incorporated in Canada under the Canadian Business Corporations Act (CBCA) and its subsidiaries. References herein to “Hindalco” refer to Hindalco Industries Limited. In October 2007, Rio Tinto Group purchased all of the outstanding shares of Alcan Inc. References herein to “Alcan” refer to Rio Tinto Alcan Inc.
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We prepare our financial statements in United States (U.S.) dollars. As of December 31, 2008, the Federal Reserve Bank of New York ceased the practice of maintaining and publishing historical exchange rates. From December 31, 2008 onward, we have used the CitiFX Benchmark, published by Citibank, for exchange rate information published daily as of 16:00 Greenwich Mean Time (GMT) (11:00 A.M. Eastern Standard Time).
The following table sets forth exchange rate information expressed in terms of Canadian dollars per U.S. dollar at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. As noted above, the years ended March 31, 2012, 2011 2010 and 20092010 include exchange data from Citibank as of 16:00 GMT. The rates set forth below may differ from the actual rates used in our accounting processes and in the preparation of our consolidated financial statements.
Period | At Period End | Average Rate(A) | High | Low | ||||||||||||
| Year Ended December 31, 2006 | 1.1652 | 1.1310 | 1.1726 | 1.0955 | ||||||||||||
| Three Months Ended March 31, 2007(B) | 1.1530 | 1.1674 | 1.1852 | 1.1530 | ||||||||||||
| April 1, 2007 Through May 15, 2007(B) | 1.0976 | 1.1022 | 1.1583 | 1.0976 | ||||||||||||
| May 16, 2007 Through March 31, 2008(B) | 1.0275 | 1.0180 | 1.1028 | 0.9168 | ||||||||||||
| Year Ended March 31, 2009 | 1.2579 | 1.1247 | 1.2694 | 0.9938 | ||||||||||||
| Year Ended March 31, 2010 | 1.0144 | 1.0848 | 1.1881 | 1.0144 | ||||||||||||
| Year Ended March 31, 2011 | 0.9709 | 1.0206 | 1.0663 | 0.9709 | ||||||||||||
Period | At Period End | Average Rate(A) | High | Low | ||||||||||||
April 1, 2007 Through May 15, 2007(B) | 1.0976 | 1.1022 | 1.1583 | 1.0976 | ||||||||||||
May 16, 2007 Through March 31, 2008(B) | 1.0275 | 1.0180 | 1.1028 | 0.9168 | ||||||||||||
Year Ended March 31, 2009 | 1.2579 | 1.1247 | 1.2694 | 0.9938 | ||||||||||||
Year Ended March 31, 2010 | 1.0144 | 1.0848 | 1.1881 | 1.0144 | ||||||||||||
Year Ended March 31, 2011 | 0.9709 | 1.0206 | 1.0663 | 0.9709 | ||||||||||||
Year Ended March 31, 2012 | 0.9973 | 0.9922 | 1.0433 | 0.9510 | ||||||||||||
| (A) | For periods after December 31, 2008, this represents the average of the 16:00 GMT buying rates on the last day of each month during the period. For periods before December 31, 2008, we used the average of the 17:00 Greenwich Mean Time (GMT) (12:00 P.M. Eastern Standard Time) on the last day of each month during the period. | |
| (B) | See Note 1 — Business and Summary of Significant Accounting Policies (Acquisition of Novelis Common Stock) to our accompanying audited consolidated financial statements. |
All dollar figures herein are in U.S. dollars unless otherwise indicated.
Commonly Referenced Data
As used in this Annual Report, “aluminum rolled products shipments” or “flat rolled product shipments” refers to aluminum rolled products shipments to third parties. References to “total shipments” or “shipments” include aluminum rolled products as well as certain other non-rolled product shipments, primarily ingot, scrap and primary remelt. The term “aluminum rolled products” is synonymous with the terms “flat rolled products” and “FRP” commonly used by manufacturers and third party analysts in our industry. All tonnages are stated in metric tonnes. One metric tonne is equivalent to 2,204.6 pounds. One kilotonne (kt) is 1,000 metric tonnes.
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Overview
We are the world’s leading aluminum rolled products producer based on shipment volume in fiscal 2011,2012, with totalflat rolled product shipments during that period of approximately 3,0972,838 kt. We are the only company of our size and scope focused solely on aluminum rolled products markets and capable of local supply of technologically sophisticated aluminum products in all of the regions in which we operate. We are also the global leader in the recycling of used aluminum beverage cans. We had net sales“Net sales” of approximately $10.6$11.1 billion for the year ended March 31, 2011.
Our History
Organization and Description of Business
Novelis Inc. was formed in Canada on September 21, 2004. We produce aluminum sheet and light gauge products for use in the packaging market, which includes beverage and food can and foil products, as well as for use in the transportation, constructionelectronic, architectural, and industrial and foilother product markets. We also have recycling operations in several of our plants to recycle post-consumer aluminum, such as used-beverage cans (UBCs). As of March 31, 2011,2012, we had operations in eleven countries on four continents: North America, Europe, Asia and South America, through 3029 operating plants, seven research and development facilities and threeincluding recycling facilities.operations in 12 of these plants. In addition to aluminum rolled products plants, our South American businesses include bauxite mining, primary aluminum smelting and power generation facilities.
Acquisition of Novelis Common Stock
On May 15, 2007, the Company was acquired by Hindalco through its indirect wholly-owned subsidiary pursuant to a plan of arrangement (the Arrangement) at a price of $44.93 per share. The aggregate purchase price for all of the Company’s common shares was $3.4 billion and Hindalco also assumed $2.8 billion of Novelis’ debt for a total transaction value of $6.2 billion. Subsequent to completion of the Arrangement on May 15, 2007, all of our common shares were indirectly held by Hindalco.
Amalgamation of AV Aluminum Inc. and Novelis Inc.
Effective September 29, 2010, in connection with an internal restructuring transaction and pursuant to articles of amalgamation under the Canadian Business Corporations Act, we were amalgamated (the Amalgamation) with our direct parent AV Aluminum Inc., a Canadian corporation (AV Aluminum), to form an amalgamated corporation named Novelis Inc., also a Canadian corporation.
As a result of the Amalgamation, we and AV Aluminum continue our corporate existence, the amalgamated Novelis Inc. remains liable for all of our and AV Aluminum’s obligations, and we continue to own all of our respective property. Since AV Aluminum was a holding company whose sole asset was the shares of the pre amalgamated Novelis, our business, management, board of directors and corporate governance procedures following the Amalgamation are identical to those of Novelis immediately prior to the Amalgamation. Novelis Inc., like AV Aluminum, remains an indirect, wholly-owned subsidiary of Hindalco. We have retrospectively recast all periods presented to reflect the amalgamated companies.
Our Industry
The aluminum rolled products market represents the global supply of and demand for aluminum sheet, plate and foil produced either from sheet ingot or continuously cast roll-stock in rolling mills operated by independent aluminum rolled products producers and integrated aluminum companies alike.
Aluminum rolled products are semi-finished aluminum products that constitute the raw material for the manufacture of finished goods ranging from automotive body panels to food and beverage cans. There are two major types of manufacturing processes for aluminum rolled products differing mainly in the process used to achieve the initial stage of processing:
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| • | hot mills— that require sheet ingot, a rectangular slab of aluminum, as starter material; and | ||
| • | continuous casting mills— that can convert molten metal directly into semi-finished sheet. |
Both processes require subsequent rolling, which we call cold rolling, and finishing steps such as annealing, coating, leveling or slitting to achieve the desired thicknesses, width and metal properties. Most customers receive shipments in the form of aluminum coil, a large roll of metal, which can be fed into their fabrication processes.
There are two sources of input material: (1) primary aluminum, such as molten metal, re-melt ingot and sheet ingot; and (2) recycled aluminum, such as recyclable material from fabrication processes, which we refer to as recycled process material, used beverage cans (UBCs) and other post-consumer aluminum.
Primary aluminum and sheet ingot can generally be purchased at prices set on the London Metal Exchange (LME), plus a premium that varies by geographic region of delivery, alloying material, form (ingot or molten metal) and purity.
Recycled aluminum is also an important and growing source of input material. Aluminum is infinitely recyclable and recycling it requires approximately 5% of the energy needed to produce primary aluminum. As a result, in regions where aluminum is widely used, manufacturers and customers are active in setting up collection processes in which UBCs and other recyclable aluminum are collected for re-melting at purpose-built plants.and reuse. Manufacturers may also enter into agreements with customers who return recycled process material and pay to have it re-melted and rolled into the same product again.
End-use Markets
Aluminum rolled products companies produce and sell a wide range of aluminum rolled products, which can be grouped into fourfive end-use markets based upon similarities in end-use: (1) packaging; (2) transportation; (3) electronics (4) architectural and (4) architectural.(5) industrial and other. Within each end-use market, aluminum rolled products are manufactured with a variety of alloy mixtures; a range of tempers (hardness), gauges (thickness) and widths; and various coatings and finishes. Large customers typically have customized needs resulting in the development of close relationships with their supplying mills and close technical development relationships.
Packaging.Aluminum, because of its relatively light weight, recyclability and formability, has a wide variety of uses in packaging. Beverage cans are the second largest aluminum rolled products application, accounting for approximately 23% of total worldwide shipments in the calendar year ended December 31, 2010,2011, according to market data from Commodity Research Unit International Limited (CRU), an independent business analysis and consultancy group focused on the mining, metals, power, cables, fertilizer and chemical sectors. Beverage and food cans is also our largest end-use market, making up 61% and 58% of our total flat rolled product shipments in each offor the years ended March 31, 2012 and 2011, and 2010.respectively. The recyclability of aluminum cans enables them to be used, collected, melted and returned to the original product form an unlimited number of times, unlike steel, paper or PETpolyethylene terephthalate (PET) plastic, which deteriorate with every iteration of recycling. Aluminum beverage cans also offer advantages in fabricating efficiency and product shelf life. Fabricators are able to produce and fill beverage cans at very high speeds, and non-porous aluminum cans provide longer shelf life than PET plastic containers. Additionally, the use of aluminum to package beverages such as craft beer is increasing, as aluminum does not allow in sunlight and therefore extends the shelf life of the product. Aluminum cans are light, stackable and use space efficiently, making them convenient and cost efficient to ship.
Beverage can sheet is sold in coil form for the production of can bodies, ends and tabs. The material can be ordered as rolled, degreased, pre-lubricated, pre-treated and/or lacquered. Typically, can makers define their own specifications for material to be delivered in terms of alloy, gauge, width and surface finish.
Household foil is very thin aluminum foil, plain or printed, that is typically laminated to plastic or paper to form an internal seal for a variety ofanother packaging applications, including juice boxes, pharmaceuticals, food pouches, cigarette packagingapplication and lid stock. Customers order coils of converter foil in a range of thicknesses from 6 microns to 60 microns.
Other applications in this end-use market include food cans and screw caps for the beverage industry.
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we expect increased growth in this end-use market as automotive companies continue to explore opportunities for ways to reduce the weight (lightweighting) of automobiles as a result of environmental regulations around emissions and competition related to fuel economy.
Heat exchangers, such as radiators and air conditioners, are an important application for aluminum rolled products in the truck and automobile categories of the transportation end-use market. Original equipment manufacturers also use aluminum sheet with specially treated surfaces and other specific properties for interior and exterior applications. Newly developed alloys are being used in transportation tanks and rigid containers that allow for safer and more economical transportation of hazardous and corrosive materials.
Aluminum is also used in aerospace applications, a segment of the transportation market in which we were not allowed to compete until January 6, 2010, pursuant to a non-competition agreement we entered into with Alcan in connection with the spin-off. However, aerospace-related consumption of aluminum rolled products has historically represented a relatively small portion of total aluminum rolled products market shipments.
Electronics.Aluminum’s lightweight characteristics, high formability, ability to conduct electricity and dissipate heat and to offer corrosion resistance makes it useful in a wide variety of electronic and industrial applications. Industrial applications include electronics and communications equipment, process and electrical machinery and lighting fixtures. Uses of aluminum rolled products in consumer durableselectronics include microwaves, coffee makers, flat screen televisions, personal computers, laptops, mobile phones, air conditioners, pleasure boats and cooking utensils.
Architectural.Construction is the largest application within this end-use market. Aluminum rolled products developed for the construction industry are often decorative and non-flammable, offer insulating properties, are durable and corrosion resistant, and have a high strength-to-weight ratio. Aluminum siding, gutters, and downspouts comprise a significant amount of construction volume. Other applications include doors, windows, awnings, canopies, facades, roofing and ceilings.
Industrial and Other. Industrial applications include heat exchangers, process and electrical machinery, lighting fixtures, and insulation. Other uses of aluminum rolled products in consumer durables include microwaves, coffee makers, air conditioners and cooking utensils.
Market Structure
The aluminum rolled products industry is characterized by economies of scale, significant capital investments required to achieve and maintain technological capabilities and demanding customer qualification standards. The service and efficiency demands of large customers have encouraged consolidation among suppliers of aluminum rolled products.
While our customers tend to be increasingly global, many aluminum rolled products tend to be produced and sold on a regional basis. The regional nature of the markets is influenced in part by the fact that not all mills are equipped to produce all types of aluminum rolled products. For instance, only a few mills in North America, Europe and Asia, and only one mill in South America produce beverage can body and end stock. In addition, individual aluminum rolling mills generally supply a limited range of products for end-use markets, and seek to maximize profits by producing high volumes of the highest margin mix per mill hour given available capacity and equipment capabilities.
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The aluminum rolled products market is highly competitive. We face competition from a number of companies in all of the geographic regions and end-use markets in which we operate. Our primary competitors are as follows:
North America | ||
Asia | ||
| Alcoa, Inc. (Alcoa) | Alcoa | |
| Aleris International, Inc. (Aleris) | Furukawa-Sky Aluminum Corp. | |
| Kobe Steel Ltd. | ||
| Norandal Aluminum | Nanshan Aluminum | |
| Sumitomo Light Metal Company, Ltd. | ||
| Wise Metal Group LLC | Southwest Aluminum Co. Ltd. Chinalco Group |
Europe | ||
South America | ||
| Alcoa | Alcoa | |
| Aleris | Companhia Brasileira de Alumínio | |
| Hydro A.S.A. | ||
The factors influencing competition vary by region and end-use market, but generally we compete on the basis of our value proposition, including price, product quality, the ability to meet customers’ specifications, range of products offered, lead times, technical support and customer service. In some end-use markets, competition is also affected by fabricators’ requirements that suppliers complete a qualification process to supply their plants. This process can be rigorous and may take many months to complete. As a result, obtaining business from these customers can be a lengthy and expensive process. However, the ability to obtain and maintain these qualifications can represent a competitive advantage.
In addition to competition from others within the aluminum rolled products industry, we, as well as the other aluminum rolled products manufacturers, face competition from non-aluminum material producers, as fabricators and end-users have, in the past, demonstrated a willingness to substitute other materials for aluminum. In the beverage and food cans end-use market, aluminum rolled products’ primary competitors are glass, PET plastic, and in some regions, steel. In the transportation end-use market, aluminum rolled products compete mainly with steel and composites. Aluminum competes with wood, plastic, cement and steel in building products applications. Factors affecting competition with substitute materials include price, ease of manufacture, consumer preference and performance characteristics.
Key Factors Affecting Supply and Demand
The following factors have historically affected the supply of aluminum rolled products:
Production Capacity.Capacity and Alternative Technology.As in most manufacturing industries with high fixed costs, production capacity has the largest impact on supply in the aluminum rolled products industry. In the aluminum rolled products industry, the addition of production capacity requires large capital investments and significant plant construction or expansion, and typically requires long lead-time equipment orders.
Trade.Some trade flows do occur between regions despite shipping costs, import duties and the need for localized customer support. Higher value-added, specialty products such as lithographic sheetplate and some foils are more likely to be traded internationally, especially if demand in certain markets exceeds local supply. With respect to less technically demanding applications, emerging markets with low cost inputs may export commodity aluminum rolled products to larger, more mature markets.markets, as we have seen in China. Accordingly, regional changes in supply, such as plant expansions, may have some effectimpact on the worldwide supply of commodity aluminum rolled products.
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Economic Growth.We believe that economic growth is currently the single largest driver of aluminum rolled products demand. In mature markets, growth in demand has typically correlated closely with growth in industrial production.
In many emerging markets such as China,Brazil, growth in demand typically exceeds industrial production growth largely because of expanding infrastructures, capital investments and rising incomes that often accompany economic growth in these markets.
Substitution Trends.Manufacturers’ willingness to substitute other materials for aluminum in their products and competition from substitution materials suppliers also affect demand. For example,We see strong substitution trends towards aluminum and away from other packaging materials in the beverage can market globally, except for North America competition from PET plastic containerswhich is already a mature market. We also see this significant and glass bottles, and changesimportant trend in marketing channels and consumer preferences in beverage containers, have, in recent years, reducedother product categories such as the growth rate of aluminum can sheet in North America from the high rates experienced in the 1970s and 1980s. Historically, despite changes in consumer preferences, North American aluminum beverage can shipments have remained at approximately 100 billion cans per year since 1994 accordingautomotive industry. As automotive manufacturers look for ways to the Can Manufacturers Institute. For the calendar year ended December 31, 2010, North American aluminum beverage can shipments have increased by approximately 0.2% to 99.3 billion cans mainly due to an increase in demand for carbonated soft drinks.
Downgauging.Seasonality.Increasing technological and asset sophistication has enabled aluminum rolling companies to offer consistent or even improved product strength using lighter gauge (thinner) aluminum products, providing customers with a more cost-effective product as compared to alternatives to aluminum. This reduces raw material requirements, but also effectively increases rolled products’ plant utilization rates and reduces available capacity, because to produce the same number of units requires more rolling hours to achieve thinner gauges. As utilization rates increase, revenues rise asDuring our pricing tends to be based on machine hours used rather than on the volume of material rolled. On balance,third fiscal quarter, we believe that downgauging has maintained or enhanced overall market economics for both users and producers of aluminum rolled products.
Sustainability. Growing awareness of environmentalism and demand for recyclable products has increased the demand for aluminum rolled products. Unlike other commonly recycled materials such as paper, steel, or PET plastic, aluminum can be recycled an unlimited number of times without affecting the quality of the product. Additionally, the recycling process uses 95% less energy than is required to weather.
Our Business Strategy
Our primary objective is to deliver shareholdercustomer and customershareholder value by being the lowest cost, most technologically advanced, innovative and profitable aluminum rolled products company in the world. We intend to achieve this objective through the following areas of focus:
Operate as “One Novelis” — a Fully-integrated Global Company
We intend to continue to build on our focused business model to operate as “One Novelis.” The term “One Novelis” refers to our goal of becoming a truly integrated, global company driven by a singular focus. An important part of the One Novelis concept is our highly-focused, pass-through business model that utilizes our manufacturing excellence, our risk management expertise, our value-added conversion premium-based pricing, and, more importantly, our growing ability to leverage our global assets according to a single, corporate-wide vision. We believe this integrated approach is the foundation for the effective execution of our strategy across the Novelis system.
We strive to service our customers in a consistent, global manner through seamless alignment of goals, methods and metrics across the organization to improve communication and by implementation of strategic initiatives. These initiatives have resulted in enhanced operating margins and performance, and we believe we will continue to make aggressive stepstake actions to operateensure we are aligned to best leverage our operations globally. During fiscal 2011, we have taken steps
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We will focus on capturing the global growth we see in theour premium product markets of beverage can, market worldwide as well as the automotive and electronic markets. We plan to continue improving our product mix and margins by leveraging our world-class assets and technical capabilities. Our management approach helps us to systematically identify opportunities to improve the profitability of our operations through product portfolio analysis. This ensures that we focus on growing in attractive market segments, while also taking actions to exit unattractive ones. We will continue to focus on our core products while investing in emerging growth markets.
Pursue Organic Growth Through Capital Investments in Emerging Growth Markets and Debottlenecking Initiatives
We are investing heavily in increasing our capacity, particularly in high growth emerging markets. Our international presence positions us well to capture additional growth opportunities in targeted aluminum rolled products. In particular, we believe Asia and South America have high growth potential in areas such as beverage cans and electronics. Additionally, we believe there is strong automotive growth potential worldwide. While our existing manufacturing and operating presence positions us well to capture this growth, we expect to make someare making incremental capital expenditures or selective acquisitions to expand our capabilities in these areas.
In response to the growing demand for our products in South America, in May 2010 we announced a plan to invest nearly $300 million to expandare expanding our aluminum rolling operations in Brazil to increase capacity by more than 50% to approximately 600 kt of aluminum sheet per year. The project is expected to be completed by late calendar 2012. Additionally, in May 2011, we announcedWe are also installing a plan to invest approximately $400 million to expandnew coating line for beverage can end stock and expanding our recycling capacity in the Pindamonhangaba (Pinda) facility in Brazil.
In response to the lightweighting trend in the automotive industry, we are increasing our North American rolling capacity by approximately 200 kt per year for the automotive end-use market.
We are expanding our rolling and rollingrecycling capabilities in AsiaSouth Korea in response to the growing demand in both Asia and the Middle East.broader Asian region. The rolling expansion, which will include investments in both hot rolling and cold rolling operations, is expected to increase capacity in AsiaSouth Korea by over 50% to approximately 1,000 kt of aluminum sheet per year. The expansion will also include the construction of aan integrated state-of-the-art recycling center primarily for used aluminum beverage cans. The project
In April 2012, we announced plans to invest $100 million into an aluminum automotive sheet heat treatment plant in China. Construction of the new facility is expected to be completed by late fiscal 2013. In response to the lightweighting trendbegin in the automotive industry,fall of 2012 and the plant to be operational beginning in late calendar year 2014 and have capacity of approximately 120 kt per year.
In May 2012, we confirmed a decision to invest $250 million at our Nachterstedt, Germany plant to build a fully integrated recycling facility. The facility will be investinghave an annual capacity of approximately 400 kt.
Sustainability
In December 2011, we released our first annual Sustainability Report in increasing our North American rolling capacitywhich we detailed ten Sustainability Targets for the transportation end-use market.
Focus on Reducing our Costs
We strive to be the lowest cost producer of world-class aluminum rolled products by pursuing a standardized focus on our core operations globally and through the implementation of cost-reduction and restructuring initiatives.globally. To achieve this objective, we have standardizedcontinue working to standardize our manufacturing processes and the associated upstream and downstream production elements where possible while still allowing the flexibility to respond to local market demands. In addition, we have implemented numerous restructuring initiatives, including the shutdown or sale of facilities, staff rationalization and other activities, all of which have led to significant cost savings that we will benefit from for years to come. We plan to continue to focus on maintaining our low cost base, even as we invest in expansion of our capacity,expansions, and intend to persist in the implementation of ongoingcontinuously evaluate and implement initiatives to improve operational efficiencies across our plants globally.
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Due in part to the regional nature of supply and demand of aluminum rolled products and in order to best serve our customers, we manage our activities on the basis of geographical areas and are organized under four operating segments: North America; Europe; Asia and South America. The following is a description of our operating segments:
| • | North America.Headquartered in Atlanta, GA, this segment manufactures aluminum sheet and light gauge products and operates | ||
| • | Europe.Headquartered in Zurich, Switzerland, this segment manufactures aluminum sheet and light gauge products and operates | ||
| • | Asia.Headquartered in Seoul, South Korea, this segment manufactures aluminum sheet and light gauge products and operates three plants in two | ||
| • | South America.Headquartered in Sao Paulo, Brazil, our South America segment operates two rolling plants, including one with recycling operations, along with one primary aluminum smelter |
The table below shows Net sales“Net sales” and total shipments by segment. For additional financial information related to our operating segments, see Note 1920 — Segment, Geographical Area, Major Customer and Major Supplier Information to our accompanying audited consolidated financial statements.
| Year Ended | ||||||||||||
| Sales in millions | March 31, | |||||||||||
Shipments in kilotonnes | 2011 | 2010 | 2009 | |||||||||
Consolidated | ||||||||||||
| Net sales(A) | $ | 10,577 | $ | 8,673 | $ | 10,177 | ||||||
| Total shipments | 3,097 | 2,854 | 2,943 | |||||||||
North America | ||||||||||||
| Net sales(B) | $ | 3,922 | $ | 3,292 | $ | 3,930 | ||||||
| Total shipments | 1,121 | 1,063 | 1,109 | |||||||||
Europe | ||||||||||||
| Net sales(B) | $ | 3,589 | $ | 2,975 | $ | 3,718 | ||||||
| Total shipments | 976 | 884 | 1,009 | |||||||||
Asia | ||||||||||||
| Net sales(B) | $ | 1,866 | $ | 1,501 | $ | 1,536 | ||||||
| Total shipments | 581 | 534 | 460 | |||||||||
South America | ||||||||||||
| Net sales(B) | $ | 1,214 | $ | 948 | $ | 1,007 | ||||||
| Total shipments | 419 | 373 | 365 | |||||||||
| Sales in millions | Year Ended March 31, | |||||||||||
Shipments in kilotonnes | 2012 | 2011 | 2010 | |||||||||
Consolidated | ||||||||||||
Net sales | $ | 11,063 | $ | 10,577 | $ | 8,673 | ||||||
Total shipments | 2,982 | 3,097 | 2,854 | |||||||||
North America | ||||||||||||
Net sales(A) | $ | 3,967 | $ | 3,760 | $ | 3,130 | ||||||
Total shipments | 1,079 | 1,121 | 1,063 | |||||||||
Europe | ||||||||||||
Net sales(A) | $ | 3,840 | $ | 3,589 | $ | 2,975 | ||||||
Total shipments | 950 | 976 | 884 | |||||||||
Asia | ||||||||||||
Net sales(A) | $ | 1,830 | $ | 1,866 | $ | 1,501 | ||||||
Total shipments | 536 | 581 | 534 | |||||||||
South America | ||||||||||||
Net sales(A) | $ | 1,278 | $ | 1,214 | $ | 948 | ||||||
Total shipments | 417 | 419 | 373 | |||||||||
| (A) | ||
North America
As of March 31, 2011,2012, North America operates 11 aluminum rolled products facilities, including two2 fully dedicated recycling facilities and 2 facilities with recycling operations, and manufactures a broad range of aluminum sheet and light gauge products. End-use markets for this segment include beverage cans, containers and packaging, automotive and other transportation applications, building products and other industrial applications. The majority of North America’s efforts are directed towards the beverage can sheet market. The beverage can end-use market is technically demanding to supply and pricing is competitive. We believe we have a competitive advantage in this market due to our low-cost and technologically advanced manufacturing facilities and technical support capability. Recycling is important in the manufacturing process and we have five facilities in North America that re-melt post-consumer aluminum and recycled process material. Most of the recycled material is from UBCs and the material is cast into sheet ingot for North America’s two can sheet
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Europe
As of March 31, 2011,2012, Europe operates 1312 operating plants, including one fully dedicated recycling facility, and one integrated recycling facility and 3 facilities with recycling operations, and manufactures a broad range of sheet and foil products. End-use markets for this segment include beverage and food can, automotive, constructionarchictectural and industrial products, foil and technical products and lithographic. Beverage and food can represent the largest end-use market in terms of shipment volume by Europe. Europe has six aluminum rolled products facilities, five foil and packaging facilities, at six locations and, in addition to six rolled product plants, hasone fully depreciated recycling facility, distribution centers in Italy, and sales offices in several European countries. Operations include our 50% joint venture interest in Aluminium Norf GmbH (Norf)(Alunorf), which is the world’s largest aluminum rolling and remelt facility. NorfAlunorf supplies high quality can stock, foilstock and feeder stock for finishing at our other European operations.
In April 2009, we closed our distribution center in France. In March 2009, we announced the closure of our aluminum sheet mill in Rogerstone, South Wales, U.K. The facilityand ceased operations in April 2009. On March 1, 2011,We sold the land for the Rogerstone facility during fiscal year 2012 and we announced the sale of our printed confectionery foil packaging business at Bridgnorth, UK.sold other assets to Hindalco during fiscal year 2011. The operation isCompany ceased operations associated with the previously announced closure of the Bridgnorth, aluminumU.K. foil rolling and laminating activities, which ceased operations at the end of April 2011 and subsequently sold the land and buildings at the Bridgnorth site.
Additionally, we sold certain pieces of equipment from the Bridgnorth plant to Hindalco during fiscal 2012 and 2011. In February 2011,fiscal 2012, we announced plans to invest $18 million in the construction ofcommissioned a new recycling center at Norf.
In March 2012, we announced the planned sale of three aluminum foil and packaging plants to American Industrial Acquisition Corporation (AIAC). The transaction includes foil rolling and packaging operations in Rugles, France; Dudelange, Luxembourg; and Berlin, Germany. These plants are expected to be sold in the middle of calendar year 2012, and we have classified the respective assets and liabilities of these plants as “Assets held for sale” and “Liabilities held for sale” in the consolidated balance sheet as of March 31, 2012.
Asia
As of March 31, 2011,2012, Asia operates three3 manufacturing facilities, including 2 facilities with recycling operations, and manufactures a broad range of sheet and light gauge products. End-use markets include beverage and food cans, electronics, architectural, industrial and construction and industrialother products, automotive and foil. The beverage can market represents the largest end-use market in terms of volume. Recycling is an important part of our Korean operations with recycling facilities at both the Ulsan, South Korea and Yeongju, facilities. Metal from recycled aluminum purchases represented 31% of Asia’s total shipments in fiscal 2011.South Korea plants. We believe that Asia is well-positioned to benefit from further economic development in China as well as other parts of Asia.
In May 2011, we announced plans to invest approximately $400 million to expand our aluminum rolling and recycling operations in South Korea in response to the growing demand in the broader Asia and the Middle East.region. The rolling expansion, which will include investments in both hot rolling and cold rolling operations, will increase our aluminum sheet capacity in Asia to 1000approximately 1,000 kt annually. A response to projected market growth in the region, the move is designed to rapidly bring to market high-quality aluminum rolling capacity aligned with the projected needs of a growing customer base. The new capacity is expected to come on streambe operational in late fiscalcalendar year 2013. The expansion will increase Novelis’ aluminum sheet capacity in Asia by more than 50 percent, and will also include the construction of a state-of-the-art recycling center primarily for used aluminum beverage cans and a casting operation.
In April 2012, we announced plans to invest $100 million into an aluminum automotive sheet heat treatment plant in China. Construction of the new facility is expected to begin in the fall of 2012 and we expect the plant is expected to be operational beginning in late calendar year 2014 and have capacity of approximately 120 kt per year.
South America
As of March 31, 2011,2012, South America operates two rolling plants, including one facility with recycling operations, along with one primary aluminum smelter and a hydro-electrichydroelectric power plant,plants, all of which are located in Brazil. South America manufactures aluminum rolled products, including can stock, automotive and industrial sheet and light gauge for thegauge. The main markets are beverage and food can, construction andspecialty, industrial, foil and other packaging and transportation end-use applications. Beverage and food can representrepresents the largest end-use application in terms of shipment volume. Our operations in South America include a smelterssmelter used by our Brazilian aluminum rolled products operations, with any excess production being sold on the market in the form of aluminum billets, and a hydro-electrichydroelectric power plant which we use to generate a portion of our own power requirements. Additionally, we own bauxitehave mining rights for mines and reserveslocated in South America which are not currently operational.
In May 2009, we ceased the production of alumina at our Ouro Preto facility in Brazil as the sustained decline in alumina prices made alumina production economically unfeasible. In light of the alumina and aluminum pricing environment, we closed our Aratu facility in Candeias, Brazil in December 2010.
In response to the growing demand for our products in South America, in May 2010 we
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Financial Information About Geographic Areas
Certain financial information about geographic areas is contained in Note 19 —20— Segment, Geographical Area, Major Customer and Major Supplier Information to our accompanying audited consolidated financial statements.
Raw Materials and Suppliers
The raw materials that we use in manufacturing include primary aluminum, recycled aluminum, sheet ingot, alloying elements and grain refiners. Our smelters also use alumina, caustic soda and calcined petroleum coke and resin. These raw materials are generally available from several sources and are not generally subject to supply constraints under normal market conditions. We also consume considerable amounts of energy in the operation of our facilities.
Aluminum
We obtain aluminum from a number of sources, including the following:
Primary Aluminum Sourcing.We purchased or tolled approximately 1,9001,800 kt of primary aluminum in fiscal 20112012 in the form of sheet ingot, standard ingot and molten metal, approximately 50% of which we purchased from Alcan. Following our spin-off from Alcan, we have continued to purchase aluminum from Alcan pursuant to metal supply agreements. Our primary aluminum contracts with Alcan were renegotiated and the amended agreements took effect on January 1, 2008.
Primary Aluminum Production.We produced approximately 7831 kt of our own primary aluminum requirements in fiscal 20112012 through our smelter and related facilities in Brazil.
Recycled Aluminum Products.Products Recycling.We operate facilities in several plants to recycle post-consumer aluminum, such as UBCs collected through recycling programs. In addition, we have agreements with several of our large customers where we have a closed-looped system whereby we take recycled processed material from their fabricating activity and re-melt, cast and roll it to re-supply them with aluminum sheet. Other sources of recycled material include lithographic plates, where over 90% of aluminum used is recycled, and products with longer lifespans, like cars and buildings, which are starting to become high volume sources of recycled material. We purchased or tolled approximately 1,0001,100 kt of recycled material inputs in fiscal 20112012 and are making recycling investments in Europe, Korea and South America to increase the amount of recycled material we use as raw materials.
For the materials that we re-melt is directed back through can-stock plants.recycle, they are remelted, cast and then rolled out in our operations. The net effect of all recycling activities in terms of total shipments of rolled products is that approximately 33%39% of our total aluminum rolled products production forproduct shipments in fiscal 2011 was2012 were made with recycled material.
Energy
We use several sources of energy in the manufacture and delivery of our aluminum rolled products. In fiscal 2011,2012, natural gas and electricity represented approximately 83%88% of our energy consumption by cost. We also use fuel oil and transport fuel. The majority of energy usage occurs at our casting centers, at our smelter in South America and during the hot rolling of aluminum. Our cold rolling facilities require relatively less energy. We purchase our natural gas on the open market, which subjects us to market pricing fluctuations. We have in the past and may continue to seek to stabilize our future exposure to natural gas prices through the purchase of derivative instruments. Natural gas prices in Europe, Asia and South America have historically been more stable than in the United States.
A portion of our electricity requirements are purchased pursuant to long-term contracts in the local regions in which we operate. A number of our facilities are located in regions with regulated prices, which affords relatively stable costs. We have fixed pricing on some of our energy supply arrangements. When the market price of energy is above the fixed price within the contract, we are subject to the credit risk of the counterparty in terms of fulfilling the contract to its term, including those favorable contracts which were existent at the date of the Arrangement and for which an intangible asset was recorded in purchase accounting.
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We also have bauxite and alumina requirements. We will satisfy some of our alumina requirements for the near term pursuant to an alumina supply agreement we have entered into with Alcan.
Our Customers
Although we provide products to a wide variety of customers in each of the markets that we serve, we have experienced consolidation trends among our customers in many of our key end-use markets. In fiscal 2011,2012, approximately 50%51% of our total net sales“Net sales” were to our ten largest customers, most of whom we have been supplying for more than 20 years. To address consolidation trends, we focus significant efforts at developing and maintaining close working relationships with our customers and end-users. Our major customers include:
Beverage and Food Cans | Automotive | |
| Anheuser-Busch, | Audi Worldwide Company | |
| Affiliates of Ball Corporation | BMW | |
| Can-Pack S.A. | Daimler AG | |
| Various bottlers of the Coca-Cola System | Ford Motor Company | |
| Crown Cork & Seal Company | General Motors LLC | |
| Rexam plc | Hyundai Motor Company | |
| Jaguar Land Rover | ||
| Volvo Group |
Construction, Industrial and Other | Electronics | ||
AGFA Graphics N.V. | LG International Corporation | ||
| Amcor Limited | Samsung | ||
| Electronics Co., Ltd | |||
| Lotte Aluminum Co. Ltd. | |||
| Pactiv Corporation | |||
| Ryerson Inc. | |||
| Tetra Pak | |||
Our single largest end-use market is beverage can sheet. We sell can sheet we sell directly to beverage makers and bottlers as well as to can fabricators that sell the cans they produce to bottlers. In certain cases, we also operate under umbrella agreements with beverage makers and bottlers under which they direct their can fabricators to source their requirements for beverage can body, end and tab stock from us. Among these umbrella agreementsOne of our beverage can sheet customers is an agreement with several North American bottlers of Coca-Cola branded products, including Coca-Cola Bottlers’ Sales and Services. Under thisServices (CCBSS). We have multi-year agreement we shipped approximately 349 kt ofwith CCBSS to supply beverage can sheet, (including tolled metal) during fiscal 2011. These shipments were madeincluding can end, body and tab sheet to and we received payment from, our direct customers, who are the beverage can fabricators that sellvarious producers of beverage cans to thefor Coca-Cola associated bottlers. Under the agreement, bottlers in the Coca-Cola system may join this agreement by committing a specified percentage of the can sheet required by their can fabricators to us.
The table below shows our net sales“Net sales” to Rexam Plc (Rexam), Anheuser-Busch, Incorporated (Anheuser-Busch), and Anheuser-Busch InBev (Anheuser-Busch),Affiliates of Ball Corporation our twothree largest customers, as a percentage of total Net“Net sales.
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Rexam | 15 | % | 16 | % | 17 | % | ||||||
| Anheuser-Busch | 13 | % | 11 | % | 7 | % | ||||||
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| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Rexam | 14 | % | 15 | % | 16 | % | ||||||
Anheuser-Busch | 10 | % | 13 | % | 11 | % | ||||||
Affiliates of Ball Corporation | 10 | % | 8 | % | 6 | % | ||||||
We have two principal distribution channels for the end-use markets in which we operate: direct sales to our customers and distributors.
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Direct sales as a percentage of total net sales | 92 | % | 93 | % | 93 | % | ||||||
| Distributor sales as a percentage of total net sales | 8 | % | 7 | % | 7 | % | ||||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Direct sales as a percentage of total “Net sales” | 93 | % | 92 | % | 93 | % | ||||||
Distributor sales as a percentage of total “Net sales” | 7 | % | 8 | % | 7 | % | ||||||
Direct Sales
We supply various end-use markets all over the world through a direct sales force that operates from individual plants or sales offices, as well as from regional sales offices in 2123 countries. The direct sales channel typically involves very large, sophisticated fabricators and original equipment manufacturers. Longstanding relationships are maintained with leading companies in industries that use aluminum rolled products. Supply contracts for large global customers generally range from one to five years in length and historically there has been a high degree of renewal business with these customers. Given the customized nature of products and in some cases, large order sizes, switching costs are significant, thus adding to the overall consistency of the customer base.
We also use third party agents or traders in some regions to complement our own sales force. They provide service to our customers in countries where we do not have local expertise. We tend to use third party agents in Asia more frequently than in other regions.
Distributors
We also sell our products through aluminum distributors, particularly in North America and Europe. Customers of distributors are widely dispersed, and sales through this channel are highly fragmented. Distributors sell mostly commodity or less specialized products into many end-use markets in small quantities, including the construction and industrial and transportation markets. We collaborate with our distributors to develop new end-use markets and improve the supply chain and order efficiencies.
Backlog
We believe that order backlog is not a material aspect of our business.
Research and Development
The table below summarizes our research“Research and development expenseexpenses” in our plants and modern research facilities, which included mini-scale production lines equipped with hot mills, can lines and continuous casters (in millions).
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Research and development expenses | $ | 40 | $ | 38 | $ | 41 | ||||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Research and development expenses | $ | 44 | $ | 40 | $ | 38 | ||||||
We conduct research and development activities at our plants in order to satisfy current and future customer requirements, improve our products and reduce our conversion costs. Our customers work closely with our research and development professionals to improve their production processes and market options. We have approximately 210180 employees dedicated to research and development, located in many of our plants and research center.
16centers. We are opening a global research and development center in Kennesaw, GA that will be operational in mid calendar year 2012. The center will offer state of the art research and development capabilities to help Novelis meet the global long-term demand for aluminum used for the automotive, beverage can and electronic markets. To reach the Company’s sustainability commitments, a key focus is to help increase the amount of recycled metal content across all product lines while meeting performance requirements.
The table below summarizes our approximate number of employees by region.
| North | South | |||||||||||||||||||
Employees | America | Europe | Asia | America | Total | |||||||||||||||
| March 31, 2011 | 3,100 | 4,650 | 1,500 | 1,600 | 10,850 | |||||||||||||||
| March 31, 2010 | 2,900 | 4,750 | 1,500 | 1,900 | 11,050 | |||||||||||||||
Employees | North America | Europe | Asia | South America | Total | |||||||||||||||
March 31, 2012 | 3,100 | 5,210 | 1,600 | 1,710 | 11,620 | |||||||||||||||
March 31, 2011 | 3,100 | 5,380 | 1,500 | 1,600 | 11,580 | |||||||||||||||
Approximately 63%58% of our employees are represented by labor unions and their employment conditions are governed by collective bargaining agreements. Collective bargaining agreements are negotiated on a site, regional or national level, and are of different durations.
Intellectual Property
In connection with our spin-off, Alcan has assigned or licensed to Novelis a number of important patents, trademarks and other intellectual property rights owned or previously owned by Alcan and required for our business. Ownership of certain intellectual property that is used by both us and Alcan is owned by one of us, and licensed to the other. Certain specific intellectual property rights, which have been determined to be exclusively useful to us or which were required to be transferred to us for regulatory reasons, have been assigned to us with no license back to Alcan.
We actively review intellectual property arising from our operations and our research and development activities and, when appropriate, we apply for patents in the appropriate jurisdictions, including the United States and Canada. We currently hold patents and patent applications on approximately 175 different items of intellectual property. While these patents and patent applications are important to our business on an aggregate basis, no single patent or patent application is deemed to be material to our business.
We have applied for or received registrations for the “Novelis” word trademark and the Novelis logo trademark in approximately 50 countries where we have significant sales or operations. Novelis uses the Aditya Birla Rising Sun logo under license from Aditya Birla Management Corporation Private Limited.
We have also registered the word “Novelis” and several derivations thereof as domain names in numerous top level domains around the world to protect our presence on the World Wide Web.
Environment, Health and Safety
We own and operate numerous manufacturing and other facilities in various countries around the world. Our operations are subject to environmental laws and regulations from various jurisdictions, which govern, among other things, air emissions, wastewater discharges, the handling, storage and disposal of hazardous substances and wastes, the remediation of contaminated sites, post-mining reclamation and restoration of natural resources, and employee health and safety. Future environmental regulations may be expected to impose stricter compliance requirements on the industries in which we operate. Additional equipment or process changes at some of our facilities may be needed to meet future requirements. The cost of meeting these requirements may be significant. Failure to comply with such laws and regulations could subject us to administrative, civil or criminal penalties, obligations to pay damages or other costs, and injunctions and other orders, including orders to cease operations.
We are involved in proceedings under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act, also known as CERCLA or Superfund, or analogous state provisions regarding our liability arising from the usage, storage, treatment or disposal of hazardous substances and wastes at a number of sites in the United States, as well as similar proceedings under the laws and regulations of the other jurisdictions in which we have operations, including Brazil and certain countries in the European Union. Many of these jurisdictions have laws that impose joint and several liability, without regard to fault or the legality of the original
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We have established procedures for regularly evaluating environmental loss contingencies, including those arising from environmental reviews and investigations and any other environmental remediation or compliance matters. We believe we have a
reasonable basis for evaluating these environmental loss contingencies, and we also believe we have made reasonable estimates for the costs that are likely to be ultimately borne by usreasonably possible for these environmental loss contingencies. Accordingly, we have established reservesliabilities based on our reasonable estimates for the currently anticipated costs associated with these environmental matters. Management has determined that the currently anticipated costs associated with these environmental matters will not, individually or in the aggregate, materially impair our operations or materially adversely affect our financial condition.
Our capital expenditures for environmental protection and the betterment of working conditions in our facilities were $1$16 million in fiscal 2011.2012. We expect these capital expenditures will be approximately $5 million and $2$11 million in fiscal 2012 and 2013, respectively.2013. In addition, expenses for environmental protection (including estimated and probable environmental remediation costs as well as general environmental protection costs at our facilities) were $18$17 million in fiscal 2011,2012, and are expected to be $34 million and $27$14 million in fiscal 2012 and 2013, respectively.2013. Generally, expenses for environmental protection are recorded in Cost“Cost of goods sold.sold (exclusive of depreciation and amortization).” However, significant remediation costs that are not associated with on-going operations are recorded in Other“Other (income) expenses,expense, net.
Available Information
We are subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended (Exchange Act) and, as a result, we file periodic reports and other information with the SEC. We make these filings available on our website free of charge, the URL of which is http://www.novelis.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains a website (http://www.sec.gov) that contains our annual, quarterly and current reports and other information we file electronically with the SEC. You can read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Information on our website does not constitute part of this Annual Report on Form 10-K.
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In addition to the factors discussed elsewhere in this report, you should consider the following factors, which could materially affect our business, financial condition or results of operations in the future. The following factors, among others, could cause our actual results to differ from those projected in any forward looking statements we make.
Certain of our customers are significant to our revenues, and we could be adversely affected by changes in the business or financial condition of these significant customers or by the loss of their business.
Our ten largest customers accounted for approximately 50%51%, 48%50% and 45%48% of our total net sales“Net sales” for the year ended March 31, 2012, 2011 2010 and 2009,2010, respectively, with Rexam Plc, a leading global beverage can maker, and its affiliates representing approximately 13%14%, 16%15% and 17%16% of our total net sales“Net sales” in the respective periods. A significant downturn in the business or financial condition of our significant customers could materially adversely affect our results of operations and cash flows. In addition, if our existing relationships with significant customers materially deteriorate or are terminated in the future, and we are not successful in replacing business lost from such customers, our results of operations and cash flows could be adversely affected. Some of the longer term contracts under which we supply our customers, including under umbrella agreements such as those described under “Business — Our Customers,” are subject to renewal, renegotiation or re-pricing at periodic intervals or upon changes in competitive supply conditions. Our failure to successfully renew, renegotiate or re-price such agreements could result in a reduction or loss in customer purchase volume or revenue, and if we are not successful in replacing business lost from such customers, our results of operations and cash flows could be adversely affected. The markets in which we operate are competitive and customers may seek to consolidate supplier relationships or change suppliers to obtain cost savings and other benefits.
Our results and short term liquidity can be negatively impacted by timing differences between the prices we pay under purchase contracts and metal prices we charge our customers.
Most of our purchase and sales contracts are based on the LME aluminum price for high grade aluminum, and there are typically timing differences between the pricing periods for purchases and sales where purchase prices tend to be fixed and paid earlier than sales prices. This creates a price exposure that we call “metal price lag.” To mitigate this exposure, we sell short-term LME aluminum futures contracts to protect the value of priced metal purchases and inventory until the sale price is established. We settle these derivative contracts in advance of collecting from our customers, which both positively and negatively impacts our short-term liquidity position.
In addition, from time to time, customers request fixed prices for longer term sales commitments, and we in turn enter into futures purchase contracts to hedge against these fixed forward priced sales to customers. The mismatch between the settlement of these derivative contracts and the recognition of revenuecustomer collection from shipments hedged with these derivative contracts also leads to volatility in our GAAP operating results.short-term liquidity position, either positively or negatively. The lag between the derivative settlement and customer collection typically ranges from 30 to 60 days.
Our operations consume energy and our profitability and cash flows may decline if energy costs were to rise, or if our energy supplies were interrupted.
We consume substantial amounts of energy in our rolling, operations, cast house operationscasting and a Brazilian smelting operation.smelter operations. The factors that affect our energy costs and supply reliability tend to be specific to each of our facilities. A number of factors could materially adversely affect our energy position including:
increases in costs of natural gas;
significant increases in costs of supplied electricity or fuel oil related to transportation;
interruptions in energy supply due to equipment failure or other causes;
the inability to extend energy supply contracts upon expiration on economical terms; and
the inability to pass through energy costs in certain sales contracts.
In addition, global climate change may increase our costs for energy sources, supplies or raw materials. See “— We may be affected by global climate change or by legal, regulatory or market responses to such change.”change. If energy costs were to rise, or if energy
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A deterioration of our financial position or a downgrade of our ratings by a credit rating agency could increase our borrowing costs and our business relationships could be adversely affected.
A deterioration of our financial position or a downgrade of our ratings for any reason could increase our borrowing costs and have an adverse effect on our business relationships with customers, suppliers and hedging counterparties. From time to time, we enter into various forms of hedging activities against currency, interest rate or metal price fluctuations and trade metal contracts on the LME. Financial strength and credit ratings are important to the availability and pricing of these hedging and trading activities. As a result, any downgrade of our credit ratings may make it more costly for us to engage in these activities, and changes to our level of indebtedness may make it more difficult or costly for us to engage in these activities in the future.
Adverse changes in currency exchange rates could negatively affect our financial results or cash flows and the competitiveness of our aluminum rolled products relative to other materials.
Our businesses and operations are exposed to the effects of changes in the exchange rates of the U.S. dollar, the euro, the British pound, the Brazilian real, the Canadian dollar, the Korean won and other currencies. We have implemented a hedging policy that attempts to manage currency exchange rate risks to an acceptable level based on management’s judgment of the appropriate trade-off between risk, opportunity and cost; however, this hedging policy may not successfully or completely eliminate the effects of currency exchange rate fluctuations which could have a material adverse effect on our financial results and cash flows.
We prepare our consolidated financial statements in U.S. dollars, but a portion of our earnings and expenditures are denominated in other currencies, primarily the euro, the Korean won and the Brazilian real. Changes in exchange rates will result in increases or decreases in our operating results and may also affect the book value of our assets located outside the U.S.
Most of our facilities are staffed by a unionized workforce, and union disputes and other employee relations issues could materially adversely affect our financial results.
Approximately 63%58% of our employees are represented by labor unions under a large number of collective bargaining agreements with varying durations and expiration dates. We may not be able to satisfactorily renegotiate our collective bargaining agreements when they expire. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage at our facilities in the future. For example, we experienced a work stoppage at our Korean facilities for 12 days in August 2010. While this work stoppage resulted in a wage increase of approximately 15% for the workers at our Korean facilities, it did not have a material impact on our results of operations. However, any future extended work stoppages could have a material adverse effect on our financial results and cash flows.
We could be adversely affected by disruptions of our operations.
Breakdown of equipment or other events, including catastrophic events such as war or natural disasters, leading to production interruptions at our plants could have a material adverse effect on our financial results and cash flows. Further, because many of our customers are, to varying degrees, dependent on planned deliveries from our plants, those customers that have to reschedule their own production due to our missed deliveries could pursue claims against us and reduce their future business with us. We may incur costs to correct any of these problems, in addition to facing claims from customers. Further, our reputation among actual and potential customers may be harmed, resulting in a loss of business. While we maintain insurance policies covering, among other things, physical damage, business interruptions and product liability, these policies would not cover all of our losses.
Our operations have been and will continue to be exposed to various business and other risks, changes in conditions and events beyond our control in countries where we have operations or sell products.
We are, and will continue to be, subject to financial, political, economic and business risks in connection with our global operations. We have made investments and carry on production activities in various emerging markets, including Brazil, Korea and Malaysia, and we market our products in these countries, as well as China and certain other countries in Asia, the Middle East and emerging markets in South America. While we anticipate higher growth or attractive production opportunities from these emerging markets, they also present a higher degree of risk than more developed markets. In addition to the business risks inherent in
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Economic conditions could negatively affect our financial condition and results of operations.
Our financial condition and results of operations depend significantly on worldwide economic conditions. These economic conditions deteriorated significantly in many countries and regions in which we do business during and after the difficult global capital market conditions in 2008 and 2009, which resulted in a tightening in the credit markets, a low level of liquidity in many financial markets and extreme volatility in fixed income, currency and equity markets.
Our results of operations, cash flows and liquidity could be adversely affected if we were unable to purchase derivative instruments or if counterparties to our derivative instruments fail to honor their agreements.
We use various derivative instruments to manage the risks arising from fluctuations in aluminum prices, exchange rates, energy prices and interest rates. If for any reason we were unable to purchase derivative instruments to manage these risks or were unsuccessful in passing through the costs of our risk management activities, our results of operations, cash flows and liquidity could be adversely affected. In addition, we may be exposed to losses in the future if the counterparties to our derivative instruments fail to honor their agreements. In particular, deterioration in the financial condition of our counterparties and any resulting failure to pay amounts owed to us or to perform obligations or services owed to us could have a negative effect on our business and financial condition. Further, if major financial institutions continue to consolidate and are forced to operate under more restrictive capital constraints and regulations, there could be less liquidity in the derivative markets, which could have a negative effect on our ability to hedge and transact with creditworthy counterparties.
New derivatives legislation could have an adverse impact on our ability to hedge risks associated with our business and on the cost of our hedging activities.
We use over-the-counter (OTC) derivatives products to hedge our metal commodity risks and to a lesser extent, our interest rate and currency risks. Recent legislation has been adopted to increase the regulatory oversight of the OTC derivatives markets and impose restrictions on certain derivative transactions, which could affect the use of derivatives in hedging transactions. Final regulations pursuant to this legislation defining which companies will be subject to the legislation have not yet been adopted. If future regulations subject us to additional capital or margin requirements or other restrictions on our trading and commodity positions, they could have an adverse effect on our ability to hedge risks associated with our business and on the cost of our hedging activities.
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We assess, at least annually and potentially more frequently, whether the value of our goodwill andhas been impaired. We assess the recoverability of finite-lived other intangible assets has been impaired.whenever events or changes in circumstances indicate that we may not be able to recover the asset’s carrying amount. Any impairment of goodwill or other intangible assets as a result of such analysis would result in a non-cash charge against earnings, which charge could materially adversely affect our reported results of operations.
A significant and sustained decline in our future cash flows, a significant adverse change in the economic environment or slower growth rates could result in the need to perform additional impairment analysis in future periods. If we were to conclude that a write-down of goodwill or other intangible assets is necessary, then we would record such additional charges, which could materially adversely affect our results of operations.
As part of our ongoing evaluation of our operations, we may undertake additional restructuring efforts in the future which could in some instances result in significant severance-related costs, environmental remediation expenses and impairment and other restructuring charges.
We recorded restructuring“Restructuring charges, net” of $60 million and $34 million for the year ended March 31, 2012 and 2011, respectively, and $14$111 million “Loss on assets held for sale” for the year ended March 31, 2010.2012. During these periods, we announced, among others, the following restructuring actions and programs:
the restructuring of our lithographic sheet European business, which resulted in closing one line in our Göttingen, Germany plant in March 2012;
the shutdown of our Saguenay Works plant in Quebec, Canada, decision made in March 2012 with an effective closing date in August 2012;
the announced sale of three of our European foil operations in Rugles, France; Dudelange, Luxembourg; and Berlin, Germany, with an expected closing date of mid calendar year 2012;
the cessation of foil rolling activities and part of the packaging business at our facility located in Bridgnorth, U.K. in fiscal 2012; and
the shutdown of our Aratu facility located in Candeias, Brazil in fiscal 2011.
We may take additional restructuring actions in the future. Any additional restructuring efforts could result in significant severance-related costs, environmental remediation expenses, impairment charges, restructuring charges and related costs and expenses, which could adversely affect our profitability and cash flows.
We may not be able to successfully develop and implement new technology initiatives in a timely manner.
We have invested in, and are involved with, a number of technology and process initiatives. Several technical aspects of these initiatives are still unproven, and the eventual commercial outcomes cannot be assessed with any certainty. Even if we are successful with these initiatives, we may not be able to deploy them in a timely fashion. Accordingly, the costs and benefits from our investments in new technologies and the consequent effects on our financial results may vary from present expectations.
Loss of our key management and other personnel, or an inability to attract such management and other personnel, could adversely impact our business.
We depend on our senior executive officers and other key personnel to run our business. The loss of any of these officers or other key personnel could materially adversely affect our operations. Competition for qualified employees among companies that rely heavily on engineering and technology is intense, and the loss of qualified employees or an inability to attract, retain and motivate additional highly skilled employees required for the operation and expansion of our business could hinder our ability to improve
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Future acquisitions or divestitures may adversely affect our financial condition.
As part of our strategy for growth, we may pursue acquisitions, divestitures or strategic alliances, which may not be completed or, if completed, may not be ultimately beneficial to us. There are numerous risks commonly encountered in strategic transactions, including the risk that we may not be able to complete a transaction that has been announced, effectively integrate businesses acquired or generate the cost savings and synergies anticipated. Failure to do so could have a material adverse effect on our financial results.
Capital investments in debottlenecking or other organic growth initiatives may not produce the returns we anticipate.
A significant element of our strategy is to invest in opportunities to increase the production capacity of our operating facilities through modifications of and investments in existing facilities and equipment and to evaluate other investments in organic growth in our target markets. These projects involve numerous risks and uncertainties, including the risk that actual capital investment requirements exceed projected levels, that our forecasted demand levels prove to be inaccurate, that we do not realize the production increases or other benefits anticipated, that we experience scheduling delays in connection with the commencement or completion of the project, that the project disrupts existing plant operations causing us to temporarily lose a portion of our available production capacity, or that key management devotes significant time and energy focused on one or more initiatives that divert attention from other business activities.
We could be required to make unexpected contributions to our defined benefit pension plans as a result of adverse changes in interest rates and the capital markets.
Most of our pension obligations relate to funded defined benefit pension plans for our employees in the U.S., the U.K. and Canada, unfunded pension benefits in Germany and lump sum indemnities payable to our employees in France, Italy, Korea and Malaysia upon retirement or termination. Our pension plan assets consist primarily of funds invested in listed stocks and bonds. Our estimates of liabilities and expenses for pensions and other postretirement benefits incorporate a number of assumptions, including expected long-term rates of return on plan assets and interest rates used to discount future benefits. Our results of operations, liquidity or shareholders’shareholder’s equity in a particular period could be adversely affected by capital market returns that are less than their assumed long-term rate of return or a decline of the rate used to discount future benefits.
If the assets of our pension plans do not achieve assumed investment returns for any period, such deficiency could result in one or more charges against our earnings for that period. In addition, changing economic conditions, poor pension investment returns or other factors may require us to make unexpected cash contributions to the pension plans in the future, preventing the use of such cash for other purposes.
We face risks relating to certain joint ventures and subsidiaries that we do not entirely control. Our ability to access cash from these entities may be more restricted than if these entities were wholly-owned subsidiaries.
Some of our activities are, and will in the future be, conducted through entities that we do not entirely control or wholly own. These entities include our Norf, Germany; Logan, Kentucky; and Evermore Recycling joint ventures, as well as our majority-owned Korean and Malaysian subsidiaries.subsidiary. Our Malaysian subsidiary is a public company whose shares are listed for trading on the Bursa Malaysia. Under the governing documents, agreements or securities laws applicable to or stock exchange listing rules relative to certain of these joint ventures and subsidiaries, our ability to fully control certain operational matters may be limited. In addition, we do not solely determine certain key matters, such as the timing and amount of cash distributions from these entities. As a result, our ability to access cash from these entities may be more restricted than if they were wholly-owned entities. Further, in some cases we do not have rights to prevent a joint venture partner from selling its joint venture interests to a third party.
Hindalco and its interests as equity holder may conflict with the interests of the holders of our senior notes in the future.
Novelis is an indirectly wholly-owned subsidiary of Hindalco. As a result, Hindalco may exercise control over our decisions to enter into any corporate transaction or capital restructuring and has the ability to approve or prevent any transaction that requires the approval of our shareholder. Hindalco may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in its judgment, could enhance its equity investment, even though such transactions might involve risks to holders of our Senior Notes.
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If we are unable to obtain sufficient quantities of primary aluminum, recycled aluminum, sheet ingot and other raw materials used in the production of our products, our ability to produce and deliver products or to manufacture products on a timely basis and using the desired mix of metal inputs could be adversely affected.
We rely on a limited number of suppliers for our raw materials requirements. Increasing aluminum demand levels have caused supply constraints in the industry. Further increases in demand levels could exacerbate these supply issues. In addition, worldwide supplies of primary ingot may be constrained by speculative investor activities. If we are unable to obtain sufficient quantities of primary aluminum, recycled aluminum, sheet ingot and other raw materials used in the production of our rolled aluminum products due to supply constraints in the future, our ability to produce and deliver products or to manufacture products on a timely basis could be adversely affected.
Certain of our manufacturing operations rely on UBCs for a portion of base metal inputs. Since January 1, 2010, we have relied on our joint venture with Alcoa Inc., Evermore Recycling, as our exclusive agent for the procurement of UBCs in North America. In December 2011, we provided notice to Alcoa and Evermore Recycling of our intention to withdraw from Evermore Recycling. Upon the termination of our relationship with Evermore Recycling, we will acquire UBCs on our own behalf, through third party suppliers, to support our North American operations. Competition for UBCs is significant, and while we believe we will be able to obtain sufficient quantities to meet our production needs, if we are unable to do so, we could be required to purchase more expensive metal inputs which could have an adverse effect on our profitability and cash flows.
In addition, our sheet ingot requirements have historically been, in part, supplied by Rio Tinto Alcan pursuant to agreements with us. For the year ended March 31, 2011,2012, we purchased the majority of our third party sheet ingot requirements from Rio Tinto Alcan’s primary metal group. If Rio Tinto Alcan or any other significant supplier of sheet ingot is unable to deliver sufficient quantities of this material on a timely basis, our production may be disrupted and our net sales, profitability and cash flows could be materially adversely affected. Although aluminum is traded on the world markets, developing alternative suppliers of sheet ingot could be time consuming and expensive.
We face significant price and other forms of competition from other aluminum rolled products producers, which could hurt our results of operations and cash flows.
Generally, the markets in which we operate are highly competitive. We compete primarily on the basis of our value proposition, including price, product quality, ability to meet customers’ specifications, range of products offered, lead times, technical support and customer service. Some of our competitors may benefit from greater capital resources, have more efficient technologies, have lower raw material and energy costs and may be able to sustain longer periods of price competition. In particular, we face increased competition from producers in China, which have significantly lower production costs and pricing. This lower pricing could erode the market prices of our products in the Chinese market and elsewhere.
In addition, our competitive position within the global aluminum rolled products industry may be affected by, among other things, the recent trend toward consolidation among our competitors, exchange rate fluctuations that may make our products less competitive in relation to the products of companies based in other countries (despite the U.S. dollar-based input cost and the marginal costs of shipping) and economies of scale in purchasing, production and sales, which accrue to the benefit of some of our competitors. For example, the price gap between the Shanghai Futures Exchange (SHFE) and the LME may make products manufactured in China with SHFE prices for aluminum more competitive compared to our products manufactured in Asia with LME prices for aluminum.
Increased competition could cause a reduction in our shipment volumes and profitability or increase our expenditures, either of which could have a material adverse effect on our financial results and cash flows.
The end-use markets for certain of our products are highly competitive and customers are willing to accept substitutes for our products.
The end-use markets for certain aluminum rolled products are highly competitive. Aluminum competes with other materials, such as steel, plastics, composite materials and glass, among others, for various applications, including in beverage and food cans, electronics and automotive end-use markets. In the past, customers have demonstrated a willingness to substitute other materials for aluminum. For example, changes in consumer preferences in beverage containers have increased the use of PET plastic containers and glass bottles in recent years. These trends may continue. The willingness of customers to accept substitutes for aluminum products could have a material adverse effect on our financial results and cash flows.
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The construction industry and the consumption of beer and soda are sensitive to weather conditions and as a result, demand for aluminum rolled products in the construction industry and for can feedstock can be seasonal. Our quarterly financial results could fluctuate as a result of climatic changes, and a prolonged series of cool summers in the different regions in which we conduct our business could have a material adverse effect on our financial results and cash flows.
We are subject to a broad range of environmental, health and safety laws and regulations, and we may be exposed to substantial environmental, health and safety costs and liabilities.
We are subject to a broad range of environmental, health and safety laws and regulations in the jurisdictions in which we operate. These laws and regulations impose increasingly stringent environmental, health and safety protection standards and permitting requirements regarding, among other things, air emissions, wastewater storage, treatment and discharges, the use and handling of hazardous or toxic materials, waste disposal practices, the remediation of environmental contamination, post-mining reclamation and working conditions for our employees. Some environmental laws, such as Superfund and comparable laws in U.S. states and other jurisdictions worldwide, impose joint and several liability for the cost of environmental remediation, natural resource damages, third party claims, and other expenses, without regard to the fault or the legality of the original conduct.
The costs of complying with these laws and regulations, including participation in assessments and remediation of contaminated sites and installation of pollution control facilities, have been, and in the future could be, significant. In addition, these laws and regulations may also result in substantial environmental liabilities associated with divested assets, third party locations and past activities. In certain instances, these costs and liabilities, as well as related action to be taken by us, could be accelerated or increased if we were to close, divest of or change the principal use of certain facilities with respect to which we may have environmental liabilities or remediation obligations. Currently, we are involved in a number of compliance efforts, remediation activities and legal proceedings concerning environmental matters, including certain activities and proceedings arising under Superfund and comparable laws in U.S. states and other jurisdictions worldwide in which we have operations.
We have established reservesliabilities for environmental remediation activities and liabilities where appropriate. However, the cost of addressing environmental matters (including the timing of any charges related thereto) cannot be predicted with certainty, and these reservesliabilities may not ultimately be adequate, especially in light of changing interpretations of laws and regulations by regulators and courts, the discovery of previously unknown environmental conditions, the risk of governmental orders to carry out additional compliance on certain sites not initially included in remediation in progress, our potential liability to remediate sites for which provisions have not been previously established and the adoption of more stringent environmental laws including, for example, the possibility of increased regulation of the use of bisphenol-A, a chemical component commonly used in the coating of aluminum cans. Such future developments could result in increased environmental costs and liabilities, and could require significant capital expenditures, any of which could have a material adverse effect on our financial condition, results or cash flows. Furthermore, the failure to comply with our obligations under the environmental laws and regulations could subject us to administrative, civil or criminal penalties, obligations to pay damages or other costs, and injunctions or other orders, including orders to cease operations. In addition, the presence of environmental contamination at our properties could adversely affect our ability to sell property, receive full value for a property or use a property as collateral for a loan.
Some of our current and potential operations are located or could be located in or near communities that may regard such operations as having a detrimental effect on their social and economic circumstances. Environmental laws typically provide for participation in permitting decisions, site remediation decisions and other matters. Concern about environmental justice issues also may affect our operations. Should such communityCommunity objections be presented to government officials, the consequences of such a development maycould have a material adverse impact upon the profitability or, in extreme cases, the viability of an operation. In addition, such developments may adversely affect our ability to expand or enter into new operations in such location or elsewhere and may also have an effect on the cost of our environmental remediation projects.
We use a variety of hazardous materials and chemicals in our rolling processes, as well as in our smelting operations in Brazil and in connection with maintenance work on our manufacturing facilities. Because of the nature of these substances or related residues, we may be liable for certain costs, including, among others, costs for health-related claims or removal or re-treatment of such substances. Certain of our current and former facilities incorporate asbestos-containing materials, a hazardous substance that has been the subject of health-related claims for occupational exposure. In addition, although we have developed environmental, health and safety
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We may be exposed to significant legal proceedings or investigations.
From time to time, we are involved in, or the subject of, disputes, proceedings and investigations with respect to a variety of matters, including environmental, health and safety, product liability, employee, tax, personal injury, contractual and other matters as well as other disputes and proceedings that arise in the ordinary course of business. Certain of these matters are discussed in the preceding risk factor. Any claims against us or any investigations involving us, whether meritorious or not, could be costly to defend or comply with and could divert management’s attention as well as operational resources. Any such dispute, litigation or investigation, whether currently pending or threatened or in the future, may have a material adverse effect on our financial results and cash flows.
Product liability claims against us could result in significant costs or negatively impact our reputation and could adversely affect our business results and financial condition.
We are sometimes exposed to warranty and product liability claims. There can be no assurance that we will not experience material product liability losses arising from individual suits or class actions alleging product liability defects or related claims in the future and that these will not have a negative impact on us. We generally maintain insurance against many product liability risks, but there can be no assurance that this coverage will be adequate for any liabilities ultimately incurred. In addition, there is no assurance that insurance will continue to be available on terms acceptable to us. A successful claim that exceeds our available insurance coverage could have a material adverse effect on our financial results and cash flows.
We may be affected by global climate change or by legal, regulatory, or market responses to such change.
There is a growing concern over climate change, which has led to new and proposed legislative and regulatory initiatives, such as cap-and-trade systems and additional limits on emissions of greenhouse gases. New laws enacted could directly and indirectly affect our customers and suppliers (through an increase in the cost of production or their ability to produce satisfactory products) or our business (through an impact on our inventory availability, cost of sales, operations or demand for the products we sell), which could result in an adverse effect on our financial condition, results of operations and cash flows. Compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could require additional expenditures by us, our customers or our suppliers. Also, we rely on natural gas, electricity, fuel oil and transport fuel to operate our facilities. Any increased costs of these energy sources because of new laws could be passed along to us and our customers and suppliers, which could also have a negative impact on our profitability.
Income tax payments may ultimately differ from amounts currently recorded by the Company. Future tax law changes may materially increase the Company’s prospective income tax expense.
We are subject to income taxation in many jurisdictions in the U.S. as well as numerous foreign jurisdictions. Judgment is required
26
Our substantial indebtedness could adversely affect our business.
We are highly leveraged.have a relatively high degree of leverage. As of March 31, 2011,2012, we had $4.1$4.4 billion of indebtedness outstanding. Our substantial indebtedness and interest expense could have important consequences to our company and holders of notes, including:
limiting our ability to borrow additional amounts for working capital, capital expenditures or other general corporate purposes;
increasing our vulnerability to general adverse economic and industry conditions, including volatility in LME aluminum prices;
limiting our ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in government regulation; and
limiting our ability or increasing the costs to refinance indebtedness.
The covenants in our senior secured credit facilities and the indentures governing our Senior Notes impose operating and financial restrictions on us.
Our senior secured credit facilities and the indentures governing theour senior notes impose certain operating and financial restrictions on us. These restrictions limit our ability and the ability of our restricted subsidiaries, among other things, to:
incur additional debt and provide additional guarantees;
pay dividends and make other restricted payments, including certain investments; create or permit certain liens; make certain asset sales; use the proceeds from the sales of assets and subsidiary stock; create or permit restrictions on the ability | |||
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engage in certain transactions with any fiscal quarter to exceed ratios expected to begin at 4.75 to 1affiliates;
enter into sale and stepping down periodically at specified levels overleaseback transactions; and
consolidate, merge or transfer all or substantially all of our assets or the lifeassets of the facility. our restricted subsidiaries.
See Note 1011 — Debt for additional discussion.
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Our executive offices are located in Atlanta, Georgia. We are opening a global research and development center in Kennesaw, GA that will be operational in mid calendar year 2012. The center will offer state of the art research and development capabilities to help Novelis meet the global long-term demand for aluminum used for the automotive, beverage can and specialties markets.
The following tables provide information, by operating segment, about the plant locations, processes and major end-use markets/applications for the aluminum rolled products, recycling and primary metal facilities we operated during all or part of the year ended March 31, 2011.2012. The total number of operating facilities research and development facilities, and recycling facility used bywithin our operating segments as of March 31, 2011 are2012 is shown in the table below:
| Operating | Research | |||||||
| Facilities | Facilities | |||||||
| North America | 11 | 3 | ||||||
| Europe | 13 | 3 | ||||||
| South America | 3 | — | ||||||
| Asia | 3 | 1 | ||||||
| Total | 30 | 7 | ||||||
| Total Operating Facilities | Facilities with recycling operations | |||||||
North America | 11 | 4 | ||||||
Europe | 12 | 5 | ||||||
Asia | 3 | 2 | ||||||
South America | 3 | 1 | ||||||
|
|
|
| |||||
Total | 29 | 12 | ||||||
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|
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| |||||
Included above are operating facilities that we jointly own and operate with third parties. Please see detail below:
North America
Location | Plant Processes | |||
Major End-Use Markets | ||||
Berea, Kentucky | Recycling | Recycled ingot | ||
Burnaby, British Columbia | Finishing | Foil containers | ||
Fairmont, West Virginia | Cold rolling, finishing | Foil, HVAC material | ||
Greensboro, Georgia | Recycling | Recycled ingot | ||
Kingston, Ontario | Cold rolling, finishing | Automotive, construction/industrial | ||
Russellville, | Hot rolling, cold rolling, finishing, recycling | Can stock | ||
Oswego, New York | Novelis rolling, cold rolling, recycling, brazing, finishing | Can stock, construction/industrial, semi-finished coil | ||
Saguenay, Quebec (B) | Continuous casting | Semi-finished coil | ||
Terre Haute, Indiana | Cold rolling, finishing | Foil | ||
Toronto, Ontario | Finishing | Foil, foil containers | ||
Warren, Ohio | Coating | Can end stock |
| (A) | We own 40% of the outstanding common shares of Logan Aluminum Inc. (Logan), but we have made |
| (B) | In April 2012, we announced the planned closure of our Saguenay Works plant in Quebec, Canada effective August 2012. |
Our Oswego, New York facility operates modern equipment used for recycling beverage cans and other scrap metals, ingot casting, hot rolling, cold rolling and finishing. Oswego produces can stock as well as building and industrial products. Oswego also provides feedstock to our Kingston, Ontario facility, which produces heat-treated automotive sheet and products for construction and industrial applications, and to our Fairmont, West Virginia facility, which produces light gaugelight-gauge sheet.
Our Russellville, Kentucky facility (referred to herein as Logan) is a processing joint venture between us and ArcoTri-Arrows Aluminum Inc. (ARCO)(Tri-Arrows), a subsidiary offormerly known as ARCO Aluminum, Inc. (ARCO). Effective August 1, 2011, a consortium of Japanese companies. Our equity investmentcompanies purchased ARCO. The transaction did not impact Novelis’ interest in the joint venture is 40%, while ARCO holds the remaining 60% of common shares, but we have made subsequent equipment investments such that our portion of Logan’s total machine hours provide us with approximately 55% of Logan’s total production.Logan. Logan, which was built in 1985, is the newest and largest rolling mill in North America. Logan operates modern and high-speed equipment for ingot casting, hot-rolling, cold-rolling and finishing. Logan is a dedicated manufacturer of aluminum sheet products for the can stock market with modern equipment, an efficient workforce and product focus. A portion of the can end stock is coated at North America’s Warren, Ohio facility, in addition to Logan’s on-site coating assets. Together with ARCO,Tri-Arrows, we operate Logan as a production cooperative, with each party supplying its own primary metal inputs for transformationconversion at the facility. The transformedconverted product is then returned to the supplying party at cost. Logan does not own any of the primary metal inputs or any of the transformedconverted products. All of the fixed assets at Logan are directly owned by us and ARCOTri-Arrows in varying ownership percentages or solely by each party.
We share control of the management of Logan with ARCOTri-Arrows through a board of directors with seven voting members onof which we appoint four members and ARCOTri-Arrows appoints three members. Management of Logan is led jointly by two executive officers who are subject to approval by at least five members of the board of directors. On April 4, 2011, a consortium of Japanese companies, agreed to purchase ARCO’s share of Logan. The transaction does not impact our interest in Logan.
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Along with our recycling center in Oswego, New York, we own two other fully dedicated recycling facilities in North America, located in Berea, Kentucky and Greensboro, Georgia. Each offers a modern, cost-efficient process to recycle used beverage cansUBCs and other recycled aluminum scrap into sheet ingot to supply our hot mills in Logan and Oswego. Berea is the largest used beverage can recycling facility in the world.
Location | Plant Processes | |||
Major End-Use Markets | ||||
| Berlin, Germany (C) | Converting | Packaging | ||
| Bresso, Italy | Finishing, painting | Painted sheet, architectural | ||
| Dudelange, Luxembourg (C) | Continuous casting, foil rolling, finishing, recycling | Foil | ||
| Göttingen, Germany (D) | Cold rolling, finishing, painting | Can end, can tab, food can, lithographic, painted sheet | ||
| Latchford, U.K. | Recycling | Sheet ingot from recycled metal | ||
| Ludenscheid, Germany | Foil rolling, finishing, converting | Foil, packaging | ||
| Nachterstedt, Germany | Cold rolling, finishing, painting | Automotive, can end, industrial, painted sheet, architectural | ||
| Norf, | Hot rolling, cold rolling, recycling, continuous casting | Can stock, foilstock, feeder stock for finishing operations | ||
| Ohle, Germany | Cold rolling, finishing, converting | Foil, packaging | ||
| Pieve, Italy | Continuous casting, cold rolling, finishing, recycling | Coil for Bresso, industrial | ||
| Rugles, France (C) | Continuous casting, foil rolling, finishing, recycling | Foil | ||
| Sierre, | Novelis | Automotive sheet, industrial |
| (A) | ||
| Operated as a 50/50 joint venture between us and Hydro Aluminum Deutschland GmbH (Hydro). |
| (B) | We have entered into an agreement with |
| (C) | During the fourth quarter of fiscal 2012, we announced the planned sale of three European aluminum foil and packaging plants. The sale is expected to be finalized in mid calendar year 2012 and includes the operations in Rugles, France; Dudelange, Luxembourg; and Berlin, Germany. |
| (D) | In March 2012, we made the decision to restructure our lithographic sheet business, resulting in the closing of one line in our Göttingen, Germany facility. |
Aluminium Norf GmbH (Norf)(Alunorf) in Germany, a 50/50 production-sharing joint venture between us and Hydro, is a large scale, modern manufacturing hub for several of our operations in Europe, and is the largest aluminum rolling mill and remelting operation in the world. Norf supplies hot coil for further processing through cold rolling to some of our other plants, including Göttingen and Nachterstedt in Germany and provides foilstock to our plants in Ohle and Ludenscheid in Germany and Rugles in France. Together with Hydro, we operate NorfAlunorf as a production cooperative, with each party supplying its own primary metal inputs for transformation at the facility. The transformed product is then transferred back to the supplying party on a pre-determined cost-plus basis. We own 50% of the equity interest in Norf and Hydro owns the other 50%. We share control of the management of NorfAlunorf with Hydro through a jointly-controlled shareholders’ committee. Management of NorfAlunorf is led jointly by two managing executives, one nominated by us and one nominated by Hydro.
Our Göttingen plant has a paint line as well as lines for can end food and lithographicfood sheet. Our Nachterstedt plant cold rolls and finishes mainly automotive sheet and can end stock. The Pieve plant, located near Milan, Italy, mainly produces continuous cast coil that is cold rolled into paintstock and sent to the Bresso, Italy plant for painting and some specialist finishing.
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Our recycling operation in Latchford, United Kingdom is the only major recycling plant in Europe dedicated to used beverage cans.
In May 2012, we confirmed a decision to invest $250 million at our Nachterstedt, Germany plant to build a fully integrated recycling facility, which sells casthouse technology, including liquid metal treatment devices, such as degassers and filters, chill sheet ingot casters and twin roll continuous casters, in many partswill have an annual capacity of the world.
Asia
Location | Plant Processes | |||
Major End-Use Markets | ||||
| Bukit Raja, Malaysia(A) | Continuous casting, cold rolling, coating | Construction/industrial, heavy and light gauge foils | ||
| Ulsan, South Korea(B) | Hot rolling, cold rolling, recycling, finishing | Can stock, construction/industrial, electronics, foilstock, and recycled material | ||
| Yeongju, | Hot rolling, cold rolling, recycling, finishing | Can stock, construction/industrial, electronics, foilstock and recycled material |
| (A) | Ownership of the Bukit Raja plant corresponds to our 59% equity interest in Aluminium Company of Malaysia Berhad. | |
| (B) | We hold a | |
Our Korean subsidiary, in which we hold a 68%99% interest, was formed through acquisitions in 1999 and 2000. Since ourthe acquisitions, product capability has been developed to address higher value and more technically advanced markets such as can sheet.
Novelis Asia also operates recycling furnaces at both its Ulsan and Yeongju facilities in South Korea for the conversion of customer and third partythird-party recycled aluminum. The Ulsan and Yeongju facilities utilized used beverage cans and other recycled scrap material for 31% of their aluminum supply during fiscal 2011. In response to the growing demand for our products, we announced that we will invest approximately $400 million to expandare expanding our rolling and recycling operations in South Korea.
South America
Location | Plant Processes | |||
Major End-Use Markets | ||||
| Pindamonhangaba (Pinda), Brazil | Hot rolling, cold rolling, recycling, finishing | |||
| Utinga, Brazil | Foil rolling, finishing | Foil | ||
| Ouro Preto, | Smelting | Primary aluminum (sheet ingot and billets) | ||
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Pinda is the largest aluminum rolling and recycling facility in South America in terms of shipments and the only facility in South America capable of producing can body and end stock. Pinda recycles primarily used beverage cans,UBCs, and is engaged in tolling recycled metal for our customers. In response to the growing demand for our products in South America, in May 2010 we announced a plan to invest nearly $300 million to expand our aluminum rolling operations in Pinda. The expansion will increase the plant’s capacity by more than 50% to approximately 600 kt of aluminum sheet per year. The project is expected to come on streambe operational in late calendar year 2012.
We operate primary aluminum smelting and hydro-electrichydroelectric power generation operations at our Ouro Preto, Brazil facility. Our owned power generation supplies approximately 65%60% of our smelter needs. We own alumina refining assets that we are currently not operating. We also own the mining rights to bauxite reserves in the Ouro Preto, Cataguases and Carangola regions.
We are a party to litigation incidental to our business from time to time. For additional information regarding litigation to which we are a party, see Note 1819 — Commitments and Contingencies to our accompanying audited consolidated financial statements, which are incorporated by reference into this item.
32
Not applicable.
There is no established public trading market for the Company was acquired byCompany’s common stock. Hindalco through its indirect wholly-owned subsidiary pursuant to a plan of arrangement (the Arrangement) at a price of $44.93 per share. The aggregate purchase price forowns all of the Company’s common shares was $3.4 billion and Hindalco also assumed $2.8 billion of Novelis’ debt for a total transaction value of $6.2 billion. Subsequent to completionstock through an indirect wholly-owned subsidiary. None of the Arrangement on May 15, 2007, all of our common shares were indirectly held by Hindalco, and we became a foreign private issuer. We continue to file periodic reports under section 15(d)equity securities of the Securities and Exchange Act of 1934 because our Senior NotesCompany are publicly traded (see Note 10 — Debt to our accompanying audited consolidated financial statements).
Dividends are at the discretion of the board of directors and will depend on, among other things, our financial resources, cash flows generated by our business, our cash requirements, restrictions under the instruments governing our indebtedness, being in compliance with the appropriate indentures and covenants under the instruments that govern our indebtedness that would allow us to legally pay dividends and other relevant factors.
The selected consolidated financial data presented below as of and for the years ended March 31, 2012, 2011, 2010 and 2009;2009 and the periods May 16, 2007 through March 31, 2008 and April 1, 2007 through May 15, 2007; as of and for the three months ended March 31, 2007 and as of and for the year ended December 31, 2006 were derived from the audited consolidated financial statements of Novelis Inc. The selected consolidated financial data should be read in conjunction with our consolidated financial statements for the respective periods and the related notes included elsewhere in this Form 10-K.
As of May 15, 2007, all of our common shares were indirectly held by Hindalco; thus, earnings per share data are not reported. Amounts in the table below are in millions, except per share amounts.
| May 16, | April 1, | Three | |||||||||||||||||||||||||||
| 2007 | 2007 | Months | |||||||||||||||||||||||||||
| Year Ended | Through | Through | Ended | Year Ended | |||||||||||||||||||||||||
| March 31, | March 31, | May 15, | March 31, | December 31, | |||||||||||||||||||||||||
| 2011 | 2010 | 2009 | 2008(A) | 2007(A) | 2007(B) | 2006 | |||||||||||||||||||||||
| Successor | Successor | Successor | Successor | Predecessor | Predecessor | Predecessor | |||||||||||||||||||||||
| Net sales | $ | 10,577 | $ | 8,673 | $ | 10,177 | $ | 9,965 | $ | 1,281 | $ | 2,630 | $ | 9,849 | |||||||||||||||
| Net income (loss) attributable to our common shareholder(C) | $ | 116 | $ | 405 | $ | (1,910 | ) | $ | (53 | ) | $ | (97 | ) | $ | (64 | ) | $ | (275 | ) | ||||||||||
| Return of capital per common share(D) | $ | 1,700,000 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 0.20 | |||||||||||||||
| March 31, | March 31, | March 31, | March 31, | March 31, | December 31, | ||||||||||||||||||||
| 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||||
| Successor | Successor | Successor | Successor | Predecessor | Predecessor | ||||||||||||||||||||
| Total assets(A) | $ | 8,296 | $ | 7,762 | $ | 7,567 | $ | 10,737 | $ | 5,970 | $ | 5,792 | |||||||||||||
| Long-term debt (including current portion) | $ | 4,086 | $ | 2,596 | $ | 2,559 | $ | 2,575 | $ | 2,300 | $ | 2,302 | |||||||||||||
| Short-term borrowings | $ | 17 | $ | 75 | $ | 264 | $ | 115 | $ | 245 | $ | 133 | |||||||||||||
| Cash and cash equivalents | $ | 311 | $ | 437 | $ | 248 | $ | 326 | $ | 128 | $ | 73 | |||||||||||||
| Shareholders’/invested equity | $ | 445 | $ | 1,869 | $ | 1,419 | $ | 3,490 | $ | 175 | $ | 195 | |||||||||||||
| Year Ended March 31, | May 16, 2007 Through March 31, | April 1, 2007 Through May 15, | ||||||||||||||||||||||||
| 2012 | 2011 | 2010 | 2009 (B) | 2008(A) (B) | 2007(A) (B) | |||||||||||||||||||||
| Successor | Successor | Successor | Successor | Successor | Predecessor | |||||||||||||||||||||
Net sales | $ | 11,063 | $ | 10,577 | $ | 8,673 | $ | 10,177 | $9,965 | $ | 1,281 | |||||||||||||||
Net income (loss) attributable to our common shareholder | $ | 63 | $ | 116 | $ | 405 | $ | (1,910 | ) | $(53) | $ | (97 | ) | |||||||||||||
Return of capital(C) | $ | — | $ | 1,700 | $ | — | $ | — | $— | $ | — | |||||||||||||||
| March 31, 2012 | March 31, 2011 | March 31, 2010 | March 31, 2009 | March 31, 2008 | ||||||||||||||||
Total assets | $ | 8,021 | $ | 8,296 | $ | 7,762 | $ | 7,567 | $ | 10,737 | ||||||||||
Long-term debt (including current portion) | $ | 4,344 | $ | 4,086 | $ | 2,596 | $ | 2,559 | $ | 2,575 | ||||||||||
Short-term borrowings | $ | 18 | $ | 17 | $ | 75 | $ | 264 | $ | 115 | ||||||||||
Cash and cash equivalents | $ | 317 | $ | 311 | $ | 437 | $ | 248 | $ | 326 | ||||||||||
Shareholder’s/invested equity | $ | 123 | $ | 445 | $ | 1,869 | $ | 1,419 | $ | 3,490 | ||||||||||
| (A) | On May 15, 2007, the Company was acquired by Hindalco through its indirect wholly-owned subsidiary. Our acquisition by Hindalco was recorded in accordance with Staff Accounting Bulletin No. 103,Push Down Basis of Accounting Required in Certain Limited Circumstances |
33
| Business Combinations(FASB 141), the applicable accounting standard at the Arrangement date. Due to the impact of push down accounting, the Company’s selected financial data for the year ended March 31, 2008 are presented in two distinct periods to indicate the application of two different bases of accounting between the periods presented: (1) the period up to, and including, the acquisition date (April 1, 2007 through May 15, 2007, labeled “Predecessor”) and (2) the period after that date (May 16, 2007 through March 31, 2008, labeled “Successor”). The table above includes a black line division which indicates that the Predecessor and Successor reporting entities shown are not comparable. | ||
The consideration paid by Hindalco to acquire Novelis has been pushed down to us and allocated to the assets acquired and liabilities assumed based on our estimates of fair value, using methodologies and assumptions that we believe are reasonable. This allocation of fair value results in additional charges or income to our post-acquisition consolidated statements of operations.
| (B) | ||
| Net income (loss) attributable to our common shareholder for the year ended March 31, 2009 includes non-cash pre-tax impairment charges of $1.5 billion, and certain non-recurring expenses that were incurred related to the acquisition by Hindalco. The |
| (C) | On December 17, 2010, we paid $1.7 billion to our shareholder as a return of capital. |
OVERVIEW AND REFERENCES
Novelis is the world’s leading aluminum rolled products producer based on shipment volume.volume in fiscal 2012. We produce aluminum sheet and light gauge products for use in the packaging market, which includes beverage and food can transportation, electronics, construction and industrial, and foil products, as well as for use in the transportation, electronics, architectural and industrial product markets. We are also the world’s largest recycler of used-beverage cans (UBCs) and have recycling operations in several of our plants to recycle post-consumer aluminum. As of March 31, 2011,2012, we had operations in eleven countries on four continents: 30continents, which include 29 operating plants, seven research and development facilities and 3 recycling facilities.operations in 12 of these plants. In addition to aluminum rolled products plants, our South American businesses include bauxite mining, primary aluminum smelting and power generation facilities. We are the only company of our size and scope focused solely on the aluminum rolled products markets and capable of local supply of technologically sophisticated products in all of these geographic regions.
The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report, particularly in “Special Note Regarding Forward-Looking Statements and Market Data” and “Risk Factors.”
BACKGROUND AND BASIS OF PRESENTATION
Acquisition of Novelis Common Stock
On May 15, 2007, the company was acquired by Hindalco through its indirect wholly-owned subsidiary pursuant to a plan of arrangement (the Arrangement) at a price of $44.93 per share. The aggregate purchase price for all of the company’s common shares was $3.4 billion, and $2.8 billion of Novelis’ debt was also assumed for a total transaction value of $6.2 billion. Subsequent to completion of the Arrangement on May 15, 2007, all of our common shares were indirectly held by Hindalco.
34
HIGHLIGHTS
Shipments of flat rolled products totaled 2,838 kt for fiscal 2012, a decrease of 4% compared to fiscal 2011. These unfavorable declines occurred in our three largest regions: North America, Europe, and Asia. The lower shipments were primarily in our foil stock, light gauge, and industrial products markets.
“Net sales” for fiscal 2012 were $11.1 billion, an increase of 5% compared to the $10.6 billion reported in fiscal 2011. The increase in “Net sales” is the result of higher average aluminum prices and favorable conversion premiums, partially offset by declines in volume, within all our segments in fiscal 2012 compared to prior year.
We reported pre-tax income of $129 million in fiscal 2012 compared to $243 million in fiscal 2011. Included in our pre-tax income is $111 million “Loss on assets held for sale” and $60 million of “Restructuring charges, net” in fiscal 2012 and $84 million “Loss on extinguishment of debt” and $34 million of “Restructuring charges, net” in fiscal 2011.
We reported cash flow provided by operations of $556 million for fiscal 2012, an increase of 22% compared to $454 million in fiscal 2011. The favorable increase was the result of improved working capital due to lower aluminum prices and effective inventory management. We spent $516 million on capital expenditures during fiscal 2012, which is slightly lower than expected, and compares to $234 million in fiscal 2011.
We completed the acquisition of 31.3% of the outstanding shares of our Korean subsidiary for $344 million during the third and fourth quarters of fiscal 2012, raising our ownership to 99%. We funded the acquisition through a $225 million secured term loan executed in December 2011, additional borrowings on our asset backed loan facility and other available cash.
We reported strong available liquidity of $1.0 billion as of March 31, 2012 as compared to available liquidity of $1.1 billion as of March 31, 2011. The decline is attributable to the short-term borrowings made in December 2011 for the acquisition of the outstanding shares of our Korean subsidiary and capital investments made during fiscal 2012 on our expansion projects in Oswego, NY; Pindamonhangaba, Brazil; and South Korea, offset by favorable cash provided by operating activities.
BUSINESS AND INDUSTRY CLIMATE
Global economic uncertainty negatively impacted our regionsflat rolled product shipments in fiscal 2012 compared to prior year, particularly in North America, Europe and Asia. Despite the challenging global economy, our continued focus on the core end-usemarkets of can, automotive, and electronics, along with increases in average aluminum prices, helped drive an increase in “Net sales” in fiscal 2012 compared to prior year. Shipments of beverage and food can products represented 61% of our total rolled product categories duringshipments in fiscal 2012, compared to 58% in fiscal 2011. We operated at or near capacitycontinue to see favorable growth in alldemand for our regions throughout the year. We have seen volumes returnautomotive products and expect this trend to levels enjoyed before the global economic downturn,continue. On a regional basis, we reported record “Segment income” in our North America and we now have an asset configuration that is more focused on our core end-useSouth America operations, due to strong conversion premiums and favorable product categories.
35mix.
(In millions, except Shipments which are in kt)
| Year | Year | |||||||||||||||||||||||||||||||||||||||
| Three Months Ended | Ended | Three Months Ended | Ended | |||||||||||||||||||||||||||||||||||||
| June 30, | Sept 30, | Dec 31, | March 31, | March 31, | June 30, | Sept 30, | Dec 31, | March 31, | March 31, | |||||||||||||||||||||||||||||||
| 2009 | 2009 | 2009 | 2010 | 2010 | 2010 | 2010 | 2010 | 2011 | 2011 | |||||||||||||||||||||||||||||||
(Successor) | ||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 1,960 | $ | 2,181 | $ | 2,112 | $ | 2,420 | $ | 8,673 | $ | 2,533 | $ | 2,524 | $ | 2,560 | $ | 2,960 | $ | 10,577 | ||||||||||||||||||||
| % increase (decrease) in net sales versus comparable previous year period | (37 | )% | (26 | )% | (3 | )% | 25 | % | (15 | )% | 29 | % | 16 | % | 21 | % | 22 | % | 22 | % | ||||||||||||||||||||
Rolled product shipments: | ||||||||||||||||||||||||||||||||||||||||
| North America | 254 | 258 | 243 | 274 | 1,029 | 278 | 285 | 262 | 280 | 1,105 | ||||||||||||||||||||||||||||||
| Europe | 185 | 203 | 188 | 227 | 803 | 232 | 227 | 208 | 240 | 907 | ||||||||||||||||||||||||||||||
| Asia | 130 | 139 | 134 | 129 | 532 | 146 | 134 | 148 | 152 | 580 | ||||||||||||||||||||||||||||||
| South America | 81 | 93 | 84 | 86 | 344 | 90 | 91 | 97 | 99 | 377 | ||||||||||||||||||||||||||||||
| Total | 650 | 693 | 649 | 716 | 2,708 | 746 | 737 | 715 | 771 | 2,969 | ||||||||||||||||||||||||||||||
| Beverage and food cans | 396 | 407 | 371 | 406 | 1,580 | 425 | 429 | 424 | 453 | 1,731 | ||||||||||||||||||||||||||||||
| All other rolled products | 254 | 286 | 278 | 310 | 1,128 | 321 | 308 | 291 | 318 | 1,238 | ||||||||||||||||||||||||||||||
| Total | 650 | 693 | 649 | 716 | 2,708 | 746 | 737 | 715 | 771 | 2,969 | ||||||||||||||||||||||||||||||
| �� | ||||||||||||||||||||||||||||||||||||||||
| Percentage increase (decrease) in rolled products shipments versus comparable previous year period: | ||||||||||||||||||||||||||||||||||||||||
| North America | (11 | )% | (12 | )% | — | % | 11 | % | (4 | )% | 9 | % | 10 | % | 8 | % | 2 | % | 7 | % | ||||||||||||||||||||
| Europe | (32 | )% | (20 | )% | (5 | )% | 21 | % | (12 | )% | 25 | % | 12 | % | 11 | % | 6 | % | 13 | % | ||||||||||||||||||||
| Asia | (2 | )% | 14 | % | 26 | % | 50 | % | 19 | % | 12 | % | (4 | )% | 10 | % | 18 | % | 9 | % | ||||||||||||||||||||
| South America | (7 | )% | 7 | % | (3 | )% | 1 | % | (1 | )% | 11 | % | (2 | )% | 15 | % | 15 | % | 10 | % | ||||||||||||||||||||
| Total | (16 | )% | (8 | )% | 3 | % | 18 | % | (2 | )% | 15 | % | 6 | % | 10 | % | 8 | % | 10 | % | ||||||||||||||||||||
| Beverage and food cans | (5 | )% | (2 | )% | 2 | % | 12 | % | 1 | % | 7 | % | 5 | % | 14 | % | 12 | % | 10 | % | ||||||||||||||||||||
| All other rolled products | (29 | )% | (16 | )% | 3 | % | 27 | % | (7 | )% | 26 | % | 8 | % | 5 | % | 3 | % | 10 | % | ||||||||||||||||||||
| Total | (16 | )% | (8 | )% | 3 | % | 18 | % | (2 | )% | 15 | % | 6 | % | 10 | % | 8 | % | 10 | % | ||||||||||||||||||||
| Three Months Ended | Year Ended | Three Months Ended | Year Ended | |||||||||||||||||||||||||||||||||||||
| June 30, 2010 | September 30, 2010 | December 31, 2010 | March 31, 2011 | March 31, 2011 | June 30, 2011 | September 30, 2011 | December 31, 2011 | March 31, 2012 | March 31, 2012 | |||||||||||||||||||||||||||||||
Net sales | $ | 2,533 | $ | 2,524 | $ | 2,560 | $ | 2,960 | $ | 10,577 | $ | 3,113 | $ | 2,880 | $ | 2,462 | $ | 2,608 | $ | 11,063 | ||||||||||||||||||||
Percentage increase (decrease) in net sales versus comparable previous year period |
| |||||||||||||||||||||||||||||||||||||||
| 29 | % | 16 | % | 21 | % | 22 | % | 22 | % | 23 | % | 14 | % | (4 | )% | (12 | )% | 5 | % | |||||||||||||||||||||
Rolled product shipments: | ||||||||||||||||||||||||||||||||||||||||
North America | 278 | 285 | 262 | 280 | 1,105 | 288 | 274 | 248 | 254 | 1,064 | ||||||||||||||||||||||||||||||
Europe | 232 | 227 | 208 | 240 | 907 | 237 | 227 | 183 | 228 | 875 | ||||||||||||||||||||||||||||||
Asia | 146 | 134 | 148 | 152 | 580 | 152 | 131 | 117 | 124 | 524 | ||||||||||||||||||||||||||||||
South America | 90 | 91 | 97 | 99 | 377 | 90 | 88 | 100 | 97 | 375 | ||||||||||||||||||||||||||||||
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Total | 746 | 737 | 715 | 771 | �� | 2,969 | 767 | 720 | 648 | 703 | 2,838 | |||||||||||||||||||||||||||||
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Beverage and food cans | 425 | 429 | 424 | 453 | 1,731 | 462 | 437 | 404 | 419 | 1,722 | ||||||||||||||||||||||||||||||
All other rolled products | 321 | 308 | 291 | 318 | 1,238 | 305 | 283 | 244 | 284 | 1,116 | ||||||||||||||||||||||||||||||
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Total | 746 | 737 | 715 | 771 | 2,969 | 767 | 720 | 648 | 703 | 2,838 | ||||||||||||||||||||||||||||||
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| Percentage increase (decrease) in rolled products shipments versus comparable previous year period: | ||||||||||||||||||||||||||||||||||||||||
North America | 9 | % | 10 | % | 8 | % | 2 | % | 7 | % | 4 | % | (4 | )% | (5 | )% | (9 | )% | (4 | )% | ||||||||||||||||||||
Europe | 25 | % | 12 | % | 11 | % | 6 | % | 13 | % | 2 | % | — | (12 | )% | (5 | )% | (4 | )% | |||||||||||||||||||||
Asia | 12 | % | (4 | )% | 10 | % | 18 | % | 9 | % | 4 | % | (2 | )% | (21 | )% | (18 | )% | (10 | )% | ||||||||||||||||||||
South America | 11 | % | (2 | )% | 15 | % | 15 | % | 10 | % | — | (3 | )% | 3 | % | (2 | )% | (1 | )% | |||||||||||||||||||||
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Total | 15 | % | 6 | % | 10 | % | 8 | % | 10 | % | 3 | % | (2 | )% | (9 | )% | (9 | )% | (4 | )% | ||||||||||||||||||||
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Beverage and food cans | 7 | % | 5 | % | 14 | % | 12 | % | 10 | % | 9 | % | 2 | % | (5 | )% | (8 | )% | (1 | )% | ||||||||||||||||||||
All other rolled products | 26 | % | 8 | % | 5 | % | 3 | % | 10 | % | (5 | )% | (8 | )% | (16 | )% | (11 | )% | (10 | )% | ||||||||||||||||||||
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Total | 15 | % | 6 | % | 10 | % | 8 | % | 10 | % | 3 | % | (2 | )% | (9 | )% | (9 | )% | (4 | )% | ||||||||||||||||||||
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Business Model and Key Concepts
Conversion Business Model
Most of our business is conducted under a conversion model, which allows us to pass through increases or decreases in the price of aluminum to our customers. Nearly all of our products have a price structure with two components: (i) a pass-through aluminum price based on the LMELondon Metal Exchange (LME) plus local market premiums and (ii) a “conversion premium” price on the conversion cost to produce the rolled product which reflects, among other factors, the competitive market conditions for that product.
Increases or decreases in the LMEaverage price of aluminum directly impact net“Net sales, cost” “Cost of goods sold (exclusive of depreciation and amortization)” and working capital, albeit on a lag basis. The timing of theseThese impacts onare referred to as metal price lag. Metal price lag is caused by inventory and sales and metal purchase costs vary based on contractual arrangements with customers and metal suppliers in each region. Certain ofprice exposure which we actively work to mitigate through our sales contracts contain fixed metal prices for sales in future periods of time, which exposes us to thecomprehensive risk of changes in LME prices. In addition, we are exposedmanagement practices. Metal price lag is attributable to fluctuating metal prices on our purchases of inventory associated with the period of time between the pricing of our purchases of inventory and the shipmentpricing of that inventory to our customers. Timing differences also occur inSpecifically, a portion of our metal purchases are based on average prices for a period of time prior to the period at which we order the metal. Further, there is a period of time between when we place an order for metal, when we receive it and when we price the finished products which will be shipped to our customers. Additionally, a cost recognition delay occurs due to the flow of metal costs through moving average inventory cost values and cost“Cost of goods sold (exclusive of depreciation and amortization). We refer to” The recognition of these timing differences collectively asin sales and metal costs vary based on contractual arrangements with customers and metal suppliers in each region. We discuss this metal price lag.
We also have exposure to foreign currency risk associated with sales made in currencies that differ from those in which we are paying our conversion costs. For example, sales in Brazil are generally priced in USU.S. dollars, but the majority of our conversion costs are paid in Brazilian real. We discuss this foreign currency risk further below.
36
| Percent Change | ||||||||||||||||||||
| Year Ended | Year Ended | |||||||||||||||||||
| March 31, 2011 | March 31, 2010 | |||||||||||||||||||
| Year Ended March 31, | versus | versus | ||||||||||||||||||
London Metal Exchange Prices | 2011 | 2010 | 2009 | March 31, 2010 | March 31, 2009 | |||||||||||||||
| Aluminum (per metric tonne, and presented in U.S. dollars): | ||||||||||||||||||||
| Closing cash price as of beginning of period | $ | 2,288 | $ | 1,366 | $ | 2,935 | 67 | % | (53 | )% | ||||||||||
| Average cash price during period | $ | 2,257 | $ | 1,866 | $ | 2,227 | 21 | % | (16 | )% | ||||||||||
| Closing cash price as of end of period | $ | 2,600 | $ | 2,288 | $ | 1,366 | 14 | % | 67 | % | ||||||||||
| Percent Change | ||||||||||||||||||||
| Year Ended March 31, | Year Ended March 31, 2012 versus | Year Ended March 31, 2011 versus | ||||||||||||||||||
London Metal Exchange Prices | 2012 | 2011 | 2010 | March 31, 2011 | March 31, 2010 | |||||||||||||||
Aluminum (per metric tonne, and presented in U.S. dollars): | ||||||||||||||||||||
Closing cash price as of beginning of period | $ | 2,600 | $ | 2,288 | $ | 1,366 | 14 | % | 67 | % | ||||||||||
Average cash price during period | $ | 2,318 | $ | 2,257 | $ | 1,866 | 3 | % | 21 | % | ||||||||||
Closing cash price as of end of period | $ | 2,099 | $ | 2,600 | $ | 2,288 | (19 | )% | 14 | % | ||||||||||
Although aluminum prices declined approximately $500 per ton during fiscal 2012, average aluminum prices were fairlyapproximately $60 per ton higher in fiscal 2012 compared fiscal 2011. Aluminum prices had a steady decline from April 2011 through December 2011; recovered slightly in January and February of 2012; and then fell again in March 2012. The higher average price of aluminum resulted in $25 million of unrealized losses on undesignated metal derivatives recorded through our statement of operations during the first eight months of fiscal 2011, fluctuating within a $200 per tonne band, and then increasing steadily after November to $2,600 onyear ended March 31, 2011. This compares2012, while the underlying related exposure will be realized in a future period. We deferred losses of $24 million on designated metal hedges during the year ended March 31, 2012, which are expected to be released into our statement of operations in the dramatic decreases in LME prices in fiscal 2009 and increases in fiscal 2010. As a result, we recorded $5 million and $123 million of net gains on changes in fair value of metal derivatives during fiscal 2011 and fiscal 2010, respectively, as compared to $561 million of net losses on changes in fair value of metal derivatives during fiscal 2009.
Metal Derivative Instruments
We use derivative instruments to preserve our conversion margin and manage the timing differences associated with metal price lag. We sell short-term LME aluminum forward contracts to reduce our exposure to fluctuating metal prices associated with the period of time between the pricing of our purchases of inventory and the pricing of that inventory to our customers. These LME aluminum forward contracts directly hedge the economic risk of future metal price fluctuations on our inventory to synthetically ensure we sell metal for the same price at which we purchase metal.
Fixed Forward Price Commitments
For some select customers, we enter into fixed forward metal purchases simultaneous with theprice commitments. This results in fixed forward price exposure in certain sales contracts that contain fixed metal prices for sales in future periods of time. The impact of fixed priced sales contracts is recognized in revenue during the period in which the sale occurs.
We eliminate any risk by purchasing LME aluminum forward contracts simultaneous with our sales contracts to customers that contain fixed metal prices. These LME aluminum forward metal purchasescontracts directly hedge the economic risk of future metal price fluctuation associatedattributable to the fixed forward price exposure combined with these contracts. hedges of metal price lag to synthetically help ensure we purchase metal for the same price at which we agree to sell metal.
The recognition of unrealized gains and losses on undesignated metal derivative positions typically precedes inventory cost recognition, customer delivery, and revenue recognition, underand the relatedrealized gains or losses of the fixed forward priced contracts. The timing difference between the recognition of unrealized gains and losses on undesignated metal derivatives and cost or revenue recognition impacts income“Income before income taxestaxes” and net“Net income.” Gains and losses on metal derivative contracts are not recognized in segment income“Segment income” until realized.
We settle derivative contracts in advance of billing on the underlying physical inventory and collecting from our customers, which temporarily impacts our liquidity position. The lag between derivative settlement and customer collection typically ranges from 30 to 6090 days.
Metal Price Ceilings
In the past, we had contracts that contained a ceiling over which metal prices could not be contractually passed through to certain customers. The last of these contracts expired on December 31, 2009, and we entered into a new multi-year agreement to continue supplying similar volumes to the same customer. This new agreement became effective January 1, 2010, and does not contain a metal price ceiling.
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Energy swaps
We use natural gas swaps to manage our exposure to fluctuating natural gas prices in North America. We also own an interest in an electricity swap which we designated as a cash flow hedge of our exposure to fluctuating electricity prices. In fiscal 2011, due to significant credit deterioration of our counterparty, we discontinued hedge accounting for the electricity swap. As a result of declining natural gas prices and electricity prices during fiscal 2012, we recorded $25 million of unrealized losses on undesignated energy swaps during the year ended March 31, 2011.
Foreign Exchange Impact
We operate a global business and conduct business in various currencies around the world. Fluctuations in foreign exchange rates also impact our operating results. We recognize foreign exchange gains and losses when business transactions are denominated in currencies other than the functional currency of that operation. The following table presents the exchange rates for significant currencies in which we conduct business as of the end of each period as well as the average of the month-end exchange rates for each of the past three fiscal years.
| Exchange Rate as of | Average Exchange Rate | |||||||||||||||||||||||
| March 31, | Year Ended March 31, | |||||||||||||||||||||||
| 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||||||||
| U.S. dollar per Euro | 1.419 | 1.353 | 1.328 | 1.325 | 1.414 | 1.411 | ||||||||||||||||||
| Brazilian real per U.S. dollar | 1.627 | 1.784 | 2.301 | 1.718 | 1.861 | 1.982 | ||||||||||||||||||
| South Korean won per U.S. dollar | 1,107 | 1,131 | 1,337 | 1,151 | 1,213 | 1,221 | ||||||||||||||||||
| Canadian dollar per U.S. dollar | 0.971 | 1.014 | 1.258 | 1.021 | 1.085 | 1.134 | ||||||||||||||||||
| Exchange Rate as of March 31, | Average Exchange Rate Year Ended March 31, | |||||||||||||||||||||||
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |||||||||||||||||||
U.S. dollar per Euro | 1.335 | 1.419 | 1.353 | 1.385 | 1.325 | 1.414 | ||||||||||||||||||
Brazilian real per U.S. dollar | 1.823 | 1.627 | 1.784 | 1.696 | 1.718 | 1.861 | ||||||||||||||||||
South Korean won per U.S. dollar | 1,138 | 1,107 | 1,131 | 1,111 | 1,151 | 1,213 | ||||||||||||||||||
Canadian dollar per U.S. dollar | 0.997 | 0.971 | 1.014 | 0.992 | 1.021 | 1.085 | ||||||||||||||||||
During fiscal 2012, the U.S. dollar strengthened against all the local currencies in our regions. In Europe and Asia, the strengthening of the U.S. dollar resulted in foreign exchange losses as these operations are recorded in the local currency. In Brazil, where the U.S. dollar is the functional currency due to predominately U.S. dollar selling prices, we recognized foreign exchange gains as the Brazilian real denominated liabilities were remeasured to the U.S. dollar.
We use foreign exchange forward contracts and cross-currency swaps to manage our exposure to changes in exchange rates. These exposures arise from recorded assets and liabilities, firm commitments and forecasted cash flows denominated in currencies other than the functional currency of certain operations, which includes capital expenditures. The movement of currency exchange rates during fiscal 2012 resulted in $15 million of unrealized losses on undesignated foreign currency derivatives, other than foreign currency remeasurement, during the year ended March 31, 2012, while the underlying related exposure will be realized in a future period. We deferred unrealized losses of $29 million on designated foreign currency hedges during the year ended March 31, 2012, which are expected to be released into our statement of operations in the same period the underlying related exposure is recognized.
During fiscal 2011 and fiscal 2010, the U.S. dollar weakened as compared to the local currency in all our regions. In Europe and Asia, the weakening of the U.S. dollar resulted in foreign exchange gains as these operations use the local currency as the functional currency. In North America and Brazil, where the U.S. dollar is the functional currency due to predominantly U.S. dollar selling prices and metal costs, andbut where have local currency operating costs, we incurred foreign exchange losses.
Gains and losses on foreign exchange forward contracts and cross-currency swaps are not recognized in “Segment income” until realized, except for foreign currency remeasurement derivatives which are recognized in “Segment income” throughout the local currency in all regions during fiscal 2010. In Europe and Asia, the weakeninglife of the U.S. dollar resulted in foreign exchange gains as these operations are recorded in local currency. In North America and Brazil, where the U.S. dollar is the functional currency due to predominantly U.S. dollar selling prices and local currency operating costs, we incurred foreign exchange losses as the U.S. dollar weakened.
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Year Ended March 31, 20112012 Compared with the Year Ended March 31, 20102011
We experiencedreported strong demand across all our regions duringoperating results in fiscal 2012 despite the year ended March 31, 2011,global market pressures we continue to experience. Our premium product portfolio, long-term customer base and are operating at or near capacity in all regions. Net salesbusiness model enabled us to produce solid results for fiscal 2012. “Net sales” for the year ended March 31, 20112012 increased $1.9 billion,$486 million, or 22%5%, as compared to the year ended March 31, 2010 primarilyfiscal 2011 as a result of increasesimproved conversion premiums on our flat rolled products and higher average aluminum prices, partially offset by a decline in LME prices and volumes. The prior year sales amount includes $152 million of non-cash accretion on can price ceiling contracts which did not benefit the current year.
“Cost of goods sold (exclusive of depreciation and amortization)” for the year ended March 31, 20112012 increased $2.0 billion,$516 million, or 28%6%, as compared to fiscal 2011, which reflects the higher average aluminum prices and increased input cost pressures.
“Income before income taxes” for the year ended March 31, 20102012 was $129 million, a decrease of $114 million, or 47%, compared to fiscal 2011. In addition to the effects from operations discussed above, the following items affected “Income before income taxes”:
$329 million of “Depreciation and amortization” in fiscal 2012, which reflectsdeclined as compared to $404 million in fiscal 2011 as a result of groups of our fixed assets reaching their fully depreciated balances since our purchase by Hindalco and reduced depreciation as a result of certain facility shut-downs over the past several years;
$305 million of “Interest expense and amortization of debt issuance costs” in fiscal 2012 as compared to $207 million in fiscal 2011 as a result of our higher LME pricesdebt balances and increased volume. Increased input cost pressures wereamortization of debt issuance costs from refinancing our debt in the third quarter of fiscal 2011;
$111 million of “Loss on assets held for sale” in fiscal 2012 related to the planned sale of three foil plants in Europe. The transaction is a step in aligning our growth strategy on the higher-volume, premium markets of beverage cans, automobiles and electronics and specialty products;
$60 million of “Restructuring charges, net” in fiscal 2012 primarily related to an impairment on the planned closure of our Saguenay plant, severance across our European plants, severance related to the restructuring of our lithographic sheet operations in our Göttingen, Germany facility, and restructuring at our Santo Andre plant in Brazil, partially offset by the reversal the outstanding environmental contingencies of $21 million related to the final sale of the Rogerstone facility. The $34 million of “Restructuring charges, net” in fiscal 2011 related to the move of our prior sustained cost cutting measures.North American headquarters to Atlanta, Georgia and the announced shutdowns of our Bridgnorth, UK and Aratu, Brazil facilities. These restructuring initiatives were implemented to align our operations with our global strategy of focusing on our core premium products and to optimize our global capacity;
$84 million of “Loss on early extinguishment of debt” related to a series of refinancing transactions executed and recorded in fiscal 2011;
foreign currency (losses) gains, net of related derivatives, of $(11) million in fiscal 2012 compared to $1 million of gains in fiscal 2011;
unrealized losses related to changes in the fair value of undesignated derivatives, other than foreign currency remeasurement, was $62 million for fiscal 2012 as compared to unrealized losses of $64 million for fiscal 2011; and
realized gains of $130 million in fiscal 2012 were comprised of changes in fair value of undesignated derivatives other than foreign currency remeasurement as compared to $107 million of realized gains on realized derivatives during the year ended March 31, 2011, $5 million of which were deferred in Other comprehensive income (loss), as compared to $384 million of losses on realized derivatives during the same period of the prior year.fiscal 2011. These amounts are reported in Gain (loss) on change in fair value of derivative instruments, net“Other (income) expense, net” and offset year-over-year impacts of changes in metal prices, foreign currency exchange rates and other input costs on Net sales“Net sales” and Cost“Cost of goods sold (exclusive of depreciation and amortization).”
We reported a $39 million “Income tax provision” in fiscal 2012 compared to $83 million in fiscal 2011. We reported “Net income taxesattributable to our common shareholder” of $63 million for the year ended March 31, 2011 was $243 million, a decrease of $484 million, or 67%,2012 as compared to the $727$116 million reported in fiscal 2010. The positive effects from operations discussed above were more than offset by the following items:
Segment Review
Due in part to the regional nature of supply and demand of aluminum rolled products and in order to best serve our customers, we manage our activities on the basis of geographical areas and are organized under four operating segments: North America, Europe, Asia and South America. We were at or near capacity in all our regions for the majority of fiscal 2011 as we continue to look at ways to debottleneck our operations and optimize our product portfolio and footprint.
We measure the profitability and financial performance of our operating segments based on Segment“Segment income. Segment income” “Segment income” provides a measure of our underlying segment results that is in line with our portfolio approach to risk management. We define Segment income“Segment income” as earnings before (a) depreciation“depreciation and amortization;amortization”; (b) interest“interest expense and amortization of debt issuance costs;costs”; (c) interest income;“interest income”; (d) unrealized gains (losses) on change in fair value of derivative instruments, net;net, except for foreign currency derivatives on our foreign currency balance sheet exposures, which are included in segment income; (e) impairment“impairment of goodwill;goodwill”; (f) impairment charges on long-lived assets (other than goodwill); (g) gain or loss on extinguishment of debt; (h) noncontrolling interests’ share;
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Adjustment to Eliminate Proportional Consolidation.The financial information for our segments includes the fourth quarter of fiscal 2011, we made a decision to change the manner in which we evaluate and report the Company’s business segments, allocating the costsresults of our corporate center to our regional businesses in North America, Europe, Asia and South America. Corporate center costs were allocated to each region basedaffiliates on a blended weightingproportionately consolidated basis, which is consistent with the way we manage our business segments. In order to reconcile the financial information for the segments shown in the tables below to the relevant U.S. GAAP-based measures, we must adjust proportional consolidation of scale, capital intensityeach line item. See Note 8— Consolidation and human capital. We have recast all of our historical segment disclosures, including segment income,Note 9 — Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for all periods presented in this Form 10-K.
The tables below show selected segment financial information (in millions, except shipments which are in kt). For additional financial information related to our operating segments, see Note 1920 — Segment, Geographical area, Major Customer and Major Supplier Information.
| Selected Operating Results | North | South | ||||||||||||||||||||||
Year Ended March 31, 2011 | America | Europe | Asia | America | Eliminations | Total | ||||||||||||||||||
| Net sales | $ | 3,922 | $ | 3,589 | $ | 1,866 | $ | 1,214 | $ | (14 | ) | $ | 10,577 | |||||||||||
| Shipments: | ||||||||||||||||||||||||
| Rolled products | 1,105 | 907 | 580 | 377 | — | 2,969 | ||||||||||||||||||
| Ingot products | 16 | 69 | 1 | 42 | — | 128 | ||||||||||||||||||
| Total shipments | 1,121 | 976 | 581 | 419 | — | 3,097 | ||||||||||||||||||
| Selected Operating Results | North | South | ||||||||||||||||||||||
Year Ended March 31, 2010 | America | Europe | Asia | America | Eliminations | Total | ||||||||||||||||||
| Net sales | $ | 3,292 | $ | 2,975 | $ | 1,501 | $ | 948 | $ | (43 | ) | $ | 8,673 | |||||||||||
| Shipments: | ||||||||||||||||||||||||
| Rolled products | 1,029 | 803 | 532 | 344 | — | 2,708 | ||||||||||||||||||
| Ingot products | 34 | 81 | 2 | 29 | — | 146 | ||||||||||||||||||
| Total shipments | 1,063 | 884 | 534 | 373 | — | 2,854 | ||||||||||||||||||
Selected Operating Results | North America | Europe | Asia | South America | Eliminations and other | Total | ||||||||||||||||||
Net sales | $ | 3,967 | $ | 3,840 | $ | 1,830 | $ | 1,278 | $ | 148 | $ | 11,063 | ||||||||||||
Shipments: | ||||||||||||||||||||||||
Rolled products | 1,064 | 875 | 524 | 375 | — | 2,838 | ||||||||||||||||||
Ingot products | 15 | 75 | 12 | 42 | — | 144 | ||||||||||||||||||
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Total shipments | 1,079 | 950 | 536 | 417 | — | 2,982 | ||||||||||||||||||
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Selected Operating Results | North America | Europe | Asia | South America | Eliminations and other | Total | ||||||||||||||||||
Net sales | $ | 3,760 | $ | 3,589 | $ | 1,866 | $ | 1,214 | $ | 148 | $ | 10,577 | ||||||||||||
Shipments: | ||||||||||||||||||||||||
Rolled products | 1,105 | 907 | 580 | 377 | — | 2,969 | ||||||||||||||||||
Ingot products | 16 | 69 | 1 | 42 | — | 128 | ||||||||||||||||||
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Total shipments | 1,121 | 976 | 581 | 419 | — | 3,097 | ||||||||||||||||||
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The following table reconciles changes in Segment income“Segment income” for the year ended March 31, 20102011 to the year ended March 31, 20112012 (in millions). Variances include the related realized derivative gain or loss.
| North | South | |||||||||||||||||||
Changes in Segment Income | America | Europe | Asia | America | Total | |||||||||||||||
| Segment income — year ended March 31, 2010 | $ | 292 | $ | 212 | $ | 154 | $ | 97 | $ | 755 | ||||||||||
| Volume | 59 | 64 | 22 | 24 | 169 | |||||||||||||||
| Conversion premium and product mix | 26 | 22 | 36 | 36 | 120 | |||||||||||||||
| Conversion costs(A) | 51 | (15 | ) | (21 | ) | 8 | 23 | |||||||||||||
| Metal price lag | (7 | ) | 42 | 15 | 11 | 61 | ||||||||||||||
| Foreign exchange | (20 | ) | (16 | ) | 29 | (21 | ) | (28 | ) | |||||||||||
| Primary metal production | — | — | — | 5 | 5 | |||||||||||||||
| Other changes(B) | (19 | ) | 4 | (10 | ) | (8 | ) | (33 | ) | |||||||||||
| Segment income — year ended March 31, 2011 | $ | 382 | $ | 313 | $ | 225 | $ | 152 | $ | 1,072 | ||||||||||
Changes in Segment Income | North America | Europe | Asia | South America | Total | |||||||||||||||
Segment income — year ended March 31, 2011 | $ | 382 | $ | 313 | $ | 225 | $ | 152 | $ | 1,072 | ||||||||||
Volume | (24 | ) | (30 | ) | (37 | ) | (2 | ) | (93 | ) | ||||||||||
Conversion premium and product mix | 67 | 48 | 46 | 42 | 203 | |||||||||||||||
Conversion costs(A) | (23 | ) | (26 | ) | (38 | ) | (25 | ) | (112 | ) | ||||||||||
Metal price lag | 20 | (28 | ) | — | (8 | ) | (16 | ) | ||||||||||||
Foreign exchange | (11 | ) | 2 | (16 | ) | 28 | 3 | |||||||||||||
Primary metal production | — | — | — | 7 | 7 | |||||||||||||||
Other changes(B) | (4 | ) | 5 | 1 | (13 | ) | (11 | ) | ||||||||||||
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Segment income — year ended March 31, 2012 | $ | 407 | $ | 284 | $ | 181 | $ | 181 | $ | 1,053 | ||||||||||
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| (A) | Conversion costs include expenses incurred in production such as direct and indirect labor, energy, freight, scrap usage, alloys and hardeners, coatings, alumina, melt loss, the incremental benefit of used beverage cans (UBCs) and other | |
| (B) | Other changes include selling, general & administrative costs and research and development for all segments and certain other items which impact one or more |
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As of March 31, 2011,2012, our North American operations manufactured aluminum sheet and light gauge products through eleven11 operating plants, including two dedicated recycling facilities.operations in 4 plants. Important end-use applications include beverage cans, containers and packaging, automotive and other transportation applications and other industrial applications.
Our North American operations reported strong operating results in fiscal 2012 compared to prior year, although we experienced strongsome softness in our can business and a decline in demand across all sectors with increased volumes in can, automotive and other industrial productsfor our light gauge products. “Net sales” for the year ended March 31, 2012 was $4.0 billion, up 6% as compared to $3.8 billion for the year ended March 31, 2011. This reflects higher average aluminum prices and strong conversion premiums as a result of focusing on our core premium products, offset by a net decline of 41 kt in flat rolled shipments compared to prior year. Shipments of flat rolledThe decline in shipments was primarily in our can and light gauge products, partially offset by higher shipments in fiscal 2011 increasedour automotive products.
“Segment income” for the year ended March 31, 2012 was $407 million, up 7% as compared to a year ago, with each quarter seeing an increase in volumes shipped as compared to the same period lastprior year. Net sales for fiscal 2011 were up $630 million, or 19%, as compared to fiscal 2010 reflecting the strong demand previously mentioned as well as higher LME prices. This increase is despite the fact that net sales for fiscal 2010 included $152 million of accretion on canwas primarily due to improved conversion premiums and favorable changes in metal price ceiling contractslag offset by $128 million of derivatives related to those contracts.
Europe
As of March 31, 2011,2012, our European segment provided European markets, and to a lesser extent Asia, with value-added sheet and light gauge products through 12 aluminum rolled products facilities and one dedicatedoperating plants, including recycling facility.operations in 5 plants. Europe serves a broad range of aluminum rolled product end-use markets in various applications including beverage and food can, automotive, lithographic, foil products and painted products.
Our European operations have experienced strong demand acrosssegment reported solid operating results driven by our continued focus on our core end-use markets with the can sector providing particularly strong results and the premium car market remaining firm. Flatproducts. Despite a challenging economic environment, we experienced an increase in flat rolled product shipments in our can and net sales were up 13%automotive products and 21%, respectively, asimproved conversion premiums for fiscal 2012 compared to fiscal 20102011. We experienced declines in volumes of our industrial, light gauge and foil products, which resulted in an overall net decline of 32 kt in our flat rolled product shipments in fiscal 2012 compared to fiscal 2011. “Net sales” for the year ended March 31, 2012 was $3.8 billion, up 7% compared to $3.6 billion for the year ended March 31, 2011. The increase in “Net sales” reflects higher average LMEaluminum prices, and volume and mix improvement as a result of strong demand. Our facilities operated at or near capacity for fiscal 2011.
“Segment income” for the year ended March 31, 2012 was $284 million, down 9% compared prior year. Improved volume, conversion premiums, product mix and favorable changes in metal price lag more than offset increases inyear, resulting from lower volumes, higher conversion costs, and the negative effecteffects of changesmetal price lag. Higher conversion costs compared to prior year resulted from an increase in foreign currency exchange ratesthe costs to the U.S. dollarprocess scrap and Euro.
Asia
As of March 31, 2011, Asia operated three manufacturing facilities2012, our Asian segment has 3 operating plants, including recycling operations in 2 plants, with production balanced between beverage and food can, construction and industrialspecialty (including electronics) and foil end-use applications.
“Net sales increased $365 millionsales” for the year ended March 31, 20112012 decreased $36 million, or 2%, as compared to the prior year primarily as a resultfiscal 2011 reflecting lower volumes of our flat rolled products, offset by higher LMEaverage aluminum prices and increased volume.
“Segment income” for the U.S. dollar more than offset increases in conversion costs. Other changes reflect the negative effects of higher selling, general and administrative costsyear ended March 31, 2012 was $181 million, down 20% as compared to prior year.
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As of March 31, 2012, our South American segment included 3 operating plants in Brazil, which includes one plant with recycling operations, one primary aluminum smelter and hydroelectric power generation facilities. Our South American operations in South America manufactureproduce various aluminum rolled products for the beverage and food can, construction and industrial and transportation end-use markets. The previously announced expansion of our Pinda facility in Brazil is expected to be commissioned at the end of calendar year 2012. Additionally, we have announced plans to install a new coating line for beverage can end stock and to expand recycling capacity in our Pindamonhangaba, Brazil facility.
Our South AmericanAmerica operations included two rolling plants in Brazil along with one smelter, power generation facilities and bauxite mines as ofhad positive operating results for the year ended March 31, 2011.
“Segment incomeincome” for fiscal 2011the year ended March 31, 2012 was $152$181 million, up $55an increase of $29 million, or 19%, as compared to the prior year. Improved volumes, conversion premiums, reductions of conversion costs and favorable metal price lag more than offset the negativepositive effects of changes in foreign currency exchange rates, and favorable variance in our primary metal production were partially offset by unfavorable metal price lag, higher selling,UBC and scrap prices, increased melt loss, and higher costs for alloys and hardeners. Other changes include higher general and administrative costs. Increased segment income of the primary business reflects the higher LME prices, offset by increased energy and alumina costs.
Reconciliation of segment results to Net“Net income attributable to our common shareholdershareholder”
Costs such as depreciation and amortization, interest expense and unrealized gains (losses) on changes in the fair value of derivatives, except foreign currency derivatives on our foreign currency balance sheet exposures, are not utilized by our chief operating decision maker in evaluating segment performance. The table below reconciles income“Segment income” from reportable segments to Net“Net income attributable to our common shareholdershareholder” for the year ended March 31, 20112012 and 20102011 (in millions).
| Year Ended March 31, | ||||||||
| 2011 | 2010 | |||||||
| North America | $ | 382 | $ | 292 | ||||
| Europe | 313 | 212 | ||||||
| Asia | 225 | 154 | ||||||
| South America | 152 | 97 | ||||||
| Total Segment income | 1,072 | 755 | ||||||
| Depreciation and amortization | (404 | ) | (384 | ) | ||||
| Interest expense and amortization of debt issuance costs | (207 | ) | (175 | ) | ||||
| Interest income | 13 | 11 | ||||||
| Unrealized gains (losses) on change in fair value of derivative instruments, net | (64 | ) | 578 | |||||
| Realized gains on derivative instruments not included in segment income | 5 | — | ||||||
| Adjustment to eliminate proportional consolidation | (45 | ) | (52 | ) | ||||
| Loss on extinguishment of debt | (84 | ) | — | |||||
| Restructuring charges, net | (34 | ) | (14 | ) | ||||
| Other costs, net | (9 | ) | 8 | |||||
| Income (loss) before income taxes | 243 | 727 | ||||||
| Income tax provision (benefit) | 83 | 262 | ||||||
| Net income (loss) | 160 | 465 | ||||||
| Net income (loss) attributable to noncontrolling interests | 44 | 60 | ||||||
Net income (loss) attributable to our common shareholder | $ | 116 | $ | 405 | ||||
| Year Ended March 31, | ||||||||
| 2012 | 2011 | |||||||
North America | $ | 407 | $ | 382 | ||||
Europe | 284 | 313 | ||||||
Asia | 181 | 225 | ||||||
South America | 181 | 152 | ||||||
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Total Segment income | 1,053 | 1,072 | ||||||
Depreciation and amortization | (329 | ) | (404 | ) | ||||
Interest expense and amortization of debt issuance costs | (305 | ) | (207 | ) | ||||
Interest income | 15 | 13 | ||||||
Unrealized gains (losses) on change in fair value of derivative instruments, net | (62 | ) | (64 | ) | ||||
Realized gains on derivative instruments not included in segment income | 1 | 5 | ||||||
Adjustment to eliminate proportional consolidation | (49 | ) | (45 | ) | ||||
Loss on extinguishment of debt | — | (84 | ) | |||||
Restructuring charges, net | (60 | ) | (34 | ) | ||||
Loss on assets held for sale | (111 | ) | — | |||||
Other costs, net | (24 | ) | (9 | ) | ||||
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Income before income taxes | 129 | 243 | ||||||
Income tax provision | 39 | 83 | ||||||
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Net income | 90 | 160 | ||||||
Net income attributable to noncontrolling interests | 27 | 44 | ||||||
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Net income attributable to our common shareholder | $ | 63 | $ | 116 | ||||
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“Depreciation and amortization” decreased $75 million primarily as a result of facilities that have been shut-down and are no longer being depreciated, as well as assets which became fully depreciated as they reached the end of the useful lives assigned at the time of the purchase of Novelis by Hindalco.
“Interest expense and amortization of debt issuance costscosts” increased by $98 million primarily due to a higher average principal balance after thedebt balances and higher capitalized debt issuance costs as a result of refinancing of our debt offset by lower average interest rates on our variable rate debt forin the majoritythird quarter of the year.
“Adjustment to eliminate proportional consolidation was a $45 million loss for fiscal 2011 as compared to a $52 million loss in
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“Unrealized gains (losses) on change in December 2010 and related exchange offer in March 2011, including fees paid to lenders, arrangers and outside professionals such as attorneys and rating agencies. Approximately $84 million of these fees, existing unamortized fees, discounts and fair value adjustments associated with the old debt were expensedof derivative instruments, net” is comprised of unrealized gains and included in the losses on undesignated derivatives other than foreign currency remeasurement.
“Loss on early extinguishment of debt.debt” in the third quarter of fiscal year 2011 related to a series of debt refinancing transactions completed in December 2010.
“Restructuring charges, net” in fiscal 2012 primarily related to the impairment on our Saguenay plant, severance across our European plants, including the closure of one lithographic sheet line, and restructuring at our Santo Andre plant in Brazil, offset by a reversal of environmental contingencies related to the final sale of our plant in Rogerstone facility in South Wales, U.K. The remaining fees paid and the remaining unamortized fees, discounts and fair value adjustments associated with the old debt were capitalized and will be amortized as an increase to interest expense over the term$34 million of the related debt, ranging from five to ten years. See Note 10 — Debt for a further discussion of the refinancing and related accounting.
“Loss on assets held for sale” in fiscal 2012 related to the planned sale of three foil plants in Europe.
“Other costs, net” in fiscal 2012 relates primarily to losses on the Brazil tax litigation of $13 million, new taxes on derivative transactions in Brazil of $8 million, and losses on sale of assets of $3 million. See Note 19 - Commitments and contingencies for further discussion on the Brazil tax matters.
We have experienced significant fluctuations in income“Income tax expenseprovision” and the corresponding effective tax rate. The primary factors contributing to the effective tax rate differing from the statutory Canadian rate include:
Our functional currency in Brazil is | |||
We have significant net deferred tax liabilities in Brazil that are remeasured to account for currency fluctuations as the taxes are payable in local currency.
Our income is taxed at various statutory tax rates in varying jurisdictions. Applying the corresponding amounts of income and loss to the various tax rates results in differences when compared to our Canadian statutory tax rate.
We record increases and decreases to valuation allowances primarily related to tax losses in certain jurisdictions where we believe it is more likely than not that we will be unable to utilize those losses.
We have certain permanent tax differences that impact our effective tax rate, including a benefit from non-taxable dividends.
In fiscal 2012, we recorded a $39 million “Income tax provision” on our pre-tax income of $142 million, before our equity in net loss of non-consolidated affiliates, which represented an effective tax rate of 27%. Our effective tax rate differs from the expense at the Canadian statutory rate primarily due to the following factors: (1) a $9 million benefit for pre-tax foreign currency gains or losses with no tax effect and the tax effect of U.S. dollar denominated currency gains or losses with no pre-tax effect, (2) a $26 million benefit for exchange remeasurement of deferred income taxes, (3) a $117 million increase in valuation allowances primarily related to tax losses in certain jurisdictions where we believe it is more likely than not that we be unable to utilize those losses, (4) a $52 million benefit from non-taxable dividends, (5) a $4 million benefit from differences between the Canadian statutory and foreign effective tax rates applied to entities in different jurisdictions, and (6) a $23 million benefit related to a decrease in uncertain tax positions.
In fiscal 2011, we recorded an $83 million income“Income tax provisionprovision” on our pre-tax income of $255 million, before our equity in net income of non-consolidated affiliates, which represented an effective tax rate of 33%. Our effective tax rate differs from the expense at the Canadian statutory rate primarily due to the following factors: (1) a $20 million expense for exchange remeasurement of deferred income taxes, (2) a $50 million increase in valuation allowances primarily related to tax losses in certain jurisdictions where we believe it is more likely than not that we will not be ableunable to utilize those losses, largely offset by a $49 decrease in our valuation allowance in the U.K. based on expectations of future taxable income, (3) a $15 million benefit from non-taxable dividends, (4) a $6 million benefit from differences between the Canadian statutory and foreign effective tax rates applied to entities in different jurisdictions, and (5) a $6 million expense related to increase in uncertain tax positions.
Year Ended March 31, 2011 Compared with the Year Ended March 31, 2010
We experienced strong demand across all our regions during the year ended March 31, 2011, and were operating at or near capacity in all regions. “Net sales” for the year ended March 31, 2011 increased $1.9 billion, or 22%, as compared to the year ended March 31, 2010 primarily as a result of increases in aluminum prices and volumes. The fiscal 2010 “Net sales” includes $152 million of non-cash accretion on can price ceiling contracts which did not benefit the fiscal 2011.
“Cost of goods sold (exclusive of depreciation and amortization)” for the year ended March 31, 2011 increased $2.0 billion, or 28%, as compared to the year ended March 31, 2010 which reflects higher aluminum prices and increased volume. Increased input cost pressures were partially offset by our prior sustained cost cutting measures.
“Income before income taxes” for the year ended March 31, 2011 was $243 million, a decrease of $484 million, or 67%, compared to the $727 million reported in fiscal 2010. In addition to the effects from operations discussed above, the following items affected “Income before income taxes:”
$34 million of “Restructuring charges, net” for the year ended March 31, 2011 primarily as a result of the move of our North American headquarters to Atlanta, Georgia and the announced shutdowns of our Bridgnorth, UK and Aratu, Brazil facilities, as compared to $14 million of restructuring charges for the year ended March 31, 2010
$84 million of “Loss on early extinguishment of debt” related to a series of refinancing transactions executed and recorded during the year ended March 31, 2011
foreign exchange gains of $1 million in fiscal 2011 compared to gains of $15 million in fiscal 2010
unrealized losses related to changes in the fair value of undesignated derivatives in $64 million compared to $578 million in unrealized gains in fiscal 2010
realized gains of $107 million in fiscal 2011 comprised of changes in fair value of undesignated derivatives as compared to $384 million of realized losses in fiscal 2010. These amounts are reported in “Other (income) expense, net” and offset year-over-year impacts of changes in metal prices, foreign currency exchange rates and other input costs on “Net sales” and “Cost of goods sold (exclusive of depreciation and amortization).”
We reported “Net income attributable to our common shareholder” of $116 million for fiscal 2011 as compared to “Net income attributable to our common shareholder” of $405 million for fiscal 2010, primarily as a result of the factors discussed above. We also recorded an “Income tax provision” of $83 million in the year ended March 31, 2011, as compared to a $262 million in the year ended March 31, 2010.
Segment Review
The tables below show selected segment financial information (in millions, except shipments which are in kt). For additional financial information related to our operating segments, see Note 20 — Segment, Geographical area, Major Customer and Major Supplier Information.
| 000000 | 000000 | 000000 | 000000 | 000000 | 000000 | |||||||||||||||||||
Selected Operating Results | North America | Europe | Asia | South America | Eliminations and other | Total | ||||||||||||||||||
Net sales | $ | 3,760 | $ | 3,589 | $ | 1,866 | $ | 1,214 | $ | 148 | $ | 10,577 | ||||||||||||
Shipments: | ||||||||||||||||||||||||
Rolled products | 1,105 | 907 | 580 | 377 | — | 2,969 | ||||||||||||||||||
Ingot products | 16 | 69 | 1 | 42 | — | 128 | ||||||||||||||||||
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Total shipments | 1,121 | 976 | 581 | 419 | — | 3,097 | ||||||||||||||||||
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| 000000 | 000000 | 000000 | 000000 | 000000 | 000000 | |||||||||||||||||||
Selected Operating Results | North America | Europe | Asia | South America | Eliminations and other | Total | ||||||||||||||||||
Net sales | $ | 3,130 | $ | 2,975 | $ | 1,501 | $ | 948 | $ | 119 | $ | 8,673 | ||||||||||||
Shipments: | ||||||||||||||||||||||||
Rolled products | 1,029 | 803 | 532 | 344 | — | 2,708 | ||||||||||||||||||
Ingot products | 34 | 81 | 2 | 29 | — | 146 | ||||||||||||||||||
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Total shipments | 1,063 | 884 | 534 | 373 | — | 2,854 | ||||||||||||||||||
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The following table reconciles changes in “Segment income” for the year ended March 31, 2010 to the year ended March 31, 2011 (in millions). Variances include the related realized derivative gain or loss.
Changes in Segment Income | North America | Europe | Asia | South America | Total | |||||||||||||||
Segment income — year ended March 31, 2010 | $ | 292 | $ | 212 | $ | 154 | $ | 97 | $ | 755 | ||||||||||
Volume | 59 | 64 | 22 | 24 | 169 | |||||||||||||||
Conversion premium and product mix | 26 | 22 | 36 | 36 | 120 | |||||||||||||||
Conversion costs(A) | 51 | (15 | ) | (21 | ) | 8 | 23 | |||||||||||||
Metal price lag | (7 | ) | 42 | 15 | 11 | 61 | ||||||||||||||
Foreign exchange | (20 | ) | (16 | ) | 29 | (21 | ) | (28 | ) | |||||||||||
Primary metal production | — | — | — | 5 | 5 | |||||||||||||||
Other changes(B) | (19 | ) | 4 | (10 | ) | (8 | ) | (33 | ) | |||||||||||
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Segment income — year ended March 31, 2011 | $ | 382 | $ | 313 | $ | 225 | $ | 152 | $ | 1,072 | ||||||||||
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| (A) | Conversion costs include expenses incurred in production such as direct and indirect labor, energy, freight, scrap usage, alloys and hardeners, coatings, alumina, melt loss, the incremental benefit of used beverage cans (UBCs) and other alternative scrap metal costs. Fluctuations in this component reflect cost efficiencies during the period as well as cost inflation (deflation). |
| (B) | Other changes include selling, general & administrative costs and research and development for all segments and certain other items which impact one or more regions, including such items as the impact of purchase accounting and metal price ceiling contracts. Significant fluctuations in these items are discussed below. |
North America
As of March 31, 2011, our North American operations manufactured aluminum sheet and light gauge products through 11 plants, including two dedicated recycling facilities. Important end-use applications include beverage cans, containers and packaging, automotive and other transportation applications and other industrial applications.
Our North American operations experienced strong demand across all sectors with increased volumes in can, automotive and other industrial products in fiscal 2011 as compared to fiscal 2010. Shipments of flat rolled products in fiscal 2011 increased 7% as compared to fiscal 2010, with each quarter seeing an increase in volumes shipped as compared to the same periods in fiscal 2010. “Net sales” for fiscal 2011 were up $630 million, or 20%, as compared to fiscal 2010 reflecting the strong demand previously mentioned as well as higher aluminum prices. This increase is despite the fact that “Net sales” for fiscal 2010 included $152 million of accretion on can price ceiling contracts offset by $128 million of derivatives related to those contracts.
“Segment income” for fiscal 2011 was $382 million, up $90 million as compared to fiscal 2010. Improved volume, conversion premium and mix and reductions in conversion costs all had a positive impact on “Segment income.” Conversion cost improvements are driven by reductions in a number of cost categories including labor, energy, repairs and maintenance and the usage of other aluminum scrap metal. These improvements are slightly offset by increased costs of alloys and hardeners and higher melt loss rates
associated with melting additional scrap inputs. Other changes include a $152 million negative impact related to the purchase accounting effect of metal price ceiling contracts, which increased “Segment income” for fiscal 2010 but did not affect fiscal 2011 offset by a $128 million positive effect of the expiration of the can price ceiling contracts and related derivatives on December 31, 2009.
Europe
As of March 31, 2011, our European segment provided European markets with value-added sheet and light gauge products through 12 aluminum rolled products facilities and one dedicated recycling facility. Europe serves a broad range of aluminum rolled product end-use markets in various applications including can, automotive, lithographic, foil products and painted products.
Our European operations have experienced strong demand across our core end-use markets with the can sector providing particularly strong results and the premium car market remaining firm. Flat rolled product shipments and “Net sales” were up 13% and 21%, respectively, in fiscal 2011 as compared to fiscal 2010 which reflects higher average aluminum prices and volume and mix improvement as a result of strong demand. Our facilities operated at or near capacity for fiscal 2011.
“Segment income” for fiscal 2011 was $313 million, up $101 million compared to fiscal 2010. Improved volume, conversion premiums, product mix and favorable changes in metal price lag more than offset increases in conversion costs and the negative effect of changes in foreign currency exchange rates to the U.S. dollar and Euro.
Asia
As of March 31, 2011, Asia operated three manufacturing facilities with production balanced between beverage and food can, construction and industrial (including electronics) and foil end-use applications.
In fiscal 2011, the Asian markets experienced strong demand for all product categories. Flat rolled product shipments are up 9% in fiscal 2011 as compared fiscal 2010. “Net sales” increased $365 million for the year ended March 31, 2011 as compared the year ended March 31, 2010 primarily as a result of higher aluminum prices and increased volume.
“Segment income” for fiscal 2011 was $225 million, up $71 million as compared to fiscal 2010 due primarily to improved volume, conversion premiums, favorable changes in metal price lag, favorable effects of changes in foreign currency exchange rates to the U.S. dollar, and realized gains on the settlement of currency exchange derivatives related to a U.S. dollar denominated debt that was repaid in the fiscal 2011. The favorable variances were partially off by the negative effects of higher conversion costs and selling, general and administrative costs in fiscal 2011 as compared to fiscal 2010.
South America
Our operations in South America manufacture various aluminum rolled products for the beverage and food can, construction and industrial and transportation end-use markets. Our South American operations included two rolling plants in Brazil along with one smelter, and hydroelectric power generation facilities as of March 31, 2011. We also have mining rights, which we are not exploring and some alumina refinery assets, which we are not operating.
Our South American operations experienced strong demand across all sectors as compared to the prior year. Shipments of flat rolled products in fiscal 2011 increased 10% as compared to a year ago. “Net sales” for fiscal 2011 were up $266 million, or 28%, as compared to fiscal 2010 reflecting strong demand as well as higher aluminum prices.
“Segment income” for fiscal 2011 was $152 million, up $55 million as compared to fiscal 2010. Improved volumes, conversion premiums, reductions of conversion costs and favorable metal price lag more than offset the negative effects of changes in foreign currency exchange rates and higher selling, general and administrative costs. Increased “Segment income” of the primary business reflects the higher aluminum prices, offset by increased energy and alumina costs.
Reconciliation of segment results to “Net income attributable to our common shareholder”
Costs such as depreciation and amortization, interest expense and unrealized gains (losses) on changes in the fair value of derivatives are not utilized by our chief operating decision maker in evaluating segment performance. The table below reconciles “Segment income” from reportable segments to “Net income attributable to our common shareholder” for the year ended March 31, 2011 and 2010 (in millions).
| Year Ended March 31, | ||||||||
| 2011 | 2010 | |||||||
North America | $ | 382 | $ | 292 | ||||
Europe | 313 | 212 | ||||||
Asia | 225 | 154 | ||||||
South America | 152 | 97 | ||||||
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Total Segment income | 1,072 | 755 | ||||||
Depreciation and amortization | (404 | ) | (384 | ) | ||||
Interest expense and amortization of debt issuance costs | (207 | ) | (175 | ) | ||||
Interest income | 13 | 11 | ||||||
Unrealized gains (losses) on change in fair value of derivative instruments, net | (64 | ) | 578 | |||||
Realized gains on derivative instruments not included in segment income | 5 | — | ||||||
Adjustment to eliminate proportional consolidation | (45 | ) | (52 | ) | ||||
Loss on extinguishment of debt | (84 | ) | — | |||||
Restructuring charges, net | (34 | ) | (14 | ) | ||||
Other costs, net | (9 | ) | 8 | |||||
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Income before income taxes | 243 | 727 | ||||||
Income tax provision | 83 | 262 | ||||||
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Net income | 160 | 465 | ||||||
Net income attributable to noncontrolling interests | 44 | 60 | ||||||
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Net income attributable to our common shareholder | $ | 116 | $ | 405 | ||||
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“Interest expense” and amortization of debt issuance costs increased primarily due to a higher average principal balance after the refinancing of our debt, offset by lower average interest rates on our variable rate debt for the majority of fiscal 2011.
For fiscal 2011, the $64 million of losses consists of unrealized losses on changes in fair value of metal, foreign currency, interest rate offset by unrealized gains on energy derivatives. We recorded $578 million of unrealized gains for fiscal 2010.
Realized gains on derivative instruments not included in “Segment income” represents realized gains on foreign currency derivatives related to capital expenditures for our previously announced expansion at our Pinda facility in South America.
“Adjustment to eliminate proportional consolidation” was a $45 million loss for fiscal 2011 as compared to a $52 million loss in fiscal 2010. This adjustment primarily relates to depreciation, amortization and income taxes at our Aluminium Norf GmbH (Alunorf) joint venture. The difference from the prior year relates to the reduction in depreciation and amortization on the step up in our basis in the underlying assets of the investees. Income taxes related to our equity method investments are reflected in the carrying value of the investment and not in our consolidated “Income tax provision.”
We paid tender premiums, fees and other costs of $193 million associated with the refinancing transactions in December 2010 and related exchange offer in March 2011, including fees paid to lenders, arrangers and outside professionals such as attorneys and rating agencies. Approximately $84 million of these fees, existing unamortized fees, discounts and fair value adjustments associated with the old debt were expensed and included in the “Loss on early extinguishment of debt.” The remaining fees paid and the remaining unamortized fees, discounts and fair value adjustments associated with the old debt were capitalized and will be amortized as an increase to “Interest expense” over the term of the related debt, ranging from five to ten years.
“Restructuring charges, net” in fiscal 2011 primarily related to the move of our North American headquarters to Atlanta, Georgia and the announced closure of our Bridgnorth facility in Europe and our Aratu facility in South America.
We have experienced significant fluctuations in “Income tax provision” and the corresponding effective tax rate. The primary factors contributing to the effective tax rate differing from the statutory Canadian rate included:
Our functional currency in Brazil is the U.S. dollar where the company holds significant U.S. dollar denominated debt. As the value of the local currency strengthens or weakens against the U.S. dollar, unrealized gains or losses are created for tax purposes, while the underlying gains or losses are not recorded in our income statement.
We have significant net deferred tax liabilities in Brazil that are remeasured to account for currency fluctuations as the taxes are payable in local currency.
Our income is taxed at various statutory tax rates in varying jurisdictions. Applying the corresponding amounts of income and loss to the various tax rates results in differences when compared to our Canadian statutory tax rate.
We record increases and decreases to valuation allowances primarily related to tax losses in certain jurisdictions where we believe it is more likely than not that we will be unable to utilize those losses.
For the year ended March 31, 2011, we recorded an $83 million “Income tax provision” on our pre-tax income of $255 million, before our equity in net income of non-consolidated affiliates, which represented an effective tax rate of 33%. Our effective tax rate differs from the expense at the Canadian statutory rate primarily due to the following factors: (1) a $20 million expense for exchange remeasurement of deferred income taxes, (2) a $50 million increase in valuation allowances primarily related to tax losses in certain jurisdictions where we believe it is more likely than not that we be unable to utilize those losses, largely offset by a $49 decrease in our valuation allowance in the U.K. based on expectations of future taxable income, (3) a $15 million benefit from non-taxable dividends, (4) a $6 million benefit from differences between the Canadian statutory and foreign effective tax rates applied to entities in different jurisdictions, and (5) a $6 million expense related to increase in uncertain tax positions.
For fiscal 2010, we recorded a $262 million income“Income tax provisionprovision” on our pre-tax income of $742 million, before our equity in net (income) loss of non-consolidated affiliates, which represented an effective tax rate of 35%. Our effective tax rate differs from the expense at the Canadian statutory rate primarily due to the following factors: (1) $19 million expense for pre-tax foreign currency gains or losses with no tax effect and the tax effect of U.S. dollar denominated currency gains or losses with no pre-tax effect, (2) a $38 million expense for exchange remeasurement of deferred income taxes, (3) a $7 million expense for the effects of enacted tax rate changes on cumulative taxable temporary differences, (4) a $9 million benefit from differences between the Canadian statutory and foreign effective tax rates applied to entities in different jurisdictions and (5) a $10 million benefit related to a decrease in uncertain tax positions.
43
| Selected Operating Results | North | South | ||||||||||||||||||||||
| Year Ended March 31, 2010 | America | Europe | Asia | America | Eliminations | Total | ||||||||||||||||||
| Net sales | $ | 3,292 | $ | 2,975 | $ | 1,501 | $ | 948 | $ | (43 | ) | $ | 8,673 | |||||||||||
| Shipments (kt) | ||||||||||||||||||||||||
| Rolled products | 1,029 | 803 | 532 | 344 | — | 2,708 | ||||||||||||||||||
| Ingot products | 34 | 81 | 2 | 29 | — | 146 | ||||||||||||||||||
| Total shipments | 1,063 | 884 | 534 | 373 | — | 2,854 | ||||||||||||||||||
44
| Selected Operating Results | North | South | ||||||||||||||||||||||
| Year Ended March 31, 2009 | America | Europe | Asia | America | Eliminations | Total | ||||||||||||||||||
| Net sales | $ | 3,930 | $ | 3,718 | $ | 1,536 | $ | 1,007 | $ | (14 | ) | $ | 10,177 | |||||||||||
| Shipments (kt) | ||||||||||||||||||||||||
| Rolled products | 1,067 | 910 | 447 | 346 | — | 2,770 | ||||||||||||||||||
| Ingot products | 42 | 99 | 13 | 19 | — | 173 | ||||||||||||||||||
| Total shipments | 1,109 | 1,009 | 460 | 365 | — | 2,943 | ||||||||||||||||||
| North | South | |||||||||||||||||||
| Changes in Segment Income | America | Europe | Asia | America | Total | |||||||||||||||
| Segment income — year ended March 31, 2009 | $ | 60 | $ | 214 | $ | 79 | $ | 132 | $ | 485 | ||||||||||
| Volume: | ||||||||||||||||||||
| Rolled products | (26 | ) | (104 | ) | 34 | 2 | (94 | ) | ||||||||||||
| Other | 4 | 2 | (2 | ) | 2 | 6 | ||||||||||||||
| Conversion premium and product mix | 78 | 58 | 40 | 54 | 230 | |||||||||||||||
| Conversion costs(A) | 75 | 54 | 40 | 6 | 175 | |||||||||||||||
| Metal price lag | 73 | (49 | ) | (82 | ) | 3 | (55 | ) | ||||||||||||
| Foreign exchange | 27 | 27 | 48 | (30 | ) | 72 | ||||||||||||||
| Other changes(B) | 1 | 10 | (3 | ) | (72 | ) | (64 | ) | ||||||||||||
| Segment income — year ended March 31, 2010 | $ | 292 | $ | 212 | $ | 154 | $ | 97 | $ | 755 | ||||||||||
45
46
| Year Ended March 31, | ||||||||
| 2010 | 2009 | |||||||
| North America | $ | 292 | $ | 60 | ||||
| Europe | 212 | 214 | ||||||
| Asia | 154 | 79 | ||||||
| South America | 97 | 132 | ||||||
| Total Segment income | 755 | 485 | ||||||
| Depreciation and amortization | (384 | ) | (439 | ) | ||||
| Interest expense and amortization of debt issuance costs | (175 | ) | (182 | ) | ||||
| Interest income | 11 | 14 | ||||||
| Unrealized gains (losses) on change in fair value of derivative instruments, net | 578 | (519 | ) | |||||
| Impairment of goodwill | — | (1,340 | ) | |||||
| Gain on extinguishment of debt | — | 122 | ||||||
| Restructuring charges, net | (14 | ) | (95 | ) | ||||
| Adjustment to eliminate proportional consolidation | (52 | ) | (225 | ) | ||||
| Other costs, net | 8 | 11 | ||||||
| Income (loss) before income taxes | 727 | (2,168 | ) | |||||
| Income tax provision (benefit) | 262 | (246 | ) | |||||
| Net income (loss) | 465 | (1,922 | ) | |||||
| Net income (loss) attributable to noncontrolling interests | 60 | (12 | ) | |||||
Net income (loss) attributable to our common shareholder | $ | 405 | $ | (1,910 | ) | |||
47
48
We believe we have adequate liquidity to meet our operational and capital requirements for the foreseeable future. Our primary sources of liquidity are cash and cash equivalents, borrowing availability under our revolving credit facility and cash generated by operating activities.
As of March 31, 2012, we had available liquidity of $1.0 billion, which reflects a decrease of 4% from March 31, 2011, due to higher capital expenditures, higher working capital needs and short-term borrowings used to purchase the noncontrolling interest in the Company’s Korean operations in December 2011. We expect to maintain adequate liquidity throughout fiscal 2013 despite the challenging economic uncertainty and the significant investments we are making with our expansion projects.
Available Liquidity
Our available liquidity increased $35 million from March 31, 2010 to $1,061 million. This reflects our continued efforts to preserve liquidity through cost and capital spending controls and effective management of working capital, which we believe are sustainable. We expect continued strong liquidity throughout fiscal 2012 despite significant expected capital expenditures. Our estimated liquidity as of March 31, 20112012 and 20102011 is as follows (in millions):
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Cash and cash equivalents | $ | 311 | $ | 437 | ||||
| Overdrafts | (17 | ) | (14 | ) | ||||
| Availability under the ABL facility | 767 | 603 | ||||||
| Total estimated liquidity | $ | 1,061 | $ | 1,026 | ||||
| March 31, 2012 | March 31, 2011 | |||||||
Cash and cash equivalents | $ | 317 | $ | 311 | ||||
Overdrafts | — | (17 | ) | |||||
Availability under the asset based lending (ABL) facility | 704 | 767 | ||||||
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Total liquidity | $ | 1,021 | $ | 1,061 | ||||
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The cash“Cash and cash equivalentsequivalents” balance above includes cash held in foreign countries in which we operate.
Free Cash Flow
We define “Free cash flow
49
The following table shows the reconciliation from Net“Free cash provided by (used in) operating activities to Free cash flow,flow” for the year ended March 31, 2012, 2011 and 2010, the change between periods, as well as the ending balances of cash and cash equivalents and the change between periods (in millions).
| Change | ||||||||||||||||||||
| 2011 | 2010 | |||||||||||||||||||
| Year Ended March 31, | versus | versus | ||||||||||||||||||
| 2011 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 454 | $ | 844 | $ | (220 | ) | $ | (390 | ) | $ | 1,064 | ||||||||
| Net cash provided by (used in) investing activities | (113 | ) | (484 | ) | (127 | ) | 371 | (357 | ) | |||||||||||
| Less: Proceeds from sales of assets | (31 | ) | (5 | ) | (5 | ) | (26 | ) | — | |||||||||||
| Free cash flow | $ | 310 | $ | 355 | $ | (352 | ) | $ | (45 | ) | $ | 707 | ||||||||
| Ending cash and cash equivalents | $ | 311 | $ | 437 | $ | 248 | $ | (126 | ) | $ | 189 | |||||||||
| Change | ||||||||||||||||||||
| Year Ended March 31, | 2012 versus | 2011 versus | ||||||||||||||||||
| 2012 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||
Net cash provided by operating activities | $ | 556 | $ | 454 | $ | 844 | $ | 102 | $ | (390 | ) | |||||||||
Net cash used in investing activities | (442 | ) | (113 | ) | (484 | ) | (329 | ) | 371 | |||||||||||
Less: Proceeds from sales of assets | (16 | ) | (31 | ) | (5 | ) | 15 | (26 | ) | |||||||||||
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Free cash flow | $ | 98 | $ | 310 | $ | 355 | $ | (212 | ) | $ | (45 | ) | ||||||||
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Ending cash and cash equivalents | $ | 317 | $ | 311 | $ | 437 | $ | 6 | $ | (126 | ) | |||||||||
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“Free cash flowflow” decreased $45$212 million in fiscal 2011the year ended March 31, 2012 as compared to fiscal 2010, driven by a $133 million increase in capital expenditures.prior year. The changes of each component of Freein “Free cash flowflow” are described in greater detail below.
Operating Activities
Overall operating results were strong for the year ended March 31, 2011, reflecting2012, which was the increase in volumes and our lower fixed cost structure as a result of our prior cost cutting measures. In conjunction with our recently completed refinancing activities, we paid $17improved working capital due to lower aluminum prices and effective inventory management. These variances were partially offset by $284 million of withholding taxes duringhigher interest payments on a larger underlying refinanced debt entered into in the third quarter of fiscal 2011. Additionally, cash flow from operations for the years ended March 31, 2011
In fiscal 2013, we expect to make contributions of $82 million to our pension and 2010 benefited from cash receiptsother post-employment benefit plans.
A summary of $19 million and $75 million, respectively, related to customer-directed derivatives, as compared to $81 million of cash outflowsour operating activities for the year ended March 31, 2009. However, approximately 26% higher working capital balances as a result2012 can be found above in “Results of higher LME prices duringoperations for the year ended March 31, 2011 as2012 compared to the year ended March 31, 2010 had accounted for approximately $251 million lower cash flows in fiscal 2011 as compared2011.”
50
The following table presents information regarding our Net“Net cash used in investing activitiesactivities” (in millions).
| Change | ||||||||||||||||||||
| 2011 | 2010 | |||||||||||||||||||
| Year Ended March 31, | versus | versus | ||||||||||||||||||
| 2011 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
| Capital expenditures | $ | (234 | ) | $ | (101 | ) | $ | (145 | ) | $ | (133 | ) | $ | 44 | ||||||
| Net proceeds (outflow) from settlement of derivative instruments | 91 | (395 | ) | (24 | ) | 486 | (371 | ) | ||||||||||||
| Proceeds from sales of assets | 31 | 5 | 5 | 26 | — | |||||||||||||||
| Changes to investment in and advances to non-consolidated affiliates | — | 3 | 20 | (3 | ) | (17 | ) | |||||||||||||
| Proceeds (outflow) from related parties loans receivable, net | (1 | ) | 4 | 17 | (5 | ) | (13 | ) | ||||||||||||
| Net cash used in investing activities | $ | (113 | ) | $ | (484 | ) | $ | (127 | ) | $ | 371 | $ | (357 | ) | ||||||
| Change | ||||||||||||||||||||
| Year Ended March 31, | 2012 versus | 2011 versus | ||||||||||||||||||
| 2012 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||
Capital expenditures | $ | (516 | ) | $ | (234 | ) | $ | (101 | ) | $ | (282 | ) | $ | (133 | ) | |||||
Proceeds (outflow) from settlement of derivative instruments, net | 59 | 91 | (395 | ) | (32 | ) | 486 | |||||||||||||
Proceeds from sales of assets | 16 | 31 | 5 | (15 | ) | 26 | ||||||||||||||
Proceeds from investment in and advances to non-consolidated affiliates | 2 | — | 3 | 2 | (3 | ) | ||||||||||||||
Proceeds (outflow) from related parties loans receivable, net | (3 | ) | (1 | ) | 4 | (2 | ) | (5 | ) | |||||||||||
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Net cash used in investing activities | $ | (442 | ) | $ | (113 | ) | $ | (484 | ) | $ | (329 | ) | $ | 371 | ||||||
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The majority of our capital expenditures cash outflows for the year ended March 31, 2012 were attributable to our three major expansion projects in Pinda, Brazil; South Korea; and Oswego, New York. Additionally, we have incurred $113 million of accounts payable and accrued liabilities as of March 31, 2012 related to capital projects, which will result in cash outflows in fiscal 2013. The majority of our capital expenditures in fiscal 2011 and 2010 and 2009 have beenwere for projects devoted to product quality, technology, productivity enhancementmaintenance and increased capacity. In responsedebottlenecking. We expect capital expenditures for fiscal 2013 to the economic downturn, we reduced our capital spendingbe between $650 million and $700 million.
The settlement of undesignated derivative instruments resulted in a cash inflows of $59 million in the second halfyear ended March 31, 2012 as compared to $91 million of fiscal 2009, with a focus on preserving maintenance and safety and maintainedcash inflow in the year ended March 31, 2011. The fair value of our outstanding derivatives, not designated as hedging instruments, as of March 31, 2012 that level of spending throughout fiscal 2010.
The majority of proceeds from asset sales in fiscal 2010 and 2009 relatethe year ended March 31, 2012 related to asset sales in Europe and the saleBrazil. The majority of land in Kingston, Ontario, respectively.
“Proceeds (outflow) from related party loans receivable, net,” during fiscal 2011, 2010 and 2009all periods are primarily comprised of borrowings and payments on outstandingadditional loans frommade to our non-consolidated affiliate, Norf.
Financing Activities
The following table presents information regarding our Net“Net cash provided by (used in)used in financing activitiesactivities” (in millions).
| Change | ||||||||||||||||||||
| 2011 | 2010 | |||||||||||||||||||
| Year Ended March 31, | versus | versus | ||||||||||||||||||
| 2011 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
| Proceeds from issuance of debt, third parties | $ | 3,985 | $ | 177 | $ | 263 | $ | 3,808 | $ | (86 | ) | |||||||||
| Proceeds from issuance of debt, related parties | — | 4 | 91 | (4 | ) | (87 | ) | |||||||||||||
| Principal repayments, third parties | (2,489 | ) | (67 | ) | (235 | ) | (2,422 | ) | 168 | |||||||||||
| Principal repayments, related parties | — | (95 | ) | — | 95 | (95 | ) | |||||||||||||
| Short-term borrowings, net | (56 | ) | (193 | ) | 176 | 137 | (369 | ) | ||||||||||||
| Return of capital to our common shareholder | (1,700 | ) | — | — | (1,700 | ) | — | |||||||||||||
| Dividends, noncontrolling interest | (18 | ) | (13 | ) | (6 | ) | (5 | ) | (7 | ) | ||||||||||
| Debt issuance costs | (193 | ) | (1 | ) | (3 | ) | (192 | ) | 2 | |||||||||||
| Net cash provided by (used in) financing activities | $ | (471 | ) | $ | (188 | ) | $ | 286 | $ | (283 | ) | $ | (474 | ) | ||||||
| Change | ||||||||||||||||||||
| Year Ended March 31, | 2012 versus | 2011 versus | ||||||||||||||||||
| 2012 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||
Proceeds from issuance of debt, third parties | $ | 271 | $ | 3,985 | $ | 177 | $ | (3,714 | ) | $ | 3,808 | |||||||||
Proceeds from issuance of debt, related parties | — | — | 4 | — | (4 | ) | ||||||||||||||
Principal repayments, third parties | (22 | ) | (2,489 | ) | (67 | ) | 2,467 | (2,422 | ) | |||||||||||
Principal repayments, related parties | — | — | (95 | ) | — | 95 | ||||||||||||||
Short-term borrowings, net | 2 | (56 | ) | (193 | ) | 58 | 137 | |||||||||||||
Return of capital to our common shareholder | — | (1,700 | ) | — | 1,700 | (1,700 | ) | |||||||||||||
Dividends, noncontrolling interest | (1 | ) | (18 | ) | (13 | ) | 17 | (5 | ) | |||||||||||
Acquisition of noncontrolling interest in Novelis Korea, Ltd | (344 | ) | — | — | (344 | ) | — | |||||||||||||
Debt issuance costs | (2 | ) | (193 | ) | (1 | ) | 191 | (192 | ) | |||||||||||
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Net cash used in financing activities | $ | (96 | ) | $ | (471 | ) | $ | (188 | ) | $ | 375 | $ | (283 | ) | ||||||
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During fiscal 2012, we acquired 31.3% percent of the outstanding noncontrolling interest shares of Novelis Korea Limited for cash of $344 million. We funded the acquisition with a $225 million secured term loan, which resulted in cash proceeds, net of the debt discount, of $219 million, due March 2017. The remaining purchase price was funded through short-term borrowings and other available cash.
In the third quarter of fiscal 2012, we executed three separate loan agreements with Korean banks, which resulted in $43 million of proceeds from the issuance of long-term debt due December 17,2014 and additional short-term borrowings of $17 million.
During 2012, we entered into additional loan agreements with Brazil’s National Bank of Economic and Social Development (BNDES) related to the Pindamonhangaba, Brazil plant expansion which resulted in $10 million of proceeds related to the issuance of this debt. As of March 31, 2012, we had $15 million (R$28 million) outstanding under the BNDES loan agreements with maturity dates of December 2018 through April 2021.
In December 2010, we completed a series of refinancing transactions. The refinancing transactions, consisted ofwhich included the saleissuance of $1.1 billion in aggregate principal amount of 8.375% Senior Notes Duenotes due 2017, and $1.4 billion in aggregate principal amount of 8.75% Senior Notes Duenotes due 2020 (collectively, the Notes) and the issuance of newa $1.5 billion secured term loan credit facility (the 2010 Term Loan Facility). We also replaced our existing $800 million asset based loan (ABL) facility with a new $800 million ABL facility.
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As of March 31, 2011,2012, our short-term borrowings were $17consisted of an $18 million consisting of bank overdrafts and borrowings under the new ABL Facility. Also, asloan in South Korea. As of March 31, 2011, $332012, $24 million of the ABL Facility was utilized for letters of credit and we had $767$704 million in remaining availability under this revolving credit facility.the ABL Facility. The weighted average interest rate on our total short-term borrowings was 2.43%4.83% and 1.71%2.43% as of March 31, 2012 and March 31, 2011, and 2010, respectively.
Dividends paid to our noncontrolling interests, primarily in our Asia operating segment, were $1 million, $18 million, $13 million, and $6$13 million for fiscal 2012, 2011, and 2010, and 2009, respectively.
OFF-BALANCE SHEET ARRANGEMENTS
In accordance with SEC rules, the following qualify as off-balance sheet arrangements:
any obligation under certain | |||
any obligation under certain guarantees on behalf of certain of our subsidiaries. The indebtedness guaranteed is for trade accounts payable to third parties. Some of the guarantees have annual terms while others have no expiration and have termination notice requirements. Neither we nor any of our subsidiaries holds any assets of any third parties as collateral to offset the potential settlement of these guarantees. Since we consolidate wholly-owned and majority-owned subsidiaries in our consolidated financial statements, all liabilities associated with trade payables and short-term debt facilities for these entities are already included in our consolidated balance sheets. The following table discloses information about our obligations under guarantees of indebtedness of others as of March 31, 2011 (in millions).or contracts;
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| Maximum | Liability | |||||||
| Potential Future | Carrying | |||||||
| Payment | Value | |||||||
| Wholly-owned Subsidiaries | $ | 134 | $ | 63 | ||||
any obligation under a material variable interest held by the registrant in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging or research and development services with the registrant.
The following discussion addresses the applicable off-balance sheet items for our Company.
Derivative Instruments
See Note 15 — Financial Instruments and Commodity Contracts to our accompanying audited consolidated financial statements for a full description of derivative instruments.
Other Arrangements
Forfaiting of Trade Receivables
Novelis Korea Limited forfaits trade receivables in the ordinary course of business. These trade receivables are typically outstanding for 60 to 120 days. Forfaiting is a non-recourse method to manage credit and interest rate risks. Under this method, customers contract to pay a financial institution. The institution assumes the risk of non-payment and remits the invoice value (net of a fee) to us after presentation of a proof of delivery of goods to the customer. We do not retain a financial or legal interest in these receivables, and they are not included in our consolidated balance sheets.
Factoring of Trade Receivables
Our Brazilian operations factor, without recourse, certain trade receivables that are unencumbered by pledge restrictions. Under this method, customers are directed to make payments on invoices to a financial institution, but are not contractually required to do so. The financial institution pays us any invoices it has approved for payment (net of a fee). We do not retain financial or legal interest in these receivables, and they are not included in our consolidated balance sheets.
Summary Disclosures of Forfaited and Factored Financial Amounts
The following tables summarize our forfaiting and factoring amounts (in millions).
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Receivables forfaited | $ | 396 | $ | 423 | $ | 570 | ||||||
| Receivables factored | $ | 77 | $ | 149 | $ | 70 | ||||||
| Forfaiting expense | $ | 1 | $ | 2 | $ | 5 | ||||||
| Factoring expense | $ | 1 | $ | 1 | $ | 1 | ||||||
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Forfaited receivables outstanding | $ | 52 | $ | 83 | ||||
| Factored receivables outstanding | $ | 8 | $ | 34 | ||||
Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Receivables forfaited | $ | 235 | $ | 396 | $ | 423 | ||||||
Receivables factored | $ | 61 | $ | 77 | $ | 149 | ||||||
Forfaiting expense | $ | 1 | $ | 1 | $ | 2 | ||||||
Factoring expense | $ | 1 | $ | 1 | $ | 1 | ||||||
| March 31, | ||||||||
| 2012 | 2011 | |||||||
Forfaited receivables outstanding | $ | 49 | $ | 52 | ||||
Factored receivables outstanding | $ | 4 | $ | 8 | ||||
Other
As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of March 31, 20112012 and 2010,2011, we were not involved in any unconsolidated SPE transactions.
CONTRACTUAL OBLIGATIONS
We have future obligations under various contracts relating to debt and interest payments, capital and operating leases, long-term purchase obligations, and postretirement benefit plans. The following table presents our estimated future payments under contractual obligations that exist as of March 31, 2011,2012, based on undiscounted amounts (in millions). The future cash flow commitments that we
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| Less Than | More Than | |||||||||||||||||||
| Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
| Debt(A) | $ | 4,078 | $ | 16 | $ | 32 | $ | 106 | $ | 3,924 | ||||||||||
| Interest on long-term debt(B) | 2,354 | 285 | 856 | 757 | 456 | |||||||||||||||
| Capital leases(C) | 63 | 8 | 14 | 14 | 27 | |||||||||||||||
| Operating leases(D) | 138 | 24 | 38 | 32 | 44 | |||||||||||||||
| Purchase obligations(E) | 8,377 | 3,759 | 2,934 | 1,186 | 498 | |||||||||||||||
| Unfunded pension plan benefits(F) | 161 | 13 | 28 | 31 | 89 | |||||||||||||||
| Other post-employment benefits(F) | 125 | 8 | 18 | 23 | 76 | |||||||||||||||
| Funded pension plans(F) | 49 | 49 | — | — | — | |||||||||||||||
| Total | $ | 15,345 | $ | 4,162 | $ | 3,920 | $ | 2,149 | $ | 5,114 | ||||||||||
| Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | ||||||||||||||||
Debt(A) | $ | 4,403 | $ | 40 | $ | 169 | $ | 1,670 | $ | 2,524 | ||||||||||
Interest on long-term debt(B) | 1,442 | 285 | 447 | 374 | 336 | |||||||||||||||
Capital leases(C) | 57 | 8 | 14 | 14 | 21 | |||||||||||||||
Operating leases(D) | 142 | 22 | 37 | 26 | 57 | |||||||||||||||
Purchase obligations(E) | 4,032 | 1,521 | 1,545 | 631 | 335 | |||||||||||||||
Unfunded pension plan benefits(F) | 148 | 14 | 26 | 28 | 80 | |||||||||||||||
Other post-employment benefits(F) | 130 | 8 | 19 | 24 | 79 | |||||||||||||||
Funded pension plans(F) | 47 | 47 | — | — | — | |||||||||||||||
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Total | $ | 10,401 | $ | 1,945 | $ | 2,257 | $ | 2,767 | $ | 3,432 | ||||||||||
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| (A) | Includes only principal payments on our Senior Notes, term loans, revolving credit facilities and notes payable to banks and others. These amounts exclude payments under capital lease obligations. | |
| (B) | Interest on our fixed rate debt is estimated using the stated interest rate. Interest on our variable-rate debt is estimated using the rate in effect as of March 31, | |
| (C) | Includes both principal and interest components of future minimum capital lease payments. Excluded from these amounts are insurance, taxes and maintenance associated with the property. | |
| (D) | Includes the minimum lease payments for non-cancelable leases for property and equipment used in our operations. We do not have any operating leases with contingent rents. Excluded from these amounts are insurance, taxes and maintenance associated with the properties and equipment. | |
| (E) | Includes agreements to purchase goods (including raw materials and capital expenditures) and services that are enforceable and legally binding on us, and that specify all significant terms. Some of our raw material purchase contracts have minimum annual volume requirements. In these cases, we estimate our future purchase obligations using annual minimum volumes and costs per unit that are in effect as of March 31, | |
| (F) | Obligations for postretirement benefit plans are estimated based on actuarial estimates using benefit assumptions for, among other factors, discount rates, rates of compensation increases and healthcare cost trends. Payments for unfunded pension plan benefits and other post-employment benefits are estimated through |
RETURN OF CAPITAL
On December 17, 2010, we paid $1.7 billion to our shareholder as a return of capital.
Dividends are at the discretion of the board of directors and will depend on, among other things, our financial resources, cash flows generated by our business, our cash requirements, restrictions under the instruments governing our indebtedness, being in compliance with the appropriate indentures and covenants under the instruments that govern our indebtedness that would allow us to legally pay dividends and other relevant factors.
ENVIRONMENT, HEALTH AND SAFETY
We strive to be a leader in environment, health and safety (EHS). Our EHS system is aligned with ISO 14001, an international environmental management standard, and OHSAS 18001, an international occupational health and safety management standard. All of our facilities are expected to implement the necessary management systems to support ISO 14001 and OHSAS 18001 certifications.
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Our capital expenditures for environmental protection and the betterment of working conditions in our facilities were $1$16 million in fiscal 2011.2012. We expect these capital expenditures will be approximately $5 million and $2$11 million in fiscal 2012 and 2013, respectively.2013. In addition, expenses for environmental protection (including estimated and probable environmental remediation costs as well as general environmental protection costs at our facilities) were $18$17 million in fiscal 2011,2012, and are expected to be $34 million and $27$14 million in fiscal 2012 and 2013, respectively.2013. Generally, expenses for environmental protection are recorded in Cost“Cost of goods sold.sold (exclusive of depreciation and amortization).” However, significant remediation costs that are not associated with on-going operations are recorded in Other“Other (income) expenses,expense, net.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors we believe to be relevant at the time we prepare our consolidated financial statements. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 1 — Business and Summary of Significant Accounting Policies to our accompanying consolidated financial statements. We believe the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, as they require management to make difficult, subjective or complex judgments, and to make estimates about the effect of matters that are inherently uncertain. Although management believes that the estimates and judgments discussed herein are reasonable, actual results could differ, which could result in gains or losses that could be material. We have reviewed these critical accounting policies and related disclosures with the Audit Committee of our board of directors.
Derivative Financial Instruments
We hold derivatives for risk management purposes and not for trading. We use derivatives to mitigate uncertainty and volatility caused by underlying exposures to aluminum prices, foreign exchange rates, interest rate, and energy prices. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date and are reported gross.
We may be exposed to losses in the future if the counterparties to our derivative contracts fail to perform. We are satisfied that the risk of such non-performance is remote due to our monitoring of credit exposures. Additionally, we enter into master netting agreements with contractual provisions that allow for netting of counterparty positions in case of default, and we do not face credit contingent provisions that would result in the posting of collateral.
For derivatives designated as fair value hedges, we assess hedge effectiveness by formally evaluating the high correlation of changes in the fair value of the hedged item and the derivative hedging instrument. The changes in the fair values of the underlying hedged items are reported in other current and noncurrent assets and liabilities in the consolidated balance sheet. Changes in the fair values of these derivatives and underlying hedged items generally offset and are recorded each period in revenue, consistent with the underlying hedged item.
For derivatives designated as cash flow hedges or net investment hedges, we assess hedge effectiveness by formally evaluating the high correlation of the expected future cash flows of the hedged item and the derivative hedging instrument. The effective portion of gain or loss on the derivative is included in Other comprehensive income (loss)OCI and reclassified to earnings in the period in which earnings are impacted by the hedged items or in the period that the transaction becomes probable of not occurring. Gains or losses representing reclassifications of OCI to earnings are recognized in the line item most reflective of the underlying risk exposure. We exclude the time value component of foreign currency and aluminum price risk hedges when measuring and assessing ineffectiveness to align accounting policy with risk management objectives when it is necessary. If at any time during the life of a cash flow hedge relationship we determine that the relationship is no longer effective, the derivative will no longer
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For all derivatives designated in hedging relationships, gains or losses representing hedge ineffectiveness or amounts excluded from effectiveness testing are recognized in (Gain) loss on change in fair value of derivative instruments, net“Other (income) expense, net” in our current period earnings.
Consistent with the cash flows from the underlying risk exposure, we classify cash settlement amounts associated with thesedesignated derivatives as part of either operating or investing activities in the consolidated statements of cash flows. If no hedging relationship is designated, we classify cash settlement amounts as part of investing activities in the consolidated statementsstatement of cash flows.
The majority of our derivative contracts are valued using industry-standard models that use observable market inputs as their basis, such as time value, forward interest rates, volatility factors, and current (spot) and forward market prices for foreign exchange rates. See Note 15 — Financial Instruments and Commodity Contracts and Note 16 — Fair Value of Assets and Liabilities and Note 11 — Fair Value Measurements to our accompanying consolidated audited financial statements for discussion on fair value of derivative instruments.
Impairment of Goodwill
Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets of acquired companies. As a result of the Arrangement, we estimated fair value of the identifiable net assets of acquired companies using a number of factors, including the application of multiples and discounted cash flow estimates. We have allocatedThe carrying value of goodwill tofor each of our operating segments in North America, Europe and South America, which are also reporting units, which is tested for purposes of performing our goodwill impairment testingannually, is as follows (in millions):
| March 31, 2011 | ||||
| North America | $ | 288 | ||
| Europe | 181 | |||
| South America | 142 | |||
| $ | 611 | |||
| March 31, 2012 | ||||
North America | $ | 288 | ||
Europe | 181 | |||
South America | 142 | |||
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Goodwill is not amortized; instead, it is tested for impairment annually or more frequently if indicators of impairment exist. On an ongoing basis, absent any impairment indicators, we perform our goodwill impairment testing as of the last day of February of each year.
In September 2011, the Financial Accounting Standards Board issued new accounting guidance for testing goodwill for impairment usingimpairment. See Note 1 – Business and Summary of Significant Accounting Policies. The guidance provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value approach at theof a reporting unit level. We use our operating segments as our reporting unitsis less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform ourthe existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. The ultimate outcome of the goodwill impairment testreview for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the two-step quantitative impairment test.
For the year ended March 31, 2012, we early adopted the new guidance for purposes of performing our annual goodwill impairment assessment. As of the last day of February 2012, we assessed qualitative factors and determined that there were no events or circumstances that led to a determination that it was more likely than not that the estimated fair value of a reporting unit was less than its carrying amount, therefore no further analysis was required and no goodwill impairment was identified.
Qualitative factors considered for each reporting unit included, but were not limited to, financial performance, forecasts and trends, macro-economic conditions, industry and market considerations, and the degree by which the fair value of each reporting unit exceeded its carrying value as of our most recent quantitative analysis in two steps.fiscal year 2011.
If we determine that that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount, we would perform the two-step quantitative impairment test. Step one compares the fair value of each reporting unit (operating segment) to its carrying amount. If step one indicates that the carrying value of the reporting unit exceeds the fair value, the second step is performed to measure the amount of impairment, if any.
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We invest in a number of public and privately-held companies, primarily through joint ventures and consortiums. If they are not consolidated, these investments are accounted for using the equity or cost method. As a result of the Arrangement, investments in and advances to affiliates as of May 16, 2007 were adjusted to reflect fair value.
We review equity investments for impairment whenever certain indicators are present suggesting that the carrying value of an investment is not recoverable. This analysis requires a significant amount of judgment to identify events or circumstances indicating that an equity investment may be impaired. Once an impairment indicator is identified, we must determine if an impairment exists, and if so, whether the impairment is other than temporary, in which case the equity investment would be written down to its estimated fair value.
Impairment of Long Lived Assets and Other Intangible Assets
We assess the recoverability of long-lived assets and finite-lived intangible assets of $707 million as of March 31, 2011 consist of tradenames, technology, customer relationships and favorable energy and supply contracts and are amortized over 3whenever events or changes in circumstances indicate that we may not be able to 20 years. As of March 31, 2011, we do not have any intangible assets with indefinite useful lives. We considerrecover the potential impairment of these other intangibles assetsasset’s carrying amount, in accordance with Financial Accounting Standards Board (FASB)FASB Accounting Standards Codification (ASC) (Codification) No. 360,Property, Plant and Equipment.For tradenames and technology, we utilize a relief-from-royalty method. All other intangible assets are assessed using the income approach. As a result of these assessments, no impairment was indicated.
When evaluating long-lived assets and finite-lived intangible assets for potential impairment, we first compare the carrying value of the asset to the asset’s estimated future net cash flows (undiscounted and without interest charges). If the estimated future net cash flows are less than the carrying value of the asset, we calculate and recognize an impairment loss. If we recognize an impairment loss, the carrying amount of the asset is adjusted to fair value based on the discounted estimated future net cash flows and will be its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated over the remaining useful life of that asset.
Our impairment loss calculations require management to apply judgments in estimating future cash flows to determine asset fair values, including forecasting useful lives of the assets and selecting the discount rate that represents the risk inherent in future cash flows. For the year ended March 31, 2012, we recorded impairment charges of $42 million classified as “Restructuring charges, net” which related primarily to the impairment of the planned closure of our Saguenay Works facility in Quebec, Canada and an additional impairment recorded on the land and buildings at our Bridgnorth facility and $4 million in impairment charges on long-lived assets classified as “Other (income) expense, net.” For the year ended March 31, 2011, we recorded impairment charges of $5 million classified as Restructuring“Restructuring charges, netnet” related to the write down of land and buildings at our Bridgnorth facility, offset by a $10 million gain on asset sales at our Rogerstone facility. We recorded impairment charges on long-lived assets of $1 million and $18 million (including $17 million classified as Restructuring charges, net), during the yearsyear ended March 31, 20102010.
Our other intangible assets of $678 million as of March 31, 2012 consist of tradenames, technology and 2009, respectively.
If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to additional impairment losses that could be material to our results of operations.
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We account for our pensions and other postretirement benefits in accordance with ASC 715,Compensation — Retirement Benefits(ASC 715). Liabilities and expense for pension plans and other postretirement benefits are determined using actuarial methodologies and incorporate significant assumptions, including the rate used to discount the future estimated liability, the long-term rate of return on plan assets, and several assumptions related to the employee workforce (salary increases, medical costs, retirement age, and mortality).
The actuarial models use an attribution approach that generally spreads the financial impact of changes to the plan and actuarial assumptions over the average remaining service lives of the employees in the plan. Changes in liability due to changes in actuarial assumptions such as discount rate, rate of compensation increases and mortality, as well as annual deviations between what was assumed and what was experienced by the plan are treated as gains or losses. Gains and losses are amortized over the group’s average future service life of the employees. The average future service life for pension plans and other postretirement benefit plans is 11.410.5 and 12.411.9 years, respectively. The principle underlying the required attribution approach is that employees render service over their average remaining service lives on a relatively smooth basis and, therefore, the accounting for benefits earned under the pension or non-pension postretirement benefits plans should follow the same relatively smooth pattern.
Our pension obligations relate to funded defined benefit pension plans we have established in the United States, Canada, Switzerland and the United Kingdom, unfunded defined benefit pension plans primarily in Germany, unfunded lump sum indemnities payable upon retirement to employees in France, Malaysia, and Italy and partially funded lump sum indemnities in South Korea. Pension benefits are generally based on the employee’s service and either on a flat rate for years of service or on the highest average eligible compensation before retirement. Our other postretirement benefit obligations include unfunded healthcare and life insurance benefits provided to retired employees in Canada, the U.S. and Brazil.
All net actuarial gains and losses are generally amortized over the expected average remaining service life of the employees. The costs and obligations of pension and other postretirement benefits are calculated based on assumptions including the long-term rate of return on pension assets, discount rates for pension and other postretirement benefit obligations, expected service period, salary increases, retirement ages of employees and healthcare cost trend rates. These assumptions bear the risk of change as they require significant judgment and they have inherent uncertainties that management may not be able to control.
The most significant assumption used to calculate pension and other postretirement obligations is the discount rates used to determine the present value of benefits. It is based on spot rate yield curves and individual bond matching models for pension and other postretirement plans in Canada and the United States, and on published long-term high quality corporate bond indices in other countries, at the end of each fiscal year. Adjustments were made to the index rates based on the duration of the plans’ obligations for each country. The weighted average discount rate used to determine the pension benefit obligation was 4.4%, 5.3%, 5.5% and 6.0%5.5% as of March 31, 2012, 2011, 2010 and 2009,2010, respectively. The weighted average discount rate used to determine the other postretirement benefit obligation was 5.2%4.2% as of March 31, 2011,2012, compared to 5.6%5.2% and 6.2%5.6% for March 31, 20102011 and 2009,2010, respectively. The weighted average discount rate used to determine the net periodic benefit cost is the rate used to determine the benefit obligation at the end of the previous fiscal year.
As of March 31, 2011,2012, an increase in the discount rate of 0.5%, assuming inflation remains unchanged, would result in a decrease of $109$132 million in the pension and other postretirement obligations and in a decrease of $14$15 million in the net periodic benefit cost. A decrease in the discount rate of 0.5% as of March 31, 2011,2012, assuming inflation remains unchanged, would result in an increase of $109$132 million in the pension and other postretirement obligations and in an increase of $14$15 million in the net periodic benefit cost. The calculation of the estimate of the expected return on assets and additional discussion regarding pension and other postretirement plans is described in Note 1213 — Postretirement Benefit Plans to our accompanying consolidated financial statements. The weighted average expected return on assets was 6.7% for 2012, 6.8% for 2011, and 6.7% for 2010, and 6.9% for 2009.2010. The expected return on assets is a long-term assumption whose accuracy can only be measured over a long period based on past experience. A variation in the expected return on assets by 0.5% as of March 31, 20112012 would result in a variation of approximately $5 million in the net periodic benefit cost.
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We account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, deferred tax assets are also recorded with respect to net operating losses and other tax attribute carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when realization of the benefit of deferred tax assets is not deemed to be more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The ultimate recovery of certain of our deferred tax assets is dependent on the amount and timing of taxable income that we will ultimately generate in the future and other factors such as the interpretation of tax laws. This means that significant estimates and judgments are required to determine the extent that valuation allowances should be provided against deferred tax assets. We have provided valuation allowances as of March 31, 20112012 aggregating $239$251 million against such assets based on our current assessment of future operating results, timing and nature of realizing deferred tax liabilities, tax planning strategies and tax carrybacks.
By their nature, tax laws are often subject to interpretation. Further complicating matters is that in those cases where a tax position is open to interpretation, differences of opinion can result in differing conclusions as to the amount of tax benefits to be recognized under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)ASC 740,Income Taxes. ASC 740 utilizes a two-step approach for evaluating tax positions. Recognition (Step 1) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Measurement (Step 2) is only addressed if Step 1 has been satisfied. Under Step 2, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon ultimate settlement. Consequently, the level of evidence and documentation necessary to support a position prior to being given recognition and measurement within the financial statements is a matter of judgment that depends on all available evidence.
Assessment of Loss Contingencies
We have legal and other contingencies, including environmental liabilities, which could result in significant losses upon the ultimate resolution of such contingencies. Environmental liabilities that are not legal asset retirement obligations are accrued on an undiscounted basis when it is probable that a liability exists for past events.
We have provided for losses in situations where we have concluded that it is probable that a loss has been or will be incurred and the amount of the loss is reasonably estimable. A significant amount of judgment is involved in determining whether a loss is probable and reasonably estimable due to the uncertainty involved in determining the likelihood of future events and estimating the financial statement impact of such events. If further developments or resolution of a contingent matter are not consistent with our assumptions and judgments, we may need to recognize a significant charge in a future period related to an existing contingency.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 1 — Business and Summary of Significant Accounting Policies to our accompanying audited consolidated financial statements for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on results of operations and financial condition.
NON-GAAP FINANCIAL MEASURES
Total Segment Income“Segment Income” presents the sum of the results of our four operating segments on a consolidated basis. We believe that Total Segment Incometotal “Segment Income” is an operating performance measure that measures operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. In reviewing our corporate
59
Management believes that investors’ understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations. Many investors are interested in understanding the performance of our business by comparing our results from ongoing operations from one period to the next and would ordinarily add back items that are not part of normal day-to-day operations of our business. By providing Total Segment Income,total “Segment Income”, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing strategic initiatives.
However, Total Segment Incometotal “Segment Income” is not a measurement of financial performance under GAAP, and our Total Segment Incometotal “Segment Income” may not be comparable to similarly titled measures of other companies. Total Segment Income“Segment Income” has important limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP. For example, Total total ���Segment Income:Income”:
does not reflect the company’s cash expenditures or requirements for capital expenditures or capital commitments;
does not reflect changes in, or cash requirements for, the company’s working capital needs; and
does not reflect any costs related to the current or future replacement of assets being depreciated and amortized.
We also use total “Segment Income”:
as a measure of operating performance to assist us in comparing our operating performance on a consistent basis because it removes the impact of items not directly resulting from our core operations;
for planning purposes, including the preparation of our internal annual operating budgets and financial projections;
to evaluate the performance and effectiveness of our operational strategies; and
as a basis to calculate incentive compensation payments for our key employees.
Total Segment Income:
60
We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in commodity prices (primarily aluminum, electricity and natural gas), foreign currency exchange rates and interest rates that could impact our results of operations and financial condition. We manage our exposure to these and other market risks through regular operating and financing activities and derivative financial instruments. We use derivative financial instruments as risk management tools only, and not for speculative purposes. Except where noted, the derivative contracts are marked-to-market and the related gains and losses are included in earnings in the current accounting period.
By their nature, all derivative financial instruments involve risk, including the credit risk of non-performance by counterparties. All derivative contracts are executed with counterparties that, in our judgment, are creditworthy. Our maximum potential loss may exceed the amount recognized in the accompanying March 31, 20112012 consolidated balance sheet.
The decision of whether and when to execute derivative instruments, along with the duration of the instrument, can vary from period to period depending on market conditions and the relative costs of the instruments. The duration is always linked to the timing of the underlying exposure, with the connection between the two being regularly monitored.
Commodity Price Risks
We have commodity price risk with respect to purchases of certain raw materials including aluminum, electricity, natural gas and transport fuel.
Aluminum
Most of our business is conducted under a conversion model that allows us to pass through increases or decreases in the price of aluminum to our customers. Nearly all of our products have a price structure with two components: (i) a pass through aluminum price based on the LME plus local market premiums and (ii) a “conversion premium” based on the conversion cost to produce the rolled product and the competitive market conditions for that product.
A key component of our conversion model is the use of derivative instruments on projected aluminum requirements to preserve our conversion margin. We enter into forward metal purchases simultaneous with the sales contracts that contain fixed metal prices. These forward metal purchases directly hedge the economic risk of future metal price fluctuation associated with these contracts. The recognition of unrealized gains and losses on metal derivative positions typically precedes customer delivery and revenue recognition under the related fixed forward priced contracts. The timing difference between the recognition of unrealized gains and losses on metal derivatives and recognition of revenue impacts income (loss) before income taxes and net income (loss). Gains and losses on metal derivative contracts are not recognized in segment income until realized.
Metal price lag associated with inventory and non-fixed priced sales exposes us to potential losses in periods of falling aluminum prices. We sell short-term LME futures contracts to reduce our exposure to this risk. We expect the gain or loss on the settlement of the derivative to offset the effect of changes in aluminum prices on future product sales. These hedges generally generate losses in periods of increasing aluminum prices.
Sensitivities
We estimate that a 10% declineincrease in LME aluminum prices would decreaseresult in a $29 million pre-tax loss related to the change in fair value of our aluminum contracts by $15 million.
Energy
We use several sources of energy in the manufacture and delivery of our aluminum rolled products. For the year ended March 31, 2011,2012, natural gas and electricity represented approximately 83%88% of our energy consumption by cost. We also use fuel oil and transport fuel. The majority of energy usage occurs at our casting centers, at our smelters in South America and during the hot rolling of aluminum. Our cold rolling facilities require relatively less energy.
61
A portion of our electricity requirements are purchased pursuant to long-term contracts in the local regions in which we operate. A number of our facilities are located in regions with regulated prices, which affords relatively stable costs. In South America, we own and operate hydroelectric facilities that meet approximately 65%60% of our total electricity requirements in that segment.for our smelter operations. Additionally, we have entered into an electricity swap in North America to fix a portion of the cost of our electricity requirements.
We purchase a nominal amount of heating oil forward contracts to hedge against fluctuations in the price of our transport fuel.
Fluctuating energy costs worldwide, due to the changes in supply and international and geopolitical events, expose us to earnings volatility as such changes in such costs cannot immediately be recovered under existing contracts and sales agreements, and may only be mitigated in future periods under future pricing arrangements.
Sensitivities
The following table presents the estimated potential effect on the fair values of these derivative instruments as of March 31, 20112012 given a 10% decline in spot prices for energy contracts ($ in millions).
| Change in | Change in | |||||||
| Price | Fair Value | |||||||
| Electricity | (10 | )% | $ | (1 | ) | |||
| Natural Gas | (10 | )% | (3 | ) | ||||
| Change in Price | Change in Fair Value | |||||||
Electricity | (10 | )% | $ | (1 | ) | |||
Natural Gas | (10 | )% | (2 | ) | ||||
Foreign Currency Exchange Risks
Exchange rate movements, particularly the euro, the Brazilian real and the Korean won against the U.S. dollar, have an impact on our operating results. In Europe, where we have predominantly local currency selling prices and operating costs, we benefit as the euro strengthens, but are adversely affected as the euro weakens. In Korea, where we have local currency selling prices for local sales and U.S. dollar denominated selling prices for exports, we benefit slightly as the won weakens, but are adversely affected as the won strengthens, due to a slightly higher percentage of exports compared to local sales. In Brazil, where we have predominately U.S. dollar selling prices and local currency operating costs, we benefit as the local currency weakens, but are adversely affected as the local currency strengthens. Foreign currency contracts may be used to hedge the economic exposures at our foreign operations.
It is our policy to minimize exposures from non-functional currency denominated transactions within each of our operating segments. As such, the majority of our foreign currency exposures are from either forecasted net sales or forecasted purchase commitments in non-functional currencies. Our most significant non-U.S. dollar functional currency operations have the euro and the Korean won as their functional currencies, respectively. Our Brazilian operations are U.S. dollar functional.
We also face translation risks related to the changes in foreign currency exchange rates which are generally not hedged. Amounts invested in these foreign operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting translation adjustments are recorded as a component of Accumulated“Accumulated other comprehensive income (loss)” in the Shareholders’ equity section of the accompanying condensed consolidated balance sheets. Net sales“Net sales” and expenses at these non-U.S. dollar functional currency entities are translated into varying amounts of U.S. dollars depending upon whether the U.S. dollar weakens or strengthens against other currencies. Therefore, changes in exchange rates may either positively or negatively affect our net sales and expenses as expressed in U.S. dollars.
Any negative impact of currency movements on the currency contracts that we have entered into to hedge foreign currency commitments to purchase or sell goods and services would be offset by an equal and opposite favorable exchange impact on the commitments being hedged. For a discussion of accounting policies and other information relating to currency contracts, see Note 1 — Business and Summary of Significant Accounting Policies and Note 1415 — Financial Instruments and Commodity Contracts.
62
| Change in | Change in | |||||||
| Exchange Rate | Fair Value | |||||||
Currency measured against the U.S. dollar | ||||||||
| Brazilian real | (10 | )% | $ | (41 | ) | |||
| Euro | 10 | % | (24 | ) | ||||
| Korean won | (10 | )% | (18 | ) | ||||
| Canadian dollar | (10 | )% | (5 | ) | ||||
| British pound | (10 | )% | (7 | ) | ||||
| Swiss franc | (10 | )% | (11 | ) | ||||
| Change in Exchange Rate | Change in Fair Value | |||||||
Currency measured against the U.S. dollar | ||||||||
Brazilian real | (10 | )% | $ | (43 | ) | |||
Euro | 10 | % | (39 | ) | ||||
Korean won | 10 | % | (8 | ) | ||||
Canadian dollar | (10 | )% | (4 | ) | ||||
British pound | (10 | )% | (3 | ) | ||||
Swiss franc | (10 | )% | (6 | ) | ||||
Interest Rate Risks
We use interest rate swaps to manage our exposure to changes in the benchmark LIBOR interest rate which impacts our variable-rate debt. Prior to the completion of the December 17, 2010 refinancing transactions, these swaps were designated as cash flow hedges. Upon completion of the refinancing transaction, our exposure to changes in the benchmark LIBOR interest rate was limited which resulted in de-designation. The 2011 Term Loan Facility contains a floor feature of the higher of LIBOR or 100 basis points plus a spread ofthat ranges from 2.75% to 3.00%. As of March 31, 2011,2012, this floor feature was in effect, changing our variable rate debt to fixed rate debt.debt with a spread of 3%. Due to the nature of fixed-rate debt, there would be no significant impact on our interest expense or cash flows from either a 10% increase or decrease in market rates of interest.
Due to the floor feature of our 2011 Term Loan Facility mentioned above, a 10 basis point increase in the interest rates on our outstanding variable rate debt as of March 31, 2011,2012, would have no impact on our annual pre-tax income. To be above the 2011 Term Loan Facility floor feature, as of March 31, 2011,2012, interest rates would have to increase by 7054 basis points (bp). From time to time, we have used interest rate swaps to manage our debt cost.
In January 2012, in Korea, we entered into interest rate swaps to fix the interest rate on various floating rate debt.debt swaps in order to manage our exposure to changes in 3M-CD interest rate. See Note 1011 — Debt for further information.
Sensitivities
The following table presents the estimated potential effect on the fair values of these derivative instruments as of March 31, 2011,2012, given a 100 bps negative shift in USD LIBORrates ($ in millions).
| Change in | Change in | |||||||
| Rate | Fair Value | |||||||
Interest Rate Contracts | ||||||||
| North America | (100) bps | $ | (2 | ) | ||||
63
| Change in Rate | Change in Fair Value | |||||||
Interest Rate Contracts | ||||||||
North America – USD LIBOR | (100)bps | $ | — | |||||
Asia – KRW-CD-3200 | (100)bps | $ | (1 | ) | ||||
| 67 | ||||
| 68 | ||||
| 69 | ||||
| 70 | ||||
| 71 | ||||
| 72 | ||||
| 73 |
64
To the Board of Directors and Shareholder of Novelis Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income (loss), shareholder’s equity and cash flows present fairly, in all material respects, the financial position of Novelis Inc. and its subsidiaries (the Company) at March 31, 20112012 and March 31, 2010,2011, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 20112012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2011,2012, based on criteria established inInternal Control —- Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Atlanta, GA
Georgia
May 26, 2011
6524, 2012
| Year Ended | ||||||||||||||
| March 31, | ||||||||||||||
| 2011 | 2010 | 2009 | ||||||||||||
| Net sales | $ | 10,577 | $ | 8,673 | $ | 10,177 | ||||||||
| Cost of goods sold (exclusive of depreciation and amortization) | 9,227 | 7,213 | 9,276 | |||||||||||
| Selling, general and administrative expenses | 375 | 337 | 294 | |||||||||||
| Depreciation and amortization | 404 | 384 | 439 | |||||||||||
| Research and development expenses | 40 | 38 | 41 | |||||||||||
| Interest expense and amortization of debt issuance costs | 207 | 175 | 182 | |||||||||||
| Interest income | (13 | ) | (11 | ) | (14 | ) | ||||||||
| (Gain) loss on change in fair value of derivative instruments, net | (43 | ) | (194 | ) | 556 | |||||||||
| Impairment of goodwill | — | — | 1,340 | |||||||||||
| (Gain) loss on extinguishment of debt | 84 | — | (122 | ) | ||||||||||
| Restructuring charges, net | 34 | 14 | 95 | |||||||||||
| Equity in net loss of non-consolidated affiliates | 12 | 15 | 172 | |||||||||||
| Other (income) expenses, net | 7 | (25 | ) | 86 | ||||||||||
| 10,334 | 7,946 | 12,345 | ||||||||||||
| Income (loss) before income taxes | 243 | 727 | (2,168 | ) | ||||||||||
| Income tax provision (benefit) | 83 | 262 | (246 | ) | ||||||||||
| Net income (loss) | 160 | 465 | (1,922 | ) | ||||||||||
| Net income (loss) attributable to noncontrolling interests | 44 | 60 | (12 | ) | ||||||||||
Net income (loss) attributable to our common shareholder | $ | 116 | $ | 405 | $ | (1,910 | ) | |||||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Net sales | $ | 11,063 | $ | 10,577 | $ | 8,673 | ||||||
|
|
|
|
|
| |||||||
Cost of goods sold (exclusive of depreciation and amortization) | 9,743 | 9,227 | 7,213 | |||||||||
Selling, general and administrative expenses | 383 | 375 | 337 | |||||||||
Depreciation and amortization | 329 | 404 | 384 | |||||||||
Research and development expenses | 44 | 40 | 38 | |||||||||
Interest expense and amortization of debt issuance costs | 305 | 207 | 175 | |||||||||
Interest income | (15 | ) | (13 | ) | (11 | ) | ||||||
Loss on assets held for sale | 111 | — | — | |||||||||
Loss on extinguishment of debt | — | 84 | — | |||||||||
Restructuring charges, net | 60 | 34 | 14 | |||||||||
Equity in net loss of non-consolidated affiliates | 13 | 12 | 15 | |||||||||
Other (income) expense, net | (39 | ) | (36 | ) | (219 | ) | ||||||
|
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| |||||||
| 10,934 | 10,334 | 7,946 | ||||||||||
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| |||||||
Income before income taxes | 129 | 243 | 727 | |||||||||
Income tax provision | 39 | 83 | 262 | |||||||||
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| |||||||
Net income | 90 | 160 | 465 | |||||||||
Net income attributable to noncontrolling interests | 27 | 44 | 60 | |||||||||
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| |||||||
Net income attributable to our common shareholder | $ | 63 | $ | 116 | $ | 405 | ||||||
|
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| |||||||
See accompanying notes to the consolidated financial statements.
66
CONSOLIDATED BALANCE SHEETS
(In millions, except number of shares)
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| ASSETS | ||||||||
Current assets | ||||||||
| Cash and cash equivalents | $ | 311 | $ | 437 | ||||
| Accounts receivable (net of allowances of $7 and $4 as of March 31, 2011 and 2010, respectively) | ||||||||
| — third parties | 1,480 | 1,143 | ||||||
| — related parties | 28 | 24 | ||||||
| Inventories, net | 1,338 | 1,083 | ||||||
| Prepaid expenses and other current assets | 50 | 39 | ||||||
| Fair value of derivative instruments | 165 | 197 | ||||||
| Deferred income tax assets | 39 | 12 | ||||||
Total current assets | 3,411 | 2,935 | ||||||
| Property, plant and equipment, net | 2,543 | 2,632 | ||||||
| Goodwill | 611 | 611 | ||||||
| Intangible assets, net | 707 | 749 | ||||||
| Investment in and advances to non-consolidated affiliates | 743 | 709 | ||||||
| Fair value of derivative instruments, net of current portion | 17 | 7 | ||||||
| Deferred income tax assets | 52 | 5 | ||||||
| Other long-term assets | ||||||||
| — third parties | 193 | 93 | ||||||
| — related parties | 19 | 21 | ||||||
Total assets | $ | 8,296 | $ | 7,762 | ||||
| LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||
Current liabilities | ||||||||
| Current portion of long-term debt | $ | 21 | $ | 116 | ||||
| Short-term borrowings | 17 | 75 | ||||||
| Accounts payable | ||||||||
| — third parties | 1,378 | 1,076 | ||||||
| — related parties | 50 | 53 | ||||||
| Fair value of derivative instruments | 82 | 110 | ||||||
| Accrued expenses and other current liabilities | 568 | 436 | ||||||
| Deferred income tax liabilities | 43 | 34 | ||||||
Total current liabilities | 2,159 | 1,900 | ||||||
| Long-term debt, net of current portion | 4,065 | 2,480 | ||||||
| Deferred income tax liabilities | 552 | 497 | ||||||
| Accrued postretirement benefits | 526 | 499 | ||||||
| Other long-term liabilities | 359 | 376 | ||||||
| 7,661 | 5,752 | |||||||
| Commitments and contingencies | ||||||||
Shareholder’s equity | ||||||||
| Common stock, no par value; unlimited number of shares authorized; 1,000 shares issued and outstanding as of March 31, 2011 and 2010, respectively | — | — | ||||||
| Additional paid-in capital | 1,830 | 3,530 | ||||||
| Accumulated deficit | (1,442 | ) | (1,558 | ) | ||||
| Accumulated other comprehensive income (loss) | 57 | (103 | ) | |||||
Total equity of our common shareholder | 445 | 1,869 | ||||||
Noncontrolling interests | 190 | 141 | ||||||
Total equity | 635 | 2,010 | ||||||
Total liabilities and equity | $ | 8,296 | $ | 7,762 | ||||
| March 31, | ||||||||
| 2012 | 2011 | |||||||
| ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 317 | $ | 311 | ||||
Accounts receivable, net | ||||||||
— third parties (net of allowances of $5 and $7 as of March 31, 2012 and 2011, respectively) | 1,331 | 1,480 | ||||||
— related parties | 36 | 28 | ||||||
Inventories | 1,024 | 1,338 | ||||||
Prepaid expenses and other current assets | 61 | 50 | ||||||
Fair value of derivative instruments | 99 | 165 | ||||||
Deferred income tax assets | 151 | 39 | ||||||
Assets held for sale | 81 | — | ||||||
|
|
|
| |||||
Total current assets | 3,100 | 3,411 | ||||||
Property, plant and equipment, net | 2,689 | 2,543 | ||||||
Goodwill | 611 | 611 | ||||||
Intangible assets, net | 678 | 707 | ||||||
Investment in and advances to non–consolidated affiliates | 683 | 743 | ||||||
Fair value of derivative instruments, net of current portion | 2 | 17 | ||||||
Deferred income tax assets | 74 | 52 | ||||||
Other long–term assets | ||||||||
— third parties | 168 | 193 | ||||||
— related parties | 16 | 19 | ||||||
|
|
|
| |||||
Total assets | $ | 8,021 | $ | 8,296 | ||||
|
|
|
| |||||
| LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||
Current liabilities | ||||||||
Current portion of long–term debt | $ | 23 | $ | 21 | ||||
Short–term borrowings | 18 | 17 | ||||||
Accounts payable | ||||||||
— third parties | 1,245 | 1,378 | ||||||
— related parties | 51 | 50 | ||||||
Fair value of derivative instruments | 95 | 82 | ||||||
Accrued expenses and other current liabilities | 476 | 568 | ||||||
Deferred income tax liabilities | 34 | 43 | ||||||
Liabilities held for sale | 57 | — | ||||||
|
|
|
| |||||
Total current liabilities | 1,999 | 2,159 | ||||||
Long–term debt, net of current portion | 4,321 | 4,065 | ||||||
Deferred income tax liabilities | 581 | 552 | ||||||
Accrued postretirement benefits | 687 | 526 | ||||||
Other long–term liabilities | 310 | 359 | ||||||
|
|
|
| |||||
Total liabilities | 7,898 | 7,661 | ||||||
|
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| |||||
Commitments and contingencies | ||||||||
Shareholder’s equity | ||||||||
Common stock, no par value; unlimited number of shares authorized; 1,000 shares issued and outstanding as of March 31, 2012 and 2011 | — | — | ||||||
Additional paid–in capital | 1,659 | 1,830 | ||||||
Accumulated deficit | (1,379 | ) | (1,442 | ) | ||||
Accumulated other comprehensive (loss) income | (191 | ) | 57 | |||||
|
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| |||||
Total equity of our common shareholder | 89 | 445 | ||||||
Noncontrolling interests | 34 | 190 | ||||||
|
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| |||||
Total equity | 123 | 635 | ||||||
|
|
|
| |||||
Total liabilities and equity | $ | 8,021 | $ | 8,296 | ||||
|
|
|
| |||||
See accompanying notes to the consolidated financial statements.
67
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
OPERATING ACTIVITIES | ||||||||||||
| Net income (loss) | $ | 160 | $ | 465 | $ | (1,922 | ) | |||||
| Adjustments to determine net cash provided by (used in) operating activities: | ||||||||||||
| Depreciation and amortization | 404 | 384 | 439 | |||||||||
| (Gain) loss on change in fair value of derivative instruments, net | (43 | ) | (194 | ) | 556 | |||||||
| (Gain) loss on extinguishment of debt | 84 | — | (122 | ) | ||||||||
| Non-cash restructuring charges, net | 5 | 2 | 22 | |||||||||
| Deferred income taxes | (45 | ) | 229 | (331 | ) | |||||||
| Write-off and amortization of fair value adjustments, net | 4 | (134 | ) | (233 | ) | |||||||
| Impairment of goodwill | — | — | 1,340 | |||||||||
| Equity in net loss of non-consolidated affiliates | 12 | 15 | 172 | |||||||||
| Foreign exchange remeasurement on debt | — | (20 | ) | 26 | ||||||||
| (Gain) loss on sale of assets | (4 | ) | 1 | — | ||||||||
| Gain on reversal of accrued legal claim | — | (3 | ) | (26 | ) | |||||||
| Other, net | 2 | 10 | 8 | |||||||||
| Changes in assets and liabilities (net of effects from acquisitions and divestitures): | ||||||||||||
| Accounts receivable | (295 | ) | (46 | ) | 73 | |||||||
| Inventories | (218 | ) | (264 | ) | 466 | |||||||
| Accounts payable | 263 | 311 | (643 | ) | ||||||||
| Other current assets | (8 | ) | 14 | (6 | ) | |||||||
| Other current liabilities | 134 | 47 | (63 | ) | ||||||||
| Other noncurrent assets | (6 | ) | (15 | ) | 17 | |||||||
| Other noncurrent liabilities | 5 | 42 | 7 | |||||||||
Net cash provided by (used in) operating activities | 454 | 844 | (220 | ) | ||||||||
INVESTING ACTIVITIES | ||||||||||||
| Capital expenditures | (234 | ) | (101 | ) | (145 | ) | ||||||
| Proceeds from sales of assets | ||||||||||||
| — third parties | 21 | 5 | 5 | |||||||||
| — related parties | 10 | — | — | |||||||||
| Changes to investment in and advances to non-consolidated affiliates | — | 3 | 20 | |||||||||
| Proceeds from related party loans receivable, net | (1 | ) | 4 | 17 | ||||||||
| Net proceeds from settlement of derivative instruments | 91 | (395 | ) | (24 | ) | |||||||
Net cash used in investing activities | (113 | ) | (484 | ) | (127 | ) | ||||||
FINANCING ACTIVITIES | ||||||||||||
| Proceeds from issuance of debt | ||||||||||||
| — third parties | 3,985 | 177 | 263 | |||||||||
| — related parties | — | 4 | 91 | |||||||||
| Principal repayments | ||||||||||||
| — third parties | (2,489 | ) | (67 | ) | (235 | ) | ||||||
| — related parties | — | (95 | ) | — | ||||||||
| Short-term borrowings, net | (56 | ) | (193 | ) | 176 | |||||||
| Return of capital to our common shareholder | (1,700 | ) | — | — | ||||||||
| Dividends, noncontrolling interest | (18 | ) | (13 | ) | (6 | ) | ||||||
| Debt issuance costs | (193 | ) | (1 | ) | (3 | ) | ||||||
Net cash provided by (used in) financing activities | (471 | ) | (188 | ) | 286 | |||||||
| Net increase (decrease) in cash and cash equivalents | (130 | ) | 172 | (61 | ) | |||||||
Effect of exchange rate changes on cash balances held in foreign currencies | 4 | 17 | (17 | ) | ||||||||
| Cash and cash equivalents — beginning of period | 437 | 248 | 326 | |||||||||
| Cash and cash equivalents — end of period | $ | 311 | $ | 437 | $ | 248 | ||||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income | $ | 90 | $ | 160 | $ | 465 | ||||||
Adjustments to determine net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 329 | 404 | 384 | |||||||||
Gain on unrealized derivatives and other realized derivatives in investing activities, net | (7 | ) | (43 | ) | (194 | ) | ||||||
Loss on assets held for sale | 111 | — | — | |||||||||
Loss on extinguishment of debt | — | 84 | — | |||||||||
Non-cash impairment charges, net | 46 | 5 | 2 | |||||||||
Deferred income taxes | (33 | ) | (45 | ) | 229 | |||||||
Write-off and amortization of fair value adjustments, net | 24 | 4 | (134 | ) | ||||||||
Amortization of debt issuance costs | 17 | 9 | 6 | |||||||||
Equity in net loss of non-consolidated affiliates | 13 | 12 | 15 | |||||||||
(Gain) loss on foreign exchange remeasurement on debt | 13 | — | (20 | ) | ||||||||
(Gain) loss on sale of assets | 3 | (4 | ) | 1 | ||||||||
Gain on reversal of accrued legal claim | — | — | (3 | ) | ||||||||
Other, net | 3 | (7 | ) | 4 | ||||||||
Changes in assets and liabilities including assets and liabilities held for sale (net of effects from acquisitions and divestitures): | ||||||||||||
Accounts receivable | 47 | (295 | ) | (46 | ) | |||||||
Inventories | 214 | (218 | ) | (264 | ) | |||||||
Accounts payable | (188 | ) | 263 | 311 | ||||||||
Other current assets | (10 | ) | (8 | ) | 14 | |||||||
Other current liabilities | (67 | ) | 134 | 47 | ||||||||
Other noncurrent assets | 9 | (6 | ) | (15 | ) | |||||||
Other noncurrent liabilities | (58 | ) | 5 | 42 | ||||||||
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|
|
|
| |||||||
Net cash provided by operating activities | 556 | 454 | 844 | |||||||||
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|
|
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| |||||||
INVESTING ACTIVITIES | ||||||||||||
Capital expenditures | (516 | ) | (234 | ) | (101 | ) | ||||||
Proceeds from sales of assets | ||||||||||||
— third parties | 12 | 21 | 5 | |||||||||
— related parties | 4 | 10 | — | |||||||||
Proceeds from investment in and advances to non-consolidated affiliates, net | 2 | — | 3 | |||||||||
(Outflow) proceeds from related party loans receivable, net | (3 | ) | (1 | ) | 4 | |||||||
(Outflow) proceeds from settlement of other undesignated derivative instruments, net | 59 | 91 | (395 | ) | ||||||||
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|
|
| |||||||
Net cash used in investing activities | (442 | ) | (113 | ) | (484 | ) | ||||||
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| |||||||
FINANCING ACTIVITIES | ||||||||||||
Proceeds from issuance of debt | ||||||||||||
— third parties | 271 | 3,985 | 177 | |||||||||
— related parties | — | — | 4 | |||||||||
Principal repayments | ||||||||||||
— third parties | (22 | ) | (2,489 | ) | (67 | ) | ||||||
— related parties | — | — | (95 | ) | ||||||||
Short-term borrowings, net | 2 | (56 | ) | (193 | ) | |||||||
Return of capital to our common shareholder | — | (1,700 | ) | — | ||||||||
Dividends, noncontrolling interest | (1 | ) | (18 | ) | (13 | ) | ||||||
Acquisition of noncontrolling interest in Novelis Korea, Ltd. | (344 | ) | — | — | ||||||||
Debt issuance costs | (2 | ) | (193 | ) | (1 | ) | ||||||
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| |||||||
Net cash used in financing activities | (96 | ) | (471 | ) | (188 | ) | ||||||
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| |||||||
Net increase (decrease) in cash and cash equivalents | 18 | (130 | ) | 172 | ||||||||
Effect of exchange rate changes on cash | (12 | ) | 4 | 17 | ||||||||
Cash and cash equivalents — beginning of period | 311 | 437 | 248 | |||||||||
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Cash and cash equivalents — end of period | $ | 317 | $ | 311 | $ | 437 | ||||||
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| |||||||
See accompanying notes to the consolidated financial statements.
68
CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY
(In millions, except number of shares)
| Equity of our Common Shareholder | ||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||
| Retained | Other | |||||||||||||||||||||||||||
| Additional | Earnings/ | Comprehensive | Non- | |||||||||||||||||||||||||
| Common Stock | Paid-in | (Accumulated | Income (Loss) | Controlling | Total | |||||||||||||||||||||||
| Shares | Amount | Capital | Deficit) | (AOCI) | Interests | Equity | ||||||||||||||||||||||
| Balance as of March 31, 2008 | 1,398,583 | — | $ | 3,497 | $ | (53 | ) | $ | 46 | $ | 149 | $ | 3,639 | |||||||||||||||
| Fiscal 2009 Activity: | ||||||||||||||||||||||||||||
| Net income attributable to our common shareholder | — | — | — | (1,910 | ) | — | — | (1,910 | ) | |||||||||||||||||||
| Net income attributable to noncontrolling interests | — | — | — | — | — | (12 | ) | (12 | ) | |||||||||||||||||||
| Forgiveness of interest on intercompany note | 9,347 | — | 23 | — | — | — | 23 | |||||||||||||||||||||
| Payment of income taxes by AV Metals on behalf of Novelis, Inc. | 4,116 | — | 10 | — | — | — | 10 | |||||||||||||||||||||
| Currency translation adjustment, net of tax of $— in AOCI | — | — | — | — | (122 | ) | (41 | ) | (163 | ) | ||||||||||||||||||
| Change in fair value of effective portion of hedges, net of tax benefit of $11 included in AOCI | — | — | — | — | (19 | ) | — | (19 | ) | |||||||||||||||||||
| Postretirement benefit plans: | ||||||||||||||||||||||||||||
| Change in pension and other benefits, net of tax provision of $31 included in AOCI | — | — | — | — | (53 | ) | — | (53 | ) | |||||||||||||||||||
| Noncontrolling interests cash dividends | — | — | — | — | — | (6 | ) | (6 | ) | |||||||||||||||||||
| Balance as of March 31, 2009 | 1,412,046 | — | 3,530 | (1,963 | ) | (148 | ) | 90 | 1,509 | |||||||||||||||||||
| Fiscal 2010 Activity: | ||||||||||||||||||||||||||||
| Net income attributable to our common shareholder | — | — | — | 405 | — | — | 405 | |||||||||||||||||||||
| Net income attributable to noncontrolling interests | — | — | — | — | — | 60 | 60 | |||||||||||||||||||||
| Share consolidation | (1,411,046 | ) | — | — | — | — | — | — | ||||||||||||||||||||
| Currency translation adjustment, net of tax of $— in AOCI | — | — | — | — | 54 | 21 | 75 | |||||||||||||||||||||
| Change in fair value of effective portion of hedges, net of tax benefit of $5 included in AOCI | — | — | — | — | (8 | ) | — | (8 | ) | |||||||||||||||||||
| Postretirement benefit plans: | ||||||||||||||||||||||||||||
| Change in pension and other benefits, net of tax provision of $10 included in AOCI | — | — | — | — | (1 | ) | — | (1 | ) | |||||||||||||||||||
| Noncontrolling interests cash dividends | — | — | — | — | — | (30 | ) | (30 | ) | |||||||||||||||||||
| Balance as of March 31, 2010 | 1,000 | — | 3,530 | (1,558 | ) | (103 | ) | 141 | 2,010 | |||||||||||||||||||
| Fiscal 2011 Activity: | ||||||||||||||||||||||||||||
| Net income attributable to our common shareholder | — | — | — | 116 | — | — | 116 | |||||||||||||||||||||
| Net income attributable to noncontrolling interests | — | — | — | — | — | 44 | 44 | |||||||||||||||||||||
| Currency translation adjustment, net of tax provision of $6 in AOCI | — | — | — | — | 111 | 6 | 117 | |||||||||||||||||||||
| Change in fair value of effective portion of hedges, net of tax provision of $27 included in AOCI | — | — | — | — | 49 | — | 49 | |||||||||||||||||||||
| Postretirement benefit plans: | ||||||||||||||||||||||||||||
| Change in pension and other benefits, net of tax benefit of $3 included in AOCI | — | — | — | — | — | — | — | |||||||||||||||||||||
| Return of capital to our common shareholder | — | — | (1,700 | ) | — | — | — | (1,700 | ) | |||||||||||||||||||
| Noncontrolling interests cash dividends | — | — | — | — | — | (1 | ) | (1 | ) | |||||||||||||||||||
| Balance as of March 31, 2011 | 1,000 | $ | — | $ | 1,830 | $ | (1,442 | ) | $ | 57 | $ | 190 | $ | 635 | ||||||||||||||
| Equity of our Common Shareholder | ||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Retained Earnings/ (Accumulated | Accumulated Other Comprehensive Income (Loss) | Non- Controlling | Total | |||||||||||||||||||||||
| Shares | Amount | Capital | Deficit) | (AOCI) | Interests | Equity | ||||||||||||||||||||||
Balance as of March 31, 2009 | 1,412,046 | — | $ | 3,530 | $ | (1,963 | ) | $ | (148 | ) | $ | 90 | 1,509 | |||||||||||||||
Fiscal 2010 Activity: | ||||||||||||||||||||||||||||
Net income attributable to our common shareholder | — | — | — | 405 | — | — | 405 | |||||||||||||||||||||
Net income attributable to noncontrolling interests | — | — | — | — | — | 60 | 60 | |||||||||||||||||||||
Share consolidation | (1,411,046 | ) | — | — | — | — | — | — | ||||||||||||||||||||
Currency translation adjustment, net of tax of $— | — | — | — | — | 54 | 21 | 75 | |||||||||||||||||||||
Change in fair value of effective portion of hedges, | — | — | — | — | (8 | ) | — | (8 | ) | |||||||||||||||||||
Change in pension and other benefits, net of tax | — | — | — | — | (1 | ) | — | (1 | ) | |||||||||||||||||||
Noncontrolling interests cash dividends declared | — | — | — | — | — | (30 | ) | (30 | ) | |||||||||||||||||||
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Balance as of March 31, 2010 | 1,000 | — | 3,530 | (1,558 | ) | (103 | ) | 141 | 2,010 | |||||||||||||||||||
Fiscal 2011 Activity: | ||||||||||||||||||||||||||||
Net income attributable to our common shareholder | — | — | — | 116 | — | — | 116 | |||||||||||||||||||||
Net income attributable to noncontrolling interests | — | — | — | — | — | 44 | 44 | |||||||||||||||||||||
Currency translation adjustment, net of tax provision of | — | — | — | — | 111 | 6 | 117 | |||||||||||||||||||||
Change in fair value of effective portion of hedges, | — | — | — | — | 49 | — | 49 | |||||||||||||||||||||
Change in pension and other benefits, net of tax | — | — | — | — | — | — | — | |||||||||||||||||||||
Return of capital to our common shareholder | — | — | (1,700 | ) | — | — | — | (1,700 | ) | |||||||||||||||||||
Noncontrolling interests cash dividends declared | — | — | — | — | — | (1 | ) | (1 | ) | |||||||||||||||||||
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Balance as of March 31, 2011 | 1,000 | — | 1,830 | (1,442 | ) | 57 | 190 | 635 | ||||||||||||||||||||
Fiscal 2012 Activity: | ||||||||||||||||||||||||||||
Net income attributable to our common shareholder | — | — | — | 63 | — | — | 63 | |||||||||||||||||||||
Net income attributable to noncontrolling interests | — | — | — | — | — | 27 | 27 | |||||||||||||||||||||
Currency translation adjustment, net of tax provision of | — | — | — | — | (83 | ) | (8 | ) | (91 | ) | ||||||||||||||||||
Change in fair value of effective portion of hedges, | — | — | — | — | (26 | ) | (3 | ) | (29 | ) | ||||||||||||||||||
Change in pension and other benefits, net of tax | — | — | — | — | (136 | ) | — | (136 | ) | |||||||||||||||||||
Acquisition of noncontrolling interest in Novelis Korea Ltd. | — | — | (171 | ) | — | (3 | ) | (170 | ) | (344 | ) | |||||||||||||||||
Noncontrolling interests cash dividends declared | — | — | — | — | — | (2 | ) | (2 | ) | |||||||||||||||||||
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Balance as of March 31, 2012 | 1,000 | $ | — | $ | 1,659 | $ | (1,379 | ) | $ | (191 | ) | $ | 34 | $ | 123 | |||||||||||||
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See accompanying notes to the consolidated financial statements.
69
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
| Year Ended | ||||||||||||||
| March 31, | ||||||||||||||
| 2011 | 2010 | 2009 | ||||||||||||
Net income (loss) attributable to our common shareholder | $ | 116 | $ | 405 | $ | (1,910 | ) | |||||||
| Other comprehensive income (loss): | ||||||||||||||
| Currency translation adjustment | 117 | 54 | (122 | ) | ||||||||||
| Change in fair value of effective portion of hedges, net | 76 | (13 | ) | (30 | ) | |||||||||
| Postretirement benefit plans: | ||||||||||||||
| Change in pension and other benefits | (3 | ) | 9 | (84 | ) | |||||||||
| Other comprehensive income (loss) before income tax effect | 190 | 50 | (236 | ) | ||||||||||
| Income tax provision (benefit) related to items of other comprehensive income (loss) | 30 | 5 | (42 | ) | ||||||||||
| Other comprehensive income (loss), net of tax | 160 | 45 | (194 | ) | ||||||||||
Comprehensive income (loss) attributable to our common shareholder | 276 | 450 | (2,104 | ) | ||||||||||
Net income (loss) attributable to noncontrolling interests | 44 | 60 | (12 | ) | ||||||||||
| Other comprehensive income (loss): | ||||||||||||||
| Currency translation adjustment | 6 | 21 | (41 | ) | ||||||||||
| Other comprehensive income (loss), net of tax | 6 | 21 | (41 | ) | ||||||||||
Comprehensive income (loss) attributable to noncontrolling interests | 50 | 81 | (53 | ) | ||||||||||
Comprehensive income (loss) | $ | 326 | $ | 531 | $ | (2,157 | ) | |||||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Net income attributable to our common shareholder | $ | 63 | $ | 116 | $ | 405 | ||||||
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Other comprehensive income (loss): | ||||||||||||
Currency translation adjustment attributable to our common shareholder | (83 | ) | 117 | 54 | ||||||||
Change in fair value of effective portion of hedges, net attributable to our common shareholder | (43 | ) | 76 | (13 | ) | |||||||
Change in pension and other benefits, net attributable to our common shareholder | (191 | ) | (3 | ) | 9 | |||||||
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Other comprehensive income (loss) before income tax effect attributable to our common shareholder | (317 | ) | 190 | 50 | ||||||||
Income tax provision (benefit) related to items of other comprehensive income (loss) attributable to our common shareholder | (72 | ) | 30 | 5 | ||||||||
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Other comprehensive income (loss), net of tax attributable to our common shareholder | (245 | ) | 160 | 45 | ||||||||
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Comprehensive income (loss) attributable to our common shareholder | (182 | ) | 276 | 450 | ||||||||
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Net income attributable to noncontrolling interests | 27 | 44 | 60 | |||||||||
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Other comprehensive income: | ||||||||||||
Currency translation adjustment attributable to noncontrolling interest | (8 | ) | 6 | 21 | ||||||||
Change in fair value of effective portion of hedges, net attributable to noncontrolling interest | (3 | ) | — | — | ||||||||
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Other comprehensive income (loss) attributable to noncontrolling interest | (11 | ) | 50 | 81 | ||||||||
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Comprehensive income attributable to noncontrolling interest | $ | 16 | $ | 326 | $ | 531 | ||||||
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See accompanying notes to the consolidated financial statements.
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 1. | ||
| BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
References herein to “Novelis,” the “Company,” “we,” “our,” or “us” refer to Novelis Inc. and its subsidiaries unless the context specifically indicates otherwise. References herein to “Hindalco” refer to Hindalco Industries Limited. In October 2007, the Rio Tinto Group purchased all the outstanding shares of Alcan, Inc. References herein to “Alcan” refer to Rio Tinto Alcan Inc.
Organization and Description of Business
Novelis Inc., formed in Canada on September 21, 2004, and its subsidiaries, is the world’s leading aluminum rolled products producer based on shipment volume. We produce aluminum sheet and light gauge products for the beverage and food can, transportation, construction and industrial, and foil products markets. As of March 31, 2011,2012, we had operations in eleven countries on four continents: North America, South America, Asia and Europe, 30and 29 operating plants and seven research and development facilities in eleven countries. In addition to aluminum rolled products plants, our South American businesses include bauxite mining, primary aluminum smelting and power generation facilities.
Acquisition of Novelis Common Stock
On May 15, 2007, the Company was acquired by Hindalco through its indirect wholly-owned subsidiary pursuant to a plan of arrangement (the Arrangement) at a price of $44.93 per share. The aggregate purchase price for all of the Company’s common shares was $3.4 billion and Hindalco also assumed $2.8 billion of Novelis’ debt for a total transaction value of $6.2 billion. Subsequent to completion of the Arrangement on May 15, 2007, all of our common shares were indirectly held by Hindalco.
Amalgamation of AV Aluminum Inc. and Novelis Inc.
Our consolidated financial statements include the assets, liabilities, revenues and expenses of all wholly-owned subsidiaries, majority-owned subsidiaries over which we exercise control and entities in which we have a controlling financial interest or are deemed to be the primary beneficiary. We eliminate all significant intercompany accounts and transactions from our consolidated financial statements.
71
We use the cost method to account for our investments in entities that we do not control and for which we do not have the ability to exercise significant influence over operating and financial policies. These investments are recorded at the lower of their cost or fair value.
Use of Estimates and Assumptions
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The principal areas of judgment relate to (1) the fair value of derivative financial instruments; (2) impairment of goodwill; (3) impairmentsimpairment of long lived assets and other intangible assets and(4) equity investments; (4)(5) actuarial assumptions related to pension and other postretirement benefit plans; (5) income(6) tax reservesuncertainties and valuation allowances and (6)(7) assessment of loss contingencies, including environmental and litigation reserves.liabilities. Future events and their effects cannot be predicted with certainty, and accordingly, our accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of our consolidated financial statements will 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.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Risks and Uncertainties
We are exposed to a number of risks in the normal course of our operations that could potentially affect our financial position, results of operations, and cash flows.
Laws and regulations
We operate in an industry that is subject to a broad range of environmental, health and safety laws and regulations in the jurisdictions in which we operate. These laws and regulations impose increasingly stringent environmental, health and safety protection standards and permitting requirements regarding, among other things, air emissions, wastewater storage, treatment and discharges, the use and handling of hazardous or toxic materials, waste disposal practices, the remediation of environmental contamination, post-mining reclamation and working conditions for our employees. Some environmental laws, such as the U.S. Comprehensive Environmental Response, Compensation, and Liability Act, also known as CERCLA or Superfund, and comparable state laws, impose joint and several liability for the cost of environmental remediation, natural resource damages, third party claims, and other expenses, without regard to the fault or the legality of the original conduct.
The costs of complying with these laws and regulations, including participation in assessments and remediation of contaminated sites and installation of pollution control facilities, have been, and in the future could be, significant. In addition, these laws and regulations may also result in substantial environmental liabilities associated with divested assets, third party locations and past activities. In certain instances, these costs and liabilities, as well as related action to be taken by us, could be accelerated or increased if we were to close, divest of or change the principal use of certain facilities with respect to which we may have environmental liabilities or remediation obligations. Currently, we are involved in a number of compliance efforts, remediation activities and legal proceedings concerning environmental matters, including certain activities and proceedings arising under U.S. Superfund and comparable laws in other jurisdictions where we have operations.
72
Some of our current and potential operations are located or could be located in or near communities that may regard such operations as having a detrimental effect on their social and economic circumstances. Environmental laws typically provide for participation in permitting decisions, site remediation decisions and other matters. Concern about environmental justice issues may affect our operations. Should such community objections be presented to government officials, the consequences of such a development may have a material adverse impact upon the profitability or, in extreme cases, the viability of an operation. In addition, such developments may adversely affect our ability to expand or enter into new operations in such location or elsewhere and may also have an effect on the cost of our environmental remediation projects.
We use a variety of hazardous materials and chemicals in our rolling processes, as well as in our smelting operations in Brazil and in connection with maintenance work on our manufacturing facilities. Because of the nature of these substances or related residues, we may be liable for certain costs, including, among others, costs for health-related claims or removal or re-treatment of such substances. Certain of our current and former facilities incorporate asbestos-containing materials, a hazardous substance that has been the subject of health-related claims for occupation exposure. In addition, although we have developed environmental, health and safety programs for our employees, including measures to reduce employee exposure to hazardous substances, and conduct regular assessments at our facilities, we are currently, and in the future may be, involved in claims and litigation filed on behalf of persons alleging injury predominantly as a result of occupational exposure to substances at our current or former facilities. It is not possible to predict the ultimate outcome of these claims and lawsuits due to the unpredictable nature of personal injury litigation. If these claims and lawsuits, individually or in the aggregate, were finally resolved against us, our financial position, results of operations and cash flows could be adversely affected.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Materials and labor
In the aluminum rolled products industry, our raw materials are subject to continuous price volatility. We may not be able to pass on the entire cost of the increases to our customers or offset fully the effects of higher raw material costs, other than metal, through productivity improvements, which may cause our profitability to decline. In addition, there is a potential time lag between changes in prices under our purchase contracts and the point when we can implement a corresponding change under our sales contracts with our customers. As a result, we could be exposed to fluctuations in raw materials prices, including metal, since, during the time lag period, we may have to temporarily bear the additional cost of the change under our purchase contracts, which could have a material adverse effect on our financial position, results of operations and cash flows. Significant price increases may result in our customers’ substituting other materials, such as plastic or glass, for aluminum or switch to another aluminum rolled products producer, which could have a material adverse effect on our financial position, results of operations and cash flows.
We consume substantial amounts of energy in our rolling operations, our cast house operations and our Brazilian smelting operations. The factors that affect our energy costs and supply reliability tend to be specific to each of our facilities. A number of factors could materially adversely affect our energy position including, but not limited to: (a) increases in the cost of natural gas; (b) increases in the cost of supplied electricity or fuel oil related to transportation; (c) interruptions in energy supply due to equipment failure or other causes and (d) the inability to extend energy supply contracts upon expiration on economical terms. A significant
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Approximately 63%58% of our employees are represented by labor unions under a large number of collective bargaining agreements with varying durations and expiration dates. We may not be able to satisfactorily renegotiate our collective bargaining agreements when they expire. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage at our facilities in the future, and any such work stoppage could have a material adverse effect on our financial position, results of operations and cash flows.
Geographic markets
We are, and will continue to be, subject to financial, political, economic and business risks in connection with our global operations. We have made investments and carry on production activities in various emerging markets, including Brazil, Korea and Malaysia, and we market our products in these countries, as well as China and certain other countries in Asia. While we anticipate higher growth or attractive production opportunities from these emerging markets, they also present a higher degree of risk than more developed markets. In addition to the business risks inherent in developing and servicing new markets, economic conditions may be more volatile, legal and regulatory systems less developed and predictable, and the possibility of various types of adverse governmental action more pronounced. In addition, inflation, fluctuations in currency and interest rates, competitive factors, civil unrest and labor problems could affect our revenues, expenses and results of operations. Our operations could also be adversely affected by acts of war, terrorism or the threat of any of these events as well as government actions such as controls on imports, exports and prices, tariffs, new forms of taxation, or changes in fiscal regimes and increased government regulation in the countries in which we operate or service customers. Unexpected or uncontrollable events or circumstances in any of these markets could have a material adverse effect on our financial position, results of operations and cash flows.
Other risks and uncertainties
In addition, refer to Note 1516 — Fair Value of Assets and Liabilities and Note 1819 — Commitments and Contingencies for a discussion of financial instruments and commitments and contingencies.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Reclassifications and adjustments
Certain reclassifications of the prior period amounts and presentation have been made to conform to the presentation adopted for the current period.
For the years ended March 31, 20102011 and 2009,2010, we reclassified $23$(43) million and $25$(194) million, respectively, from Selling, general and administrative expenses“(Gain) loss on change in fair value of derivative instruments, net” to Costs of goods sold (exclusive of depreciation and amortization).
Revenue recognition
We recognize sales when the revenue is realized or realizable, and has been earned. We record sales when a firm sales agreement is in place, delivery has occurred and collectability of the fixed or determinable sales price is reasonably assured.
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We record tolling revenue when the revenue is realized or realizable, and has been earned. Tolling refers to the process by which certain customers provide metal to us for conversion to rolled product. We do not take title to the metal and, after the conversion and return shipment of the rolled product to the customer, we charge them for the value-added conversion cost and record these amounts in Net“Net sales.
Shipping and handling amounts we bill to our customers are included in Net sales“Net sales” and the related shipping and handling costs we incur are included in Cost“Cost of goods sold (exclusive of depreciation and amortization).
Cost of goods sold (exclusive of depreciation and amortization)
“Cost of goods sold (exclusive of depreciation and amortization)” includes all costs associated with inventories, including the procurement of materials, the conversion of such materials into finished product, and the costs of warehousing and distributing finished goods to customers. Material procurement costs include inbound freight charges as well as purchasing, receiving, inspection and storage costs. Conversion costs include the costs of direct production inputs such as labor and energy, as well as allocated overheads from indirect production centers and plant administrative support areas. Warehousing and distribution expenses include inside and outside storage costs, outbound freight charges and the costs of internal transfers.
Selling, general and administrative expenses
“Selling, general and administrative expensesexpenses” include selling, marketing and advertising expenses; salaries, travel and office expenses of administrative employees and contractors; legal and professional fees; software license fees;fees and bad debt expenses.
Cash and cash equivalents
“Cash and cash equivalentsequivalents” includes investments that are highly liquid and have maturities of three months or less when purchased. The carrying values of cash and cash equivalents approximate their fair value due to the short-term nature of these instruments.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
We maintain amounts on deposit with various financial institutions, which may, at times, exceed federally insured limits. However, management periodically evaluates the credit-worthiness of those institutions, and we have not experienced any losses on such deposits.
Accounts receivable
Our accounts receivable are geographically dispersed. We do not obtain collateral relating to our accounts receivable. We do not believe there are any significant concentrations of revenues from any particular customer or group of customers that would subject us to any significant credit risks in the collection of our accounts receivable. We report accounts receivable at the estimated net realizable amount we expect to collect from our customers.
Additions to the allowance for doubtful accounts are made by means of the provision for doubtful accounts. We write-off uncollectible accounts receivable against the allowance for doubtful accounts after exhausting collection efforts.
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Derivative Instruments
We hold derivatives for risk management purposes and not for trading. We use derivatives to mitigate uncertainty and volatility caused by underlying exposures to aluminum prices, foreign exchange rates, interest rate, and energy prices. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date and are reported gross.
We may be exposed to losses in the future if the counterparties to our derivative contracts fail to perform. We are satisfied that the risk of such non-performance is remote due to our monitoring of credit exposures. Additionally, we enter into master netting agreements with contractual provisions that allow for netting of counterparty positions in case of default, and we do not face credit contingent provisions that would result in the posting of collateral.
For derivatives designated as fair value hedges, we assess hedge effectiveness by formally evaluating the high correlation of changes in the fair value of the hedged item and the derivative hedging instrument. The changes in the fair values of the underlying hedged items are reported in other current and noncurrent assets and liabilities in the consolidated balance sheet. Changes in the fair values of these derivatives and underlying hedged items generally offset and are recorded each period in revenue, consistent with the underlying hedged item.
For derivatives designated as cash flow hedges or net investment hedges, we assess hedge effectiveness by formally evaluating the high correlation of the expected future cash flows of the hedged item and the derivative hedging instrument. The effective portion of gain or loss on the derivative is included in OCI and reclassified to earnings in the period in which earnings are impacted by the hedged items or in the period that the transaction becomes probable of not occurring. Gains or losses representing reclassifications of OCI to earnings are recognized in the line item most reflective of the underlying risk exposure. We exclude the time value component of foreign currency capital expenditureand aluminum price risk hedges when measuring and assessing ineffectiveness.ineffectiveness to align accounting policy with risk management objectives when it is necessary. If at any time during the life of a cash flow hedge relationship we determine that the relationship is no longer effective, the derivative will no longer be designated as a cash flow hedge and future gains or losses on the derivative will be recognized in (Gain) loss on change in fair value of derivative instruments.
For all derivatives designated in hedging relationships, gains or losses representing hedge ineffectiveness or amounts excluded from effectiveness testing are recognized in (Gain) loss on change in fair value of derivative instruments, net“Other (income) expense, net” in our current period earnings.
Consistent with the cash flows from the underlying risk exposure, we classify cash settlement amounts associated with thesedesignated derivatives andas part of either operating or investing activities in the consolidated statements of cash flows. If no hedging relationship is designated, derivativeswe classify cash settlement amounts as part of investing activities in the consolidated statementsstatement of cash flows.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The majority of our derivative contracts are valued using industry-standard models that use observable market inputs as their basis, such as time value, forward interest rates, volatility factors, and current (spot) and forward market prices for foreign exchange rates. See Note 1415 — Financial Instruments and Commodity Contracts and Note 1516 — Fair Value of Assets and Liabilities to our accompanying consolidated audited financial statements for discussion on fair value of derivative instruments.
Inventories
We carry our inventories at the lower of their cost or market value, reduced by reserves for excess and obsolete items. We use the “average cost” method to determine cost.
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We record land, buildings, leasehold improvements and machinery and equipment at cost. We record assets under capital lease obligations at the lower of their fair value or the present value of the aggregate future minimum lease payments as of the beginning of the lease term. We depreciate our assets using the straight-line method over the shorter of the estimated useful life of the assets or the lease term, excluding any lease renewals, unless the lease renewals are reasonably assured.
The ranges of estimated useful lives are as follows:
| Years | ||||
Buildings | 30 to 40 | |||
Leasehold improvements | 7 to 20 | |||
Machinery and equipment | 2 to 25 | |||
Furniture, fixtures and equipment | 3 to 10 | |||
Equipment under capital lease obligations | 6 to 15 | |||
As noted above, our machinery and equipment have useful lives of 2 to 25 years. Most of our large scale machinery, including hot mills, cold mills, continuous casting mills, furnaces and finishing mills have useful lives of 15-2515 to 25 years. Supporting machinery and equipment, including automation and work rolls, have useful lives of 2-152 to 15 years.
Maintenance and repairs of property and equipment are expensed as incurred. We capitalize replacements and improvements that increase the estimated useful life of an asset, and when material, we capitalize interest on major construction and development projects while in progress.
We retain fully depreciated assets in property and accumulated depreciation accounts until we remove them from service. In the case of sale, retirement or disposal, the asset cost and related accumulated depreciation balances are removed from the respective accounts, and the resulting net amount, after consideration of any proceeds, is included as a gain or loss in Other“Other (income) expenses, netexpense, net” in our consolidated statements of operations.
We account for operating leases under the provisions of ASC 840,Leases.These pronouncements require us to recognize escalating rents, including any rent holidays, on a straight-line basis over the term of the lease for those lease agreements where we receive the right to control the use of the entire leased property at the beginning of the lease term.
Goodwill
We test for impairment at least annually during the fourth quarter of each fiscal year, unless some triggering event occurs that would require an impairment assessment.
In September 2011, the present valueFinancial Accounting Standards Board issued new accounting guidance for testing goodwill for impairment. The guidance provides an entity the option to first assess qualitative factors to determine whether the existence of estimated future cash flowsevents or circumstances leads to establisha determination that it is more likely than not that the estimated fair value of oura reporting units asunit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. The ultimate outcome of the testing dates. This approach includes many assumptions related to future growth rates, discount factors and tax rates, among other considerations. Changes in economic and operating conditions impacting these assumptions could result in goodwill impairment in future periods. When available and as appropriate, we use comparative market multiples to corroborate the estimated fair value. If the carrying amount ofreview for a reporting unit’s goodwill wereunit should be the same whether an entity chooses to exceed its estimated fair value,perform the second step ofqualitative assessment or proceeds directly to the two-step quantitative impairment test must be performedtest.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In the year ended March 31, 2012, in order to determine the amount of impairment loss, if any. The second step compares the implied fair value of the reporting unit goodwillconjunction with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds its implied fair value we would recognize, an impairment charge in an amount equal to that excess in Impairmentmanagement’s annual review of goodwill, in our consolidated statements of operations.
When a business within a reporting unit is disposed of, goodwill is allocated to the gain or loss on disposition using the relative fair value methodology.
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We amortize the cost of intangible assets over their respective estimated useful lives to their estimated residual value.
We assess the recoverability of long-lived assets (excluding goodwill) and definite-livedfinite-lived intangible assets, whenever events or changes in circumstances indicate that we may not be able to recover the asset’s carrying amount. We measure the recoverability of assets to be held and used by a comparison of the carrying amount of the asset (groups) to the expected, undiscounted future net cash flows to be generated by that asset (groups), or, for identifiable intangible assets, by determining whether the amortization of the intangible asset balance over its remaining life can be recovered through undiscounted future cash flows. The amount of impairment of identifiable intangible assets is based on the present value of estimated future cash flows. We measure the amount of impairment of other long-lived assets (excluding goodwill) as the amount by which the carrying value of the asset exceeds the fair value of the asset, which is generally determined as the present value of estimated future cash flows or as the appraised value. Impairments of long-lived assets have been included in Restructuring“Restructuring charges, netnet” and Other“Other income (expense), netnet” in the consolidated statement of operations.
If the carrying amount of an intangible asset were to exceed its fair value, we would recognize an impairment charge in Other“Other (income) expenses, netexpense, net” in our consolidated statements of operations. No impairments of other intangible assets have been identified during any of the periods presented.
We continue to amortizedepreciate long-lived assets to be disposed of other than by sale. We carry long-lived assets to be disposed of by sale in our consolidated balance sheets at the lower of net book value or the fair value less cost to sell, and we cease depreciation.
Investment in and Advances to Non-Consolidated Affiliates
Management assesses the potential for other-than-temporary impairment of our equity method and cost method investments. We consider all available information, including the recoverability of the investment, the earnings and near-term prospects of the affiliate, factors related to the industry, conditions of the affiliate, and our ability, if any, to influence the management of the affiliate. We assess fair value based on valuation methodologies, as appropriate, including the present value of estimated future cash flows, estimates of sales proceeds, and external appraisals. If an investment is considered to be impaired and the decline in value is other than temporary, we record an appropriate write-down.
Guarantees
We recognize a liability for the fair value of obligations undertaken at the inception of a guarantee.
Financing Costs and Interest Income
We amortize financing costs and premiums, and accrete discounts, over the remaining life of the related debt using the “effective interest amortization” method. The related income or expense is included in Interest“Interest expense and amortization of debt issuance costscosts” in our consolidated statements of operations. We record discounts or premiums as a direct deduction from, or addition to, the face amount of the financing.
Fair Value of Financial Instruments
ASC 820,Fair Value Measurements and Disclosures(ASC 820), defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. ASC 820 also applies to measurements under other accounting pronouncements, such as ASC 825,Financial Instruments(ASC (ASC 825) that require or permit fair value measurements. ASC 825 requires disclosures of the fair value of financial instruments. Our financial instruments include: cash and cash equivalents; certificates of deposit; accounts receivable; accounts payable; foreign currency, energy and interest rate derivative instruments; cross-currency swaps; metal option and forward contracts; related party notes receivable and payable; letters of credit; short-term borrowings and long-term debt.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
The carrying amounts of cash and cash equivalents, certificates of deposit, accounts receivable, accounts payable and current related party notes receivable and payable approximate their fair value because of the short-term maturity and highly liquid nature of these instruments. The fair value of our letters of credit is deemed to be the amount of payment guaranteed on our behalf by third party financial institutions. We determine the fair value of our short-term borrowings and long-term debt based on various factors including maturity schedules, call features and current market rates. We also use quoted market prices, when available, or the present value of estimated future cash flows to determine fair value of short-term borrowings and long-term debt. When quoted market prices are not available for various types of financial instruments (such as currency, energy and interest rate derivative instruments, swaps, options and forward contracts), we use standard pricing models with market-based inputs, which take into account the present value of estimated future cash flows.
Pensions and Postretirement Benefits
We recognize the funded status of our benefit plans as a net asset or liability, with an offsetting adjustment to AOCI in shareholder’s equity. The funded status is calculated as the difference between the fair value of plan assets and the benefit obligation. For the years ended March 31, 20112012 and 2010,2011, we used March 31 as the measurement date.
We use standard actuarial methods and assumptions to account for our pension and other postretirement benefit plans. Pension and postretirement benefit obligations are actuarially calculated using management’s best estimates of expected service periods, salary increases and retirement ages of employees. Pension and postretirement benefit expense includes the actuarially computed cost of benefits earned during the current service period, the interest cost on accrued obligations, the expected return on plan assets based on fair market value and the straight-line amortization of net actuarial gains and losses and adjustments due to plan amendments. Generally, all net actuarial gains and losses are amortized over the expected average remaining service lives of plan participants.
Our pension obligations relate to funded defined benefit pension plans in the U.S., Canada, Switzerland and the U.K., unfunded pension plans in Germany, and unfunded lump sum indemnities in France, South Korea, Malaysia and Italy. Our other postretirement obligations include unfunded healthcare and life insurance benefits provided to retired employees in Canada, the U.S. and Brazil.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Noncontrolling Interests in Consolidated Affiliates
These financial statements reflect the retrospective application of ASC 810,Consolidations (ASC(ASC 810), subparagraph 10-65-1,Transition Related to FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51, and No. 164, Not-for-Profit Entities: Mergers and Acquisitionsfor all periods presented. ASC 810which establishes accounting and reporting standards that require: (i) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within shareholder’s equity, but separate from the parent’s equity; (ii) the amount of consolidated net income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently.
Our consolidated financial statements include all assets, liabilities, revenues and expenses of less-than-100%-owned affiliates that we control or for which we are the primary beneficiary. We record a noncontrolling interest for the allocable portion of income or loss to which the noncontrolling interest holders are entitled based upon their ownership share of the affiliate. Distributions made to the holders of noncontrolling interests are charged to the respective noncontrolling interest balance.
Losses attributable to the noncontrolling interest in an affiliate may exceed our interest in the affiliate’s equity. The excess, and any further losses attributable to the noncontrolling interest, shall be attributed to those interests. The noncontrolling interest shall continue to be attributed its share of losses even if that attribution results in a deficit noncontrolling interest balance. As of March 31, 2011,2012, we have no such losses.
Environmental Liabilities
We record accruals for environmental matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. We adjust these accruals periodically as assessment and
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Costs related to environmental contamination treatment and clean-up are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued in the period in which such costs are determined to be probable and estimable.
Litigation ReservesContingencies
We accrue for loss contingencies associated with outstanding litigation, claims and assessments for which management has determined it is probable that a loss contingency exists and the amount of loss can be reasonably estimated. We expense professional fees associated with litigation claims and assessments as incurred.
Income Taxes
We provide for income taxes using the asset and liability method. This approach recognizes the amount of income taxes payable or refundable for the current year, as well as deferred tax assets and liabilities for the future tax consequence of events recognized in the consolidated financial statements and income tax returns. Deferred income tax assets and liabilities are adjusted to recognize the effects of changes in tax laws or enacted tax rates. Under ASC 740, a valuation allowance is required when it is more likely than not that some portion of the deferred tax assets will not be realized. Realization is dependent on generating sufficient taxable income through various sources.
We record tax benefits related to uncertain tax positions taken or expected to be taken on a tax return when such benefits meet a more than likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, the statute of limitation has expired or the appropriate taxing authority has completed their examination. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized. See Note 1718 —Income Taxes for additional discussion.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Share-Based Compensation
In accordance with ASC 718,Compensation—Stock Compensation(ASC 718), we recognize compensation expense for a share-based award over an employee’s requisite service period based on the award’s grant date fair value, subject to adjustment.
We adopted ASC 718 using the modified prospective method, which requires companies to record compensation cost beginning with the effective date based on the requirements of ASC 718 for all share-based payments granted after the effective date of ASC 718. All awards granted to employees prior to the effective date of ASC 718 that remained unvested at the adoption date continued to be expensed over the remaining service period. Additionally, we determined that all of our compensation plans settled in cash are considered liability based awards. As such, liabilities for awards under these plans are required to be measured at each reporting date until the date of settlement. The Black-Scholes model was used to determine the fair value of these awards.
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The assets and liabilities of foreign operations, whose functional currency is other than the U.S. dollar (located in Europe and Asia), are translated to U.S. dollars at the period end exchange rates and revenues and expenses are translated at average exchange rates for the period. Differences arising from the translation of assets and liabilities are included in the currency translation adjustment (CTA) component of AOCI. If there is a reduction inplanned sale or liquidation of our ownership in a foreign operation, the relevant portion of the CTA is recognized in Other (income) expenses, net.
For all operations, the monetary items denominated in currencies other than the functional currency are remeasured at period-end exchange rates and transaction gains and losses are included in Other“Other (income) expenses, netexpense, net” in our consolidated statements of operations. Non-monetary items are remeasured at historical rates.
Research and Development
We incur costs in connection with research and development programs that are expected to contribute to future earnings, and charge such costs against income as incurred. Research and development costs consist primarily of salaries and administrative costs.
Restructuring Activities
“Restructuring charges, netnet” include employee severance and benefit costs, impairments of assets, and other costs associated with exit activities. We apply the provisions of ASC 420,Exit or Disposal Cost Obligations(ASC 420) relating to one-time termination benefits. Severance costs accounted for under ASC 420 are recognized when management with the proper level of authority has committed to a restructuring plan and communicated those actions to employees. Impairment losses are based upon the estimated fair value less costs to sell, with fair value estimated based on existing market prices for similar assets. Other exit costs include environmental remediation costs and contract termination costs, primarily related to equipment and facility lease obligations. At each reporting date, we evaluate the accruals for restructuring costs to ensure the accruals are still appropriate.
Customer Directed Derivatives
We classify all customer directed derivatives and associated trading activities as operating activities in our consolidated statement of cash flows. Cash flows provided by (used in), from such derivatives totaledwere $19 million $75 million and ($81)$75 million in the years ended March 31, 2011 2010 and 2009,2010, respectively. There were no customer directed derivatives outstanding for the year ended March 31, 2012 or as of March 31, 2011.
Recently Adopted Accounting Standards
Effective April 1, 2010,for the year ended March 31, 2012, we adopted authoritative guidance in the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2009-17,2011-08,Consolidations: ImprovementsIntangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which contains changes to the testing of goodwill for impairment. These changes provide an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not (more than 50%) that the fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
impairment test, otherwise no further analysis is required. An entity may also elect not to perform the qualitative assessment and, instead, go directly to the two-step quantitative impairment test. The adoption of this standard had no impact on our consolidated financial position.
Effective for the year ended March 31, 2012, we adopted the FASB issued ASU No. 2009-17 was intended (1)2011-04,Fair Value Measurement (Topic 820): Amendments to address the effects on certain provisions of the accounting standard dealing with consolidation of variable interest entities, as a result of the elimination of the qualifying special-purpose entity conceptAchieve Common Fair Value Measurement and Disclosure Requirements in U.S.GAAP and IFRSs. ASU No. 2009-16,Transfers2011-04 develops common requirements for measuring fair value and Servicing: Accounting for Transfersdisclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards (IFRSs) and improves the comparability of Financial Assets,fair value measurements presented and (2) to clarify questions about the applicationdisclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. ASU No. 2011-04 will be effective for fiscal years and interim periods beginning after December 15, 2011. The adoption of certain key provisions related to consolidation of variable interest entities. Thisthis standard had no impact on our consolidated financial position, results of operations and cash flow, but did require certainrequired additional footnote disclosures. These disclosures are includeddisclosure in Note 716 — ConsolidationFair Value of Variable Interest Entities.
Recently Issued Accounting Standards
In June 2011, the FASB issued ASU No. 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU No. 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and requires all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, in December 2011, the FASB issued ASU No. 2011-12,Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,which indefinitely defers the requirement in ASU No. 2011-05 to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. During the deferral period, the existing requirements in U.S. GAAP for the presentation of reclassification adjustments must continue to be followed. These standards are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and are to be applied retrospectively, with early adoption permitted. We will adopt this standard in our interim period ending June 30, 2012. The adoption of this standard will have determined that all other recently issued accounting standards will not have a materialno impact on our consolidated financial position, resultsbut will require additional disclosure.
In December 2011, the FASB issued ASU No. 2011-11,Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this update require an entity to disclose information about offsetting and related arrangements to enable users of operations or cash flows, or do not applyits financial statements to understand the effect of those arrangements on its financial position. The requirements are effective for annual periods beginning January 1, 2013, and interim periods within those annual periods. We are currently evaluating the potential impact, if any, of the adoption of ASU No. 2011-11 on our operations.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
| 2. | RESTRUCTURING PROGRAMS |
“Restructuring charges, netnet” for the year ended March 31, 2012, 2011 and 2010 and 2009 of $60 million, $34 million $14 million and $95$14 million, respectively, includes $42 million, $5 million $2 million and $22$2 million, respectively, of non-cash charges discussed in greater detail below. Restructuring“Restructuring charges, netnet” for the year ended March 31, 2011 includes a $10 million gain from the sale of assets to Hindalco discussed further discussed below. The following table summarizes our restructuring accrual activity by region (in millions).
| North | South | Restructuring | ||||||||||||||||||||||
| Europe | America | Asia | America | Corporate | Reserves | |||||||||||||||||||
Balance as of March 31, 2008 | $ | 20 | $ | 4 | $ | — | $ | — | $ | — | $ | 24 | ||||||||||||
| Fiscal 2009 Activity: | ||||||||||||||||||||||||
| Provisions, net | 53 | 16 | 1 | 2 | 1 | 73 | ||||||||||||||||||
| Cash payments | (8 | ) | (5 | ) | (1 | ) | — | — | (14 | ) | ||||||||||||||
| Impact of exchange rate changes | (4 | ) | 1 | — | — | — | (3 | ) | ||||||||||||||||
Balance as of March 31, 2009 | 61 | 16 | — | 2 | 1 | 80 | ||||||||||||||||||
| Fiscal 2010 Activity: | ||||||||||||||||||||||||
| Provisions, net | 8 | 5 | — | (1 | ) | — | 12 | |||||||||||||||||
| Cash payments | (46 | ) | (11 | ) | — | (2 | ) | (1 | ) | (60 | ) | |||||||||||||
| Impact of exchange rate changes | 5 | — | — | 1 | — | 6 | ||||||||||||||||||
Balance as of March 31, 2010 | 28 | 10 | — | — | — | 38 | ||||||||||||||||||
| Fiscal 2011 Activity: | ||||||||||||||||||||||||
| Provisions, net | 17 | 13 | — | 5 | 5 | 40 | ||||||||||||||||||
| Cash payments | (10 | ) | (17 | ) | — | (1 | ) | (2 | ) | (30 | ) | |||||||||||||
| Impact of exchange rate changes | 2 | — | — | — | — | 2 | ||||||||||||||||||
Balance as of March 31, 2011 | $ | 37 | $ | 6 | $ | — | $ | 4 | $ | 3 | $ | 50 | ||||||||||||
| Europe | North America | Asia | South America | Corporate | Restructuring liabilities | |||||||||||||||||||
Balance as of March 31, 2009 | 61 | 16 | — | 2 | 1 | 80 | ||||||||||||||||||
Fiscal 2010 Activity: | ||||||||||||||||||||||||
Provisions | 8 | 5 | — | (1 | ) | — | 12 | |||||||||||||||||
Cash payments | (46 | ) | (11 | ) | — | (2 | ) | (1 | ) | (60 | ) | |||||||||||||
Adjustments — other | 5 | — | — | 1 | — | 6 | ||||||||||||||||||
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Balance as of March 31, 2010 | 28 | 10 | — | — | — | 38 | ||||||||||||||||||
Fiscal 2011 Activity: | ||||||||||||||||||||||||
Provisions | 17 | 13 | — | 5 | 5 | 40 | ||||||||||||||||||
Cash payments | (10 | ) | (17 | ) | — | (1 | ) | (2 | ) | (30 | ) | |||||||||||||
Adjustments — other | 2 | — | — | — | — | 2 | ||||||||||||||||||
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Balance as of March 31, 2011 | 37 | 6 | — | 4 | 3 | 50 | ||||||||||||||||||
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Fiscal 2012 Activity: | ||||||||||||||||||||||||
Provisions | 30 | 6 | — | 1 | 2 | 39 | ||||||||||||||||||
Cash payments | (25 | ) | (7 | ) | — | (2 | ) | (3 | ) | (37 | ) | |||||||||||||
Reversals | (21 | ) | — | — | — | — | (21 | ) | ||||||||||||||||
Adjustments — other | (2 | ) | — | — | (1 | ) | — | (3 | ) | |||||||||||||||
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Balance as of March 31, 2012 | $ | 19 | $ | 5 | $ | — | $ | 2 | $ | 2 | $ | 28 | ||||||||||||
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As of March 31, 2011, $302012, $27 million of restructuring reservesliabilities is classified as short-term and is included in Accrued“Accrued expenses and other current liabilitiesliabilities” and $1 million is classified as long-term in “Other long–term liabilities” on our consolidated balance sheets.
Europe
Total “Restructuring charges, net” for the year ended March 1, 2011,31, 2012 consisted of $13 million in severance across our European plants, fixed asset impairments related to restructuring actions initiated in prior years, a reversal of a remaining liability and other exit costs. For the year ended March 31, 2012, we announcedmade $12 million in severance payments, $3 million in payments for environmental remediation, and $10 million in other exit related payments.
For the saleyear ended March 31, 2012, we made a decision to shutdown a lithographic sheet line in our Göttingen, Germany facility and as a result we have recorded a liability for severance costs of our printed confectionery foil packaging business at Bridgnorth, UK to Discovery Foils for $1 million, effective immediately. Approximately 105 employees transferred to Discovery Foils along with the assets of the business. We will continue to provide aluminum foil to the operation under a supply agreement.$14 million. The business produces multi-colored printed foil used as packaging for confectionery products. The operation isCompany ceased operations associated with the Bridgnorth, aluminumU.K. foil rolling and laminating activities that ceased operations at the end of April 2011.
As previously announced, we closed our Rogerstone facility in prior years. During the year ended March 31, 2012, we sold the land and reversed the outstanding environmental contingencies of $21 million related to this location, which was recorded as a reduction to “Restructuring charges, net.” Additionally, we recorded $6 million of severance charges for restructuring programs related to our European general and administrative functions and $5 million related to other restructuring activities in the year ended March 31, 2012.
As of March 31, 2012, the restructuring liability balance of $19 million was comprised of $18 million of severance costs and $1 million of other costs.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Total “Restructuring charges, net” for the year ended March 31, 2011 weconsisted of $11 million in severance across our European plants, fixed asset impairments related to restructuring actions initiated in fiscal 2011 and prior years and other exit costs. We recorded $15 million of restructuring costs consistingrelated to Bridgnorth which consisted of the following: $8 million in severance and environmental costs; $2 million in contract termination and other expenses and $5 million in asset impairment costs related to the write down of land and building to fair value.
For the year ended March 31, 2010, we made the following payments relating to restructuring programs in Europe: $30 million in severance payments, $10 million in payments for environmental remediation and $6 million of other payments. We made additional
82
North America
Total “Restructuring charges, net” for the year ended March 31, 2012 were $34 million. In fiscal 2009,the year ended March 31, 2012, we initiated a number of restructuring actions throughout Europe to reduce labor and overhead costs through capacity and staff reductions. Most significantly, in March 2009, we announced the closure of our aluminum sheet mill in Rogerstone, South Wales, U.K. Operations ceased in April 2009, resulting in the elimination of 440 positions. The total amount expected to be incurred in connection with this closure is $63 million, of which $60 million was recorded in fiscal 2009. We recorded an additional $3 million of net coststermination benefits related to on-going maintenancethe previously announced relocation of the Rogerstone facility, write-down of additional plant assetsour North American headquarters from Cleveland to Atlanta and adjustments of reserves establishedwe made $7 million in fiscal 2009. The components of restructuring chargespayments related to Rogerstone forpreviously announced separation programs. We also recorded $3 million of one-time termination benefits associated with our decision to relocate our primary research and development operations to Kennesaw, Georgia. During the year ended March 31, 2010 and 2009 are as follows (in millions):
| Year Ended | ||||||||
| March 31, | ||||||||
| 2010 | 2009 | |||||||
| Severance related costs | $ | (2 | ) | $ | 20 | |||
| Environmental remediation expense | 1 | 20 | ||||||
| Fixed asset impairments(A) | — | 12 | ||||||
| Write-down of parts, supplies and scrap(A) | 2 | 8 | ||||||
| Reduction of reserve associated with unfavorable contract(A) | — | (3 | ) | |||||
| Other exit costs | 2 | 3 | ||||||
| $ | 3 | $ | 60 | |||||
As of its three major processes, including continuous casting, foil rolling, and finishing. For the year ended March 31, 2009, we recorded $92012, the restructuring liability balance of $5 million in severance-related costs. We also recordedwas comprised of $4 million of severance costs and $1 million in severance costs at our Ohle, Germany facility related to the elimination of 13 positions.
We recorded $13 million and $4 million of restructuring expense for the year ended March 31, 2011 and 2010, respectively, related to the relocation of our North American headquarters from Cleveland to Atlanta, and made $17 million in payments related to this move.
In November 2008, we announced a Voluntary Separation Program (VSP) available to salaried employees in North America and the Corporate office aimed at reducing staff levels. This VSP supplemented a pre-existing Involuntary Severance Program (ISP). We eliminated approximately 120 positions and recorded $16 million in severance-related costs for the VSP and ISP programs for the year ended March 31, 2009. This program continued into fiscal 2010, with an additional $1 million in severance costs recorded under the voluntary and involuntary separation programs. We made $11 million in severance payments related to this plan in the year ended March 31, 2010.
South America
Total “Restructuring charges, net” for the year ended March 31, 2012, consisted of $11 million of severance costs, fixed asset impairments related to current period restructuring actions and impairments related to actions initiated in prior years. For the year ended March 31, 2012, we made $2 million in severance and other exit related payments.
In the year ended March 31, 2012, we announced that we ceased production of converter foil (9 microns thickness or less) for flexible packaging and stopped production of one rolling mill at our Santo André plant in Brazil. The decision was made due to overcapacity in the foil market and increased competition from low-cost countries. Approximately 74 positions were eliminated in the Santo Andre plant related to ceasing these operations. For the year ended March 31, 2012, the Company recorded $3 million in asset impairment costs related to the write down of land and building to fair value and $1 million in severance related costs.
As of March 31, 2012, the restructuring liability balance of $2 million was comprised of environmental remediation liabilities.
We recorded $7 million of restructuring expense for the year ended March 31, 2011 for employee termination and certain environmental remediation costs related to the closure of our primary aluminum smelter at Aratu, Brazil, of which $2 million were expensed as incurred; therefore, these costs were not reflected in the table above. The closure was in response to high operating costs and lack of competitively priced energy supply. The closure affected approximately 300 workers and was completed by December 31, 2010. For fiscal 2011, we made $1 million in severance payments. In December 2009, we completed all restructuring actions initiated in fiscal 2009.
83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
Corporate
Total “Restructuring charges, net” for the year ended March 31, 2009, we recorded approximately2012, consisted of $2 million, primarily in severance-relatedseverance costs and other exit related costs. Other exitAs of March 31, 2012, the restructuring liability balance of $2 million was comprised of lease termination costs include less than $1 million related toincurred in the idlingrelocation of the refinery. Other activities related to the facility, including electric power generation and the production of primary aluminum, will continue unaffected.
We recorded $3 million of restructuring expense for the year ended March 31, 2011, related to lease termination costs incurred in the relocation of our Corporatecorporate headquarters to a new facility in Atlanta and other contract termination fees. The lease termination costs include a $2 million deferred credit on the former facility.
| 3. | ACCOUNTS RECEIVABLE |
“Accounts receivable, net” consists of the following (in millions).
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Trade accounts receivable | $ | 1,413 | $ | 1,080 | ||||
| Other accounts receivable | 74 | 67 | ||||||
| Accounts receivable — third parties | 1,487 | 1,147 | ||||||
| Allowance for doubtful accounts — third parties | (7 | ) | (4 | ) | ||||
| 1,480 | 1,143 | |||||||
| Other accounts receivable — related parties | 28 | 24 | ||||||
| Accounts receivable, net | $ | 1,508 | $ | 1,167 | ||||
| March 31, | ||||||||
| 2012 | 2011 | |||||||
Trade accounts receivable | $ | 1,268 | $ | 1,413 | ||||
Other accounts receivable | 68 | 74 | ||||||
|
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| |||||
Accounts receivable — third parties | 1,336 | 1,487 | ||||||
Allowance for doubtful accounts — third parties | (5 | ) | (7 | ) | ||||
|
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| |||||
| 1,331 | 1,480 | |||||||
Other accounts receivable — related parties | 36 | 28 | ||||||
|
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| |||||
Accounts receivable, net | $ | 1,367 | $ | 1,508 | ||||
|
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| |||||
Allowance for Doubtful Accounts
As of March 31, 20112012 and 2010,2011, our allowance for doubtful accounts represented approximately 0.5%0.4% and 0.4%0.5%, respectively, of gross accounts receivable.
Activity in the allowance for doubtful accounts is as follows (in millions).
| Balance at | Additions | Accounts | Foreign | |||||||||||||||||
| Beginning | Charged to | Recovered/ | Exchange | Balance at | ||||||||||||||||
| of Period | Expense | (Written-Off) | and Other | End of Period | ||||||||||||||||
| Year Ended March 31, 2009 | $ | 1 | $ | 2 | $ | (1 | ) | $ | — | $ | 2 | |||||||||
| Year Ended March 31, 2010 | $ | 2 | $ | 2 | $ | (1 | ) | $ | 1 | $ | 4 | |||||||||
| Year Ended March 31, 2011 | $ | 4 | $ | 2 | $ | (1 | ) | $ | 2 | $ | 7 | |||||||||
| Balance at Beginning of Period | Additions Charged to Expense | Accounts Recovered/ (Written- Off) | Foreign Exchange and Other | Balance at End of Period | ||||||||||||||||
Year Ended March 31, 2010 | $ | 2 | $ | 2 | $ | (1 | ) | $ | 1 | $ | 4 | |||||||||
Year Ended March 31, 2011 | $ | 4 | $ | 2 | $ | (1 | ) | $ | 2 | $ | 7 | |||||||||
Year Ended March 31, 2012 | $ | 7 | $ | 1 | $ | (2 | ) | $ | (1 | ) | $ | 5 | ||||||||
Forfaiting and Factoring of Trade Receivables
Novelis Korea Ltd. forfaits trade receivables in the ordinary course of business. These trade receivables are typically outstanding for 60 to 120 days. Forfaiting is a non-recourse method to manage credit and interest rate risks. Under this method, customers contract
84
Our Brazilian operations factor, without recourse, certain trade receivables that are unencumbered by pledge restrictions. Under this method, customers are directed to make payments on invoices to a financial institution, but are not contractually required to do so. The financial institution pays us for invoices it has approved for payment (net of a fee). We do not retain financial or legal interest in these receivables, and they are excluded from the accompanying consolidated balance sheets. Factoring expenses are included in Selling,“Selling, general and administrative expensesexpenses” in our consolidated statements of operations.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Summary Disclosures of Financial Amounts
The following tables summarize amounts relating to our forfaiting and factoring activities (in millions).
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Receivables forfaited | $ | 396 | $ | 423 | $ | 570 | ||||||
| Receivables factored | $ | 77 | $ | 149 | $ | 70 | ||||||
| Forfaiting expense | $ | 1 | $ | 2 | $ | 5 | ||||||
| Factoring expense | $ | 1 | $ | 1 | $ | 1 | ||||||
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Forfaited receivables outstanding | $ | 52 | $ | 83 | ||||
| Factored receivables outstanding | $ | 8 | $ | 34 | ||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Receivables forfaited | $ | 235 | $ | 396 | $ | 423 | ||||||
Receivables factored | $ | 61 | $ | 77 | $ | 149 | ||||||
Forfaiting expense | $ | 1 | $ | 1 | $ | 2 | ||||||
Factoring expense | $ | 1 | $ | 1 | $ | 1 | ||||||
| March 31, | ||||||||
| 2012 | 2011 | |||||||
Forfaited receivables outstanding | $ | 49 | $ | 52 | ||||
Factored receivables outstanding | $ | 4 | $ | 8 | ||||
| 4. | INVENTORIES |
“Inventories” consist of the following (in millions).
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Finished goods | $ | 293 | $ | 270 | ||||
| Work in process | 529 | 431 | ||||||
| Raw materials | 414 | 295 | ||||||
| Supplies | 109 | 93 | ||||||
| 1,345 | 1,089 | |||||||
| Allowances | (7 | ) | (6 | ) | ||||
| Inventories | $ | 1,338 | $ | 1,083 | ||||
| March 31, | ||||||||
| 2012 | 2011 | |||||||
Finished goods | $ | 207 | $ | 293 | ||||
Work in process | 380 | 529 | ||||||
Raw materials | 340 | 414 | ||||||
Supplies | 97 | 102 | ||||||
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Inventories | $ | 1,024 | $ | 1,338 | ||||
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| 5. | ASSETS HELD FOR SALE |
In March 2012, we announced the planned sale of three aluminum foil and packaging plants in our Europe segment to American Industrial Acquisition Corporation (AIAC). The transaction includes foil rolling and packaging operations in Rugles, France; Dudelange, Luxembourg; and Berlin, Germany. The transaction is a step in aligning our growth strategy on the higher-volume, premium markets of beverage cans, automobiles and electronics and specialty products. These plants are expected to be sold within a year and we have classified the respective assets and liabilities of these plants as “Assets held for sale” and “Liabilities held for sale” in the consolidated balance sheet as of March 31, 2012.
Assets held for sale are measured at the lower of their carrying amount or fair value less cost to sell. During the year ended March 31, 2012, we recorded an estimated loss on the disposal of the assets and liabilities of $111 million, which is included in “Loss on assets held for sale” in the consolidated statement of operations.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table summarizes the carrying amounts of the major classes of assets and liabilities held for sale as of March 31, 2012 (in millions).
| March 31 | ||||
| 2012 | ||||
Assets held for sale | ||||
Accounts receivable | 53 | |||
Inventories | 17 | |||
Prepaid expenses and other current assets | 3 | |||
Property, plant and equipment, net | 8 | |||
|
| |||
Total assets held for sale | $ | 81 | ||
|
| |||
Liabilities held for sale | ||||
Accounts payable | 23 | |||
Accrued expenses and other current liabilities | 20 | |||
Accrued postretirement benefits | 10 | |||
Other liabilities | 4 | |||
|
| |||
Total liabilities held for sale | $ | 57 | ||
|
| |||
| 6. | PROPERTY, PLANT AND EQUIPMENT |
“Property, plant and equipment, net,net” consists of the following (in millions).
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Land and property rights | $ | 228 | $ | 227 | ||||
| Buildings | 816 | 781 | ||||||
| Machinery and equipment | 2,787 | 2,645 | ||||||
| 3,831 | 3,653 | |||||||
| Accumulated depreciation and amortization | (1,441 | ) | (1,074 | ) | ||||
| 2,390 | 2,579 | |||||||
| Construction in progress | 153 | 53 | ||||||
| Property, plant and equipment, net | $ | 2,543 | $ | 2,632 | ||||
85
| March 31, | ||||||||
| 2012 | 2011 | |||||||
Land and property rights | $ | 185 | $ | 228 | ||||
Buildings | 770 | 816 | ||||||
Machinery and equipment | 2,684 | 2,787 | ||||||
|
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| |||||
| 3,639 | 3,831 | |||||||
Accumulated depreciation and amortization | (1,508 | ) | (1,441 | ) | ||||
|
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| |||||
| 2,131 | 2,390 | |||||||
Construction in progress | 558 | 153 | ||||||
|
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| |||||
Property, plant and equipment, net | $ | 2,689 | $ | 2,543 | ||||
|
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| |||||
Total depreciation expense is shown in the table below (in millions). For the year ended March 31, 2012, we capitalized $12 million in interest related to construction of property, plant and equipment. Capitalized interest related to construction of property, plant and equipment was immaterial in the periods presented.
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Depreciation expense related to property, plant and equipment | $ | 357 | $ | 336 | $ | 398 | ||||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Depreciation expense related to property, plant and equipment | $ | 283 | $ | 357 | $ | 336 | ||||||
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Asset impairments
For the year ended March 31, 2012, we recorded no asset impairment charges that were includedof $42 million classified in Other“Restructuring charges, net” primarily related to the closure of our Saguenay and Bridgnorth facilities and $4 million in impairment charges on long-lived assets classified as “Other (income) expense, net on the consolidated statement of operations. However, duringnet.” For the year ended March 31, 2011, we recorded impairment charges of approximately $5 million classified in “Restructuring charges, net” related to the write down to fair valueof land and buildingbuildings at our Bridgnorth facility, which has been included in Restructuring charges, netoffset by a $10 million gain on the consolidated statement of operations (see Note 2 — Restructuring Programs).asset sales at our Rogerstone facility. During the yearsyear ended March 31, 2010, and 2009, we recorded $1 million of impairment charges in each period, which is included in Other“Other (income) expense, netnet” on the consolidated statement of operations. During the year ended March 31, 2009, we also recorded impairment charges totaling $17 million related to assets in Europe and Asia which have been included in Restructuring charges, net on the consolidated statement of operations (seeSee Note 2 — Restructuring Programs).
Leases
We lease certain land, buildings and equipment under non-cancelable operating leases expiring at various dates through 2015, and we lease assets in Sierre, Switzerland including a 15-year capital lease through 2020December 2019 from Alcan. Operating leases generally have five to ten-year terms, with one or more renewal options, with terms to be negotiated at the time of renewal. Various facility leases include provisions for rent escalation to recognize increased operating costs or require us to pay certain maintenance and utility costs.
The following table summarizes rent expense included in our consolidated statements of operations (in millions):
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Rent expense | $ | 26 | $ | 24 | $ | 25 | ||||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Rent expense | $ | 27 | $ | 26 | $ | 24 | ||||||
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| |||||||
Future minimum lease payments as of March 31, 2011,2012, for our operating and capital leases having an initial or remaining non-cancelable lease term in excess of one year are as follows (in millions).
| Operating | Capital Lease | |||||||
Year Ending March 31, | Leases | Obligations | ||||||
| 2012 | $ | 24 | $ | 8 | ||||
| 2013 | 20 | 7 | ||||||
| 2014 | 18 | 7 | ||||||
| 2015 | 17 | 7 | ||||||
| 2016 | 15 | 7 | ||||||
| Thereafter | 44 | 28 | ||||||
| Total minimum lease payments | $ | 138 | 64 | |||||
| Less: interest portion on capital lease | 15 | |||||||
| Principal obligation on capital leases | $ | 49 | ||||||
86
Year Ending March 31, | Operating Leases | Capital Lease Obligations | ||||||
2013 | $ | 22 | $ | 8 | ||||
2014 | 20 | 7 | ||||||
2015 | 17 | 7 | ||||||
2016 | 14 | 7 | ||||||
2017 | 12 | 7 | ||||||
Thereafter | 57 | 21 | ||||||
|
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| |||||
Total minimum lease payments | $ | 142 | 57 | |||||
|
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| |||||
Less: interest portion on capital lease | 12 | |||||||
|
| |||||||
Principal obligation on capital leases | $ | 45 | ||||||
|
| |||||||
Assets and related accumulated amortization under capital lease obligations as of March 31, 20112012 and 20102011 are as follows (in millions).
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Assets under capital lease obligations: | ||||||||
| Buildings | $ | 11 | $ | 10 | ||||
| Machinery and equipment | 78 | 67 | ||||||
| 89 | 77 | |||||||
| Accumulated amortization | (44 | ) | (29 | ) | ||||
| $ | 45 | $ | 48 | |||||
| March 31, | ||||||||
| 2012 | 2011 | |||||||
Assets under capital lease obligations: | ||||||||
Buildings | $ | 11 | $ | 11 | ||||
Machinery and equipment | 78 | 78 | ||||||
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| |||||
| 89 | 89 | |||||||
Accumulated amortization | (51 | ) | (44 | ) | ||||
|
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| $ | 38 | $ | 45 | |||||
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Asset Retirement Obligations
The following is a summary of our asset retirement obligation activity. The period-end balances are included in Other“Other long-term liabilitiesliabilities” in our consolidated balance sheets (in millions).
| Balance at | ||||||||||||||||
| Beginning | Balance at | |||||||||||||||
| of Period | Accretion | Other | End of Period | |||||||||||||
| Year Ended March 31, 2009 | $ | 16 | $ | 1 | $ | (1 | ) | $ | 16 | |||||||
| Year Ended March 31, 2010 | $ | 16 | $ | 1 | $ | — | $ | 17 | ||||||||
| Year Ended March 31, 2011 | $ | 17 | $ | 1 | $ | (2 | ) | $ | 16 | |||||||
| Balance at Beginning of Period | Accretion | Other | Balance at End of Period | |||||||||||||
Year Ended March 31, 2010 | $ | 16 | $ | 1 | $ | — | $ | 17 | ||||||||
Year Ended March 31, 2011 | $ | 17 | $ | 1 | $ | (2 | ) | $ | 16 | |||||||
Year Ended March 31, 2012 | $ | 16 | $ | 1 | $ | (2 | ) | $ | 15 | |||||||
| 7. | GOODWILL AND INTANGIBLE ASSETS |
There were no material changes to the gross carrying amount or accumulated impairment of goodwill during the years ended March 31, 2012 and 2011. The following tables summarizetable summarizes “Goodwill” (in millions) for the changes in our goodwill (in millions).
| March 31, 2011 | ||||||||||||
| Gross | Net | |||||||||||
| Carrying | Accumulated | Carrying | ||||||||||
| Amount(A) | Impairment | Value | ||||||||||
| North America | $ | 1,148 | $ | (860 | ) | $ | 288 | |||||
| Europe | 511 | (330 | ) | 181 | ||||||||
| South America | 292 | (150 | ) | 142 | ||||||||
| $ | 1,951 | $ | (1,340 | ) | $ | 611 | ||||||
| March 31, 2010 | ||||||||||||||||
| Gross | Net | |||||||||||||||
| Carrying | Accumulated | Carrying | ||||||||||||||
| Amount(A) | Adjustments(B) | Impairment | Value | |||||||||||||
| North America | $ | 1,148 | $ | — | $ | (860 | ) | $ | 288 | |||||||
| Europe | 511 | — | (330 | ) | 181 | |||||||||||
| South America | 263 | 29 | (150 | ) | 142 | |||||||||||
| $ | 1,922 | $ | 29 | $ | (1,340 | ) | $ | 611 | ||||||||
87
| Gross Carrying Amount | Accumulated Impairment | Net Carrying Value | ||||||||||
North America | $ | 1,148 | $ | (860 | ) | $ | 288 | |||||
Europe | 511 | (330 | ) | 181 | ||||||||
South America | 292 | (150 | ) | 142 | ||||||||
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| $ | 1,951 | $ | (1,340 | ) | $ | 611 | ||||||
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| March 31, 2011 | March 31, 2010 | |||||||||||||||||||||||||||
| Weighted | Gross | Net | Gross | Net | ||||||||||||||||||||||||
| Average | Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | ||||||||||||||||||||||
| Life | Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||||
| Tradenames | 20 years | $ | 145 | $ | (28 | ) | $ | 117 | $ | 140 | $ | (20 | ) | $ | 120 | |||||||||||||
| Technology and software | 13 years | 210 | (72 | ) | 138 | 206 | (57 | ) | 149 | |||||||||||||||||||
| Customer-related intangible assets | 20 years | 475 | (92 | ) | 383 | 464 | (67 | ) | 397 | |||||||||||||||||||
| Favorable energy supply contract | 9.5 years | 123 | (54 | ) | 69 | 124 | (42 | ) | 82 | |||||||||||||||||||
| Other favorable contracts | 3.3 years | 16 | (16 | ) | — | 15 | (14 | ) | 1 | |||||||||||||||||||
| 16.9 years | $ | 969 | $ | (262 | ) | $ | 707 | $ | 949 | $ | (200 | ) | $ | 749 | ||||||||||||||
| March 31, 2012 | March 31, 2011 | |||||||||||||||||||||||||
| Weighted Average Life | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||
Tradenames | 20 years | $ | 141 | $ | (34 | ) | $ | 107 | $ | 145 | $ | (28 | ) | $ | 117 | |||||||||||
Technology and software | 13 years | 245 | (83 | ) | 162 | 210 | (72 | ) | 138 | |||||||||||||||||
Customer-related intangible assets | 20 years | 466 | (113 | ) | 353 | 475 | (92 | ) | 383 | |||||||||||||||||
Favorable energy supply contract | 9.5 years | 124 | (68 | ) | 56 | 123 | (54 | ) | 69 | |||||||||||||||||
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| 16.9 years | $ | 976 | $ | (298 | ) | $ | 678 | $ | 953 | $ | (246 | ) | $ | 707 | ||||||||||||
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Our favorable energy supply contract and other favorable contracts areis amortized over theirits estimated useful liveslife using methodsa method that reflectreflects the pattern in which the economic benefits are expected to be consumed. All other intangible assets are amortized using the straight-line method.
Amortization expense related to intangible“Intangible assets, net” is as follows (in millions):
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Total Amortization expense related to intangible assets | $ | 60 | $ | 66 | $ | 59 | ||||||
| Less: Amortization expense related to intangible assets included in Cost of goods sold (exclusive of depreciation and amortization)(A) | (13 | ) | (18 | ) | (18 | ) | ||||||
| Amortization expense related to intangible assets included in Depreciation and amortization | $ | 47 | $ | 48 | $ | 41 | ||||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Total Amortization expense related to intangible assets | $ | 59 | $ | 60 | $ | 66 | ||||||
Less: Amortization expense related to intangible assets included in “Cost of goods sold (exclusive of depreciation and amortization)” (A) | (13 | ) | (13 | ) | (18 | ) | ||||||
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Amortization expense related to intangible assets included in “Depreciation and amortization” | $ | 46 | $ | 47 | $ | 48 | ||||||
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| (A) | Relates to amortization of favorable energy |
Estimated total amortization expense related to intangible“Intangible assets, net” for each of the five succeeding fiscal years is as follows (in millions). Actual amounts may differ from these estimates due to such factors as customer turnover, raw material consumption patterns, impairments, additional intangible asset acquisitions and other events.
Fiscal Year Ending March 31, | ||||
| 2012 | $ | 61 | ||
| 2013 | 60 | |||
| 2014 | 59 | |||
| 2015 | 59 | |||
| 2016 | 59 | |||
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
Fiscal Year Ending March 31, | ||||
2013 | $ | 62 | ||
2014 | 62 | |||
2015 | 61 | |||
2016 | 61 | |||
2017 | 57 | |||
| 8. | CONSOLIDATION |
Purchase of Noncontrolling Interest in Novelis Korea Limited
During the year ended March 31, 2012, we acquired 31.3% of the shares of Novelis Korea Limited for $344 million. The transaction resulted in our ownership of 99% of the outstanding shares of Novelis Korea Limited. The acquisition was recorded as a reduction to equity of $344 million.
The following table summarizes the change in ownership interest (in millions).
| Year ended March 31, 2012 | ||||
Net income attributable to our common shareholder | $ | 63 | ||
Decrease in additional paid-in capital for purchase of shares in Novelis Korea Limited | (171 | ) | ||
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Change from net income attributable to our common shareholder and transfers from noncontrolling interest | $ | (108 | ) | |
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Variable Interest Entities (VIE)
The entity that has a controlling financial interest in a variable interest entity (VIE)VIE is referred to as the primary beneficiary and consolidates the VIE. Prior to March 31, 2010, the primary beneficiary was the entity that would absorb a majority of the economic risks and rewards of the VIE based on an analysis of projected probability-weighted cash flows. In accordance with the new accounting guidance on consolidation of VIEs effective April 1, 2010 (see Note 1), anAn entity is deemed to have a controlling financial interest and is the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
We have a joint interest in Logan Aluminum Inc. (Logan) with Tri-Arrows Aluminum Inc. (Tri-Arrows), formerly known as ARCO Aluminum, Inc. (ARCO). Effective August 1, 2011, a consortium of Japanese companies purchased ARCO. The transaction did not impact Novelis’ interest in Logan. Logan processes metal received from Novelis and ARCOTri-Arrows and charges the respective partner a fee to cover expenses. Logan is thinly capitalized and relies on the regular reimbursement of costs and expenses by Novelis and ARCOTri-Arrows to fund its operations. This reimbursement is considered a variable interest as it constitutes a form of financing of the activities of Logan. Other than these contractually required reimbursements, we do not provide other material support to Logan. Logan’s creditors do not have recourse to our general credit.
Novelis has a majority voting right on Logan’s board of directors and has the ability to direct the majority of Logan’s production operations. We also have the ability to take the majority share of production and associated costs. These facts qualify Novelis as Logan’s primary beneficiary and this entity is consolidated for all periods presented. All significant intercompany transactions and balances have been eliminated.
The following table summarizes the carrying value and classification of assets and liabilities owned by the Logan joint venture and consolidated onin our condensed consolidated balance sheets (in millions). There are significant other assets used in the operations of Logan that are not part of the joint venture, as they are directly owned and consolidated by Novelis or ARCO.
| March 31, | March 31, | |||||||
| 2011 | 2010 | |||||||
| Assets | ||||||||
Current assets | ||||||||
| Cash and cash equivalents | $ | 1 | $ | 3 | ||||
| Accounts receivable | 27 | 29 | ||||||
| Inventories, net | 36 | 31 | ||||||
| Prepaid expenses and other current assets | — | 1 | ||||||
Total current assets | 64 | 64 | ||||||
| Property, plant and equipment, net | 13 | 10 | ||||||
| Goodwill | 12 | 12 | ||||||
| Deferred income taxes | 52 | 41 | ||||||
| Other long-term assets | 3 | 3 | ||||||
Total assets | $ | 144 | $ | 130 | ||||
| Liabilities | ||||||||
Current liabilities | ||||||||
| Accounts payable | $ | 26 | $ | 23 | ||||
| Accrued expenses and other current liabilities | 11 | 12 | ||||||
Total current liabilities | 37 | 35 | ||||||
| Accrued postretirement benefits | 120 | 97 | ||||||
| Other long-term liabilities | 2 | 3 | ||||||
Total liabilities | $ | 159 | $ | 135 | ||||
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
| March 31, 2012 | March 31, 2011 | |||||||
| Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 2 | $ | 1 | ||||
Accounts receivable | 20 | 27 | ||||||
Inventories | 42 | 36 | ||||||
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Total current assets | 64 | 64 | ||||||
Property, plant and equipment, net | 15 | 13 | ||||||
Goodwill | 12 | 12 | ||||||
Deferred income taxes | 63 | 52 | ||||||
Other long-term assets | 3 | 3 | ||||||
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Total assets | $ | 157 | $ | 144 | ||||
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| Liabilities | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 24 | $ | 26 | ||||
Accrued expenses and other current liabilities | 11 | 11 | ||||||
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Total current liabilities | 35 | 37 | ||||||
Accrued postretirement benefits | 145 | 120 | ||||||
Other long-term liabilities | 2 | 2 | ||||||
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Total liabilities | $ | 182 | $ | 159 | ||||
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| 9. | INVESTMENT IN AND ADVANCES TO NON-CONSOLIDATED AFFILIATES AND RELATED PARTY TRANSACTIONS |
The following table summarizes the ownership structure and our ownership percentage of the non-consolidated affiliates in which we have an investment as of March 31, 2011,2012, and which we account for using the equity method. We do not control our non-consolidated affiliates, but have the ability to exercise significant influence over their operating and financial policies. We have no material investments that we account for using the cost method.
Affiliate Name | Ownership Structure | Ownership Percentage | ||||
Aluminium Norf GmbH | Corporation | |||||
Consorcio Candonga | Unincorporated Joint Venture | |||||
MiniMRF LLC | Limited Liability Company | |||||
The following table summarizes our share of the condensed assets, liabilities and equity of our equity method affiliates. The results include the unamortized fair value adjustments of $509 million and $559 million as of March 31, 2012 and 2011, respectively relating to our non-consolidated affiliates due to the Arrangement.
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Assets: | ||||||||
| Current assets | $ | 80 | $ | 82 | ||||
| Non-current assets | 889 | 856 | ||||||
| Total assets | $ | 969 | $ | 938 | ||||
| Liabilities: | ||||||||
| Current liabilities | $ | 63 | $ | 61 | ||||
| Non-current liabilities | 163 | 168 | ||||||
| Total liabilities | 226 | 229 | ||||||
| Equity: | ||||||||
| Novelis equity investment | 743 | 709 | ||||||
| Total liabilities and equity | $ | 969 | $ | 938 | ||||
| March 31, | ||||||||
| 2012 | 2011 | |||||||
Assets: | ||||||||
Current assets | $ | 78 | $ | 80 | ||||
Non-current assets | 825 | 889 | ||||||
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Total assets | $ | 903 | $ | 969 | ||||
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Liabilities: | ||||||||
Current liabilities | $ | 66 | $ | 63 | ||||
Non-current liabilities | 154 | 163 | ||||||
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Total liabilities | 220 | 226 | ||||||
Equity: | ||||||||
Novelis equity investment | 683 | 743 | ||||||
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Total liabilities and equity | $ | 903 | $ | 969 | ||||
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Included in the accompanying consolidated financial statements are transactions and balances arising from businesses we conduct with these non-consolidated affiliates, which we classify as related party transactions and balances. The following table also describes the nature and amounts of significant transactions that we had with our non-consolidated affiliates (in millions). These results include the incremental depreciation and amortization expense, net of tax, of $17 million, $17 million, and $18 million for the years ended March 31, 2012, 2011, and 2010, respectively that we record in our equity method accounting as a result of fair value adjustments we made to our investments in non-consolidated affiliates due to the Arrangement. These results also include the $160 million impairment charge to reduce the carrying value of our investment in Aluminium Norf GmbH for
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Net sales | $ | 252 | $ | 229 | $ | 242 | ||||||
Costs, expenses and provision for taxes on income | 265 | 241 | 257 | |||||||||
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Net income (loss) | $ | (13 | ) | $ | (12 | ) | $ | (15 | ) | |||
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Purchase of tolling services from Aluminium Norf GmbH (Alunorf) | $ | 252 | $ | 229 | $ | 241 | ||||||
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For the year ended March 31, 2009. The results for the year ended March 31, 2010 also include2012, Alunorf had a $10$16 million after tax benefit from the refinement of our methodology for recording depreciation and amortization on the step-up in our basis in the underlying assets of an investee.
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Net sales | $ | 229 | $ | 242 | $ | 277 | ||||||
| Costs, expenses and provision for taxes on income | 241 | 257 | 289 | |||||||||
| Impairment charge | — | — | 160 | |||||||||
| Net income (loss) | $ | (12 | ) | $ | (15 | ) | $ | (172 | ) | |||
| Purchase of tolling services from Aluminium Norf GmbH (Norf) | $ | 229 | $ | 241 | $ | 257 | ||||||
90
| March 31, | ||||||||
| 2012 | 2011 | |||||||
Accounts receivable-related parties | $ | 33 | $ | 28 | ||||
Other long-term assets-related parties | $ | 16 | $ | 19 | ||||
Accounts payable-related parties | $ | 51 | $ | 50 | ||||
Transactions with Hindalco
We had no other materialoccasionally have related party balances.
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Accounts receivable | $ | 28 | $ | 24 | ||||
| Other long-term receivables | $ | 19 | $ | 21 | ||||
| Accounts payable | $ | 50 | $ | 53 | ||||
On December 11, 2009, our wholly-owned subsidiary, Novelis U.K. Limited, entered into an agreement with Hindalco to sell certain equipment previously used in the operation of our aluminum sheet mill in Rogerstone, South Wales, U.K., which ceased operations in April 2009. Under the equipment purchase agreement, Hindalco paid Novelis U.K. Limited a purchase price of $17 million, and in the year ended March 31, 2012, we provided ancillary technical assistance to Hindalco with respect to its use of the equipment. The purchase price for the equipment was based on a third-party valuation, and we believe the terms of this transaction are comparable to the terms that would have been reached with a third party on an arms-length basis.
Novelis U.K. Limited entered into agreements with Hindalco to sell certain aluminum rolling equipment previously used in the operation of our plant located at Bridgnorth, England. In the year ended March 31, 2011, Hindalco paid Novelis U.K. Limited a purchase price of $3 million, plus certain additional dismantling costs. The purchase price for the equipment was based on a third-party valuation, and we believe the terms of this transaction are comparable to the terms that would have been reached with a third party on an arms-length basis. In the year ended March 31, 2012, Hindalco purchased an additional $5 million of equipment, and we provided ancillary technical assistance to Hindalco with respect to its use of the equipment.
On December 17, 2010, we completed certain refinancing activities and paid $1.7 billion to our shareholder as a return of capital.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 10. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
“Accrued expenses and other current liabilitiesliabilities” consists of the following (in millions).
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Accrued compensation and benefits | $ | 199 | $ | 165 | ||||
| Accrued interest payable | 64 | 15 | ||||||
| Accrued income taxes | 35 | 25 | ||||||
| Other current liabilities | 270 | 231 | ||||||
| Accrued expenses and other current liabilities | $ | 568 | $ | 436 | ||||
91
| March 31, | ||||||||
| 2012 | 2011 | |||||||
Accrued compensation and benefits | $ | 160 | $ | 199 | ||||
Accrued interest payable | 66 | 64 | ||||||
Accrued income taxes | 19 | 35 | ||||||
Other current liabilities | 231 | 270 | ||||||
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Accrued expenses and other current liabilities | $ | 476 | $ | 568 | ||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
| 11. | DEBT |
Debt consists of the following (in millions).
| March 31, 2011 | March 31, 2010 | |||||||||||||||||||||||||||
| Unamortized | Unamortized | |||||||||||||||||||||||||||
| Interest | Fair Value | Carrying | Fair Value | Carrying | ||||||||||||||||||||||||
| Rates(A) | Principal | Adjustments(B) | Value | Principal | Adjustments(B) | Value | ||||||||||||||||||||||
Third party debt: | ||||||||||||||||||||||||||||
| Short term borrowings | 2.43 | % | $ | 17 | $ | — | $ | 17 | $ | 75 | $ | — | $ | 75 | ||||||||||||||
Novelis Inc. | ||||||||||||||||||||||||||||
| Floating rate Term Loan Facility, due March 2017 | 4.00 | % | 1,496 | (38 | ) | 1,458 | — | — | — | |||||||||||||||||||
| Floating rate Term Loan Facility, due July 2014 | — | %(C) | — | — | — | 292 | — | 292 | ||||||||||||||||||||
| 8.375% Senior Notes, due December 2017 | 8.375 | % | 1,100 | — | 1,100 | — | — | — | ||||||||||||||||||||
| 8.75% Senior Notes, due December 2020 | 8.75 | % | 1,400 | (1 | ) | 1,399 | — | — | — | |||||||||||||||||||
| 11.5% Senior Notes, due February 2015 | — | %(C) | — | — | — | 185 | (3 | ) | 182 | |||||||||||||||||||
| 7.25% Senior Notes, due February 2015 | 7.25 | %(C) | 74 | 3 | 77 | 1,124 | 41 | 1,165 | ||||||||||||||||||||
Novelis Corporation | ||||||||||||||||||||||||||||
| Floating rate Term Loan Facility, due July 2014 | — | %(C) | — | — | — | 859 | (46 | ) | 813 | |||||||||||||||||||
Novelis Switzerland S.A. | ||||||||||||||||||||||||||||
| Capital lease obligation, due December 2019 (Swiss francs (CHF) 46 million) | 7.50 | % | 48 | (3 | ) | 45 | 45 | (3 | ) | 42 | ||||||||||||||||||
| Capital lease obligation, due August 2011 (CHF 1 million) | 2.49 | % | 1 | — | 1 | 1 | — | 1 | ||||||||||||||||||||
Novelis Brazil | ||||||||||||||||||||||||||||
| BNDES loans, due December 2018 through March 2019 | 5.50 | % | 5 | (2 | ) | 3 | — | — | — | |||||||||||||||||||
Novelis Korea Limited | ||||||||||||||||||||||||||||
| Bank loan, due October 2010 | — | % | — | — | — | 100 | — | 100 | ||||||||||||||||||||
Other | ||||||||||||||||||||||||||||
| Other debt, due December 2011 through November 2015 | 4.16 | % | 3 | — | 3 | 1 | — | 1 | ||||||||||||||||||||
Total debt — third parties | 4,144 | (41 | ) | 4,103 | 2,682 | (11 | ) | 2,671 | ||||||||||||||||||||
| Less: Short term borrowings | (17 | ) | — | (17 | ) | (75 | ) | — | (75 | ) | ||||||||||||||||||
| Current portion of long term debt | (21 | ) | — | (21 | ) | (116 | ) | — | (116 | ) | ||||||||||||||||||
Long-term debt, net of current portion — third parties: | $ | 4,106 | $ | (41 | ) | $ | 4,065 | $ | 2,491 | $ | (11 | ) | $ | 2,480 | ||||||||||||||
| March 31, 2012 | March 31, 2011 | |||||||||||||||||||||||||||
| Interest Rates(A) | Principal | Unamortized Carrying Value Adjustments | Carrying Value | Principal | Unamortized Carrying Value Adjustments | Carrying Value | ||||||||||||||||||||||
Third party debt: | ||||||||||||||||||||||||||||
Short term borrowings | 4.83 | % | $ | 18 | $ | — | $ | 18 | $ | 17 | $ | — | $ | 17 | ||||||||||||||
Novelis Inc. | ||||||||||||||||||||||||||||
Floating rate Term Loan Facility, due March 2017 | 4.00 | % | 1,705 | (37 | )(B) | 1,668 | 1,496 | (38 | )(B) | 1,458 | ||||||||||||||||||
8.375% Senior Notes, due December 2017 | 8.375 | % | 1,100 | — | 1,100 | 1,100 | — | 1,100 | ||||||||||||||||||||
8.75% Senior Notes, due December 2020 | 8.75 | % | 1,400 | — | 1,400 | 1,400 | (1 | ) | 1,399 | |||||||||||||||||||
7.25% Senior Notes, due February 2015 | 7.25 | % | 74 | 2 | 76 | 74 | 3 | 77 | ||||||||||||||||||||
Novelis Korea Limited | ||||||||||||||||||||||||||||
Facility Loan, due December 2014 | 4.63 | % | 26 | — | 26 | — | — | — | ||||||||||||||||||||
Term Loan, due December 2014 | 4.96 | % | 18 | — | 18 | — | — | — | ||||||||||||||||||||
Novelis Switzerland S.A. | ||||||||||||||||||||||||||||
Capital lease obligation, due December 2019 (Swiss francs (CHF) 40 million) | 7.50 | % | 45 | (2 | ) | 43 | 48 | (3 | ) | 45 | ||||||||||||||||||
Novelis Brazil | ||||||||||||||||||||||||||||
BNDES loans, due December 2018 through April 2021 | 5.50 | % | 15 | (4 | ) | 11 | 5 | (2 | ) | 3 | ||||||||||||||||||
Other | ||||||||||||||||||||||||||||
Other debt, due December 2011 through November 2015 | 5.22 | % | 2 | — | 2 | 4 | — | 4 | ||||||||||||||||||||
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Total debt — third parties | 4,403 | (41 | ) | 4,362 | 4,144 | (41 | ) | 4,103 | ||||||||||||||||||||
Less: Short term borrowings | (18 | ) | — | (18 | ) | (17 | ) | — | (17 | ) | ||||||||||||||||||
Current portion of long term debt | (23 | ) | — | (23 | ) | (21 | ) | — | (21 | ) | ||||||||||||||||||
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Long-term debt, net of current portion — third parties: | $ | 4,362 | $ | (41 | ) | $ | 4,321 | $ | 4,106 | $ | (41 | ) | $ | 4,065 | ||||||||||||||
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| (A) | Interest rates are as of March 31, | |
| (B) | Debt existing at the time of the Arrangement was recorded at fair value. | |
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
Principal repayment requirements for our total debt over the next five years and thereafter (excluding unamortized faircarrying value adjustments and using exchange rates as of March 31, 20112012 for our debt denominated in foreign currencies) are as follows (in millions).
| Amount | ||||
| Within one year | $ | 38 | ||
| 2 years | 20 | |||
| 3 years | 21 | |||
| 4 years | 96 | |||
| 5 years | 21 | |||
| Thereafter | 3,948 | |||
| Total | $ | 4,144 | ||
As of March 31, 2012 | Amount | |||
Short-term borrowings and Current portion of long term debt due within one year | $ | 41 | ||
2 years | 25 | |||
3 years | 143 | |||
4 years | 25 | |||
5 years | 1,645 | |||
Thereafter | 2,524 | |||
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Total | $ | 4,403 | ||
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RefinancingSenior Notes
On December 17, 2010, we completed a series of refinancing transactions. The refinancing transactions consisted of the sale ofissued $1.1 billion in aggregate principal amount of 8.375% Senior Notes Due 2017 (the 2017 Notes) and $1.4 billion in aggregate principal amount of 8.75% Senior Notes Due 2020 (the 2020 Notes, and together with the 2017 Notes, the Notes) and a new $1.5 billion secured term loan credit facility (the.
Also, on December 17, 2010, Term Loan Facility).
93
New Senior Secured Credit Facilities
On December 7, 2011, we borrowed an incremental $225 million through our existing term loan credit facility. The senior secured credit facilities consist of (1) thea $1.5 billion six-year 2011secured and an incremental $225 million five-year secured term loan credit facility, due March 2017 (collectively referred to as Term Loan Facility that may be increased in minimum amounts of $50 million per increase provided that the senior secured net leverage ratio shall not, on a proforma basis, exceed 2.5 to 1Facility) and (2) thean $800 million five-year New ABL Facilityasset based loan facility (ABL Facility) that may be increased by an additional $200 million. Scheduled principal amortization payments underThe interest rate on the 2011 Term Loan Facility are $3.75 million per calendar quarter. Any unpaid principal will be dueis the higher of LIBOR or a floor of 100 basis points, plus a spread ranging from 2.75% to 3.00% depending on the Company’s net leverage ratio, as defined in full in March 2017. Borrowings under the 2010 ABLTerm Loan Facility are subjectagreement. The senior secured credit facilities contain various affirmative covenants, including covenants with respect to our financial statements, litigation and other reporting requirements, insurance, payment of taxes, employee benefits and (subject to certain limitations, generally based on 85% oflimitations) causing new subsidiaries to pledge collateral and guaranty our obligations. The senior secured credit facilities also contain certain negative covenants as specified in the book value of eligible North American and certain eligible European accounts receivable; plus up to the lesser of (i) 75% of the net book value of all eligible North American and U.K. inventory or (ii) 85% of the appraised net orderly liquidation value of all eligible North American and U.K. inventory; minus such reserves as the agent bank may establish in good faith in accordance with such agent
94
The new senior secured credit facilities are guaranteed by substantially all of our restricted subsidiaries that guarantee the Notes. Generally, for both the 2011 Term Loan Facility and 2010 ABL Facility, interest rates reset periodically and interest is payable on a periodic basis depending on the type of loan. We may prepay borrowings under the new senior secured credit facilities, if certain minimum prepayment amounts and breakage costs are satisfied.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
addition, under the New ABL Facility, if (a) our excess availability under the New ABL Facility is less than the greater of (i) 12.5% of the lesser of (x) the total New ABL Facility commitment at any time and (y) the then applicable borrowing base and (ii) $90 million, at any time or (b) any event of default has occurred and is continuing, we are required to maintain a minimum fixed charge coverage ratio of at least 1.1 to 1 until (1) such excess availability has subsequently been at least the greater of (i) 12.5% of the lesser of (x) the total New ABL Facility commitments at such time and (y) the then applicable borrowing base for 30 consecutive days and (ii) $90 million and (2) no default is outstanding during such 30 day period. As of March 31, 20112012 our excess availability under the New ABL Facility was $767$704 million, or 96%88% of the lender commitments.
Further, under the New Term Loan Facility we may not permit our total net leverage ratio as of the last day of our four consecutive quarters ending with any fiscal quarter to be greater than the ratio set forth below opposite the period in the table below during which the last day of such period occurs:
Period | Total Net Leverage Ratio | |||
March 30, 2011 through March 31, 2012 | 4.75 to 1.0 | |||
April 1, 2012 through March 31, 2013 | 4.50 to 1.0 | |||
April 1, 2013 through March 31, 2014 | 4.375 to 1.0 | |||
April 1, 2014 through March 31, 2015 | 4.25 to 1.0 | |||
April 1, 2015 and thereafter | 4.0 to 1.0 | |||
BNDESKorean Bank Loans
In the fourth quarter of fiscalDecember 2011, Novelis BrazilKorea Limited (Novelis Korea) entered into two new loan agreements (the BNDES loans) with Brazil’s National Bank for Economic and Social Development (BNDES) related to the plant expansion in Pindamonhangaba, Brazil (Pinda). The agreements provided for a commitment of borrowings at a fixed Brazilian Real (R$) rate of 5.5% up to $4 million (R$7 million) and $15 million (R$25 million) entered into in February and March of 2011, respectively. As of March 31, 2011, we had borrowed $1 million (R$2 million) and $4 million (R$7 million) under the BNDESthree separate loan agreements with maturity dateslocal banks. The Novelis Korea bank loans consist of the following: (1) a $26 million (KRW 30 billion) loan due December 20182014, (2) an $18 million (KRW 20 billion) loan due December 2014, and March 2019, respectively. Since the BNDES(3) a short term borrowing of $18 million (KRW 20 billion). All three bank loans bear sub-markethave variable interest rates we have calculatedwith the fair value of the loans at inception and will amortize the discount over the life of the loans using the effective interest method. As of March 31, 2011, the total unamortized discount on the BNDES loans was $2 million.
Short-Term Borrowings and Lines of Credit
As of March 31, 2011,2012, our short-term borrowings were $17$18 million, consisting of an $18 million (KRW 20 billion) Novelis Korea bank overdrafts.loan. As of March 31 2011, $332012, $24 million of the ABL Facility was utilized for letters of credit, and we had $767$704 million in remaining availability under this revolving credit facility.the ABL Facility. The weighted average interest rate on our total short-term borrowings was 2.43%4.83% and 1.71%2.43% as of March 31, 2012 and March 31, 2011, and 2010, respectively.
As of March 31, 2011,2012, we had $151$49 million of outstanding letters of credit in South Korea which are not related to the ABL Facility.
95
From February 2011 through December 2011, Novelis Brazil entered into eleven new loan agreements (the BNDES loans) with Brazil’s National Bank for Economic and Social Development (BNDES) related to the plant expansion in Pindamonhangaba, Brazil (Pinda). The agreements provided for a commitment of Brazilian Real (R$) borrowings at a fixed rate of 5.5% up to an aggregate of $18 million (R$34 million). As of March 31, 2012, we had $15 million (R$28 million) outstanding under the BNDES loan agreements with maturity dates ranging from December 2018 through April 2021.
We use interest rate swaps to manage our exposure to changes in the benchmark LIBOR interest rate which impacts our variable-rate debt. Prior to the completion of the December 17, 2010 refinancing transactions, these swaps were designated as cash flow hedges. UponOn December 17, 2010 after the completion of thea refinancing transaction our exposure to changes in the benchmark LIBOR interest rate was limited. The 2011 Term Loan Facility contains a floor feature of the higher of LIBOR or 100 basis points applied to a spread of 3.00%. As of March 31, 2011, this floor feature was in effect, changing our variable rate debt to fixed rate debt. Wewe ceased hedge accounting for these swaps onand released all “Accumulated Other Comprehensive Income” (AOCI) into earnings during the year ended March 31, 2011.
We had $220 million of outstanding interest rate swaps with maturity date of April 2012, which were not designated as hedges as of March 31, 2012 and March 31, 2011.
On January 18, 2012 Novelis Korea entered into interest rate swaps for the Facility and Term year loans maturing December 17, 2010.2014. The rates were fixed at 4.485% for the $26 million (KRW 30 billion) loan and 4.815% for the $18 million (KRW 20 billion) loan. Both swaps expire December 2014, concurrent with the maturity of the loans. As of March 31, 2010, we had $520 million of interest rate2012, these swaps of which $510 million were designated as cash flow hedges. No interest rate swaps were designated as of March 31, 2011.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Capital Lease Obligations
In December 2004, we entered into a fifteen-year capital lease obligation with Alcan for assets in Sierre, Switzerland, which has an interest rate of 7.5% and fixed quarterly payments of CHF 1.7 million, which is equivalent to $2 million at the exchange rate as of March 31, 2011.
| 12. | SHARE-BASED COMPENSATION |
The board of directors has authorized threefour long term incentive plans as follows:
The Novelis Long-Term Incentive Plan FY 2009 — FY 2012 (2009 LTIP) was authorized in June 2008. Under the 2009 LTIP, phantom stock appreciation rights (SARs) were granted to certain of our executive officers and key employees.
The Novelis Long-Term Incentive Plan FY 2010 — FY 2013 (2010 LTIP) was authorized in June 2009. Under the 2010 LTIP, SARs were granted to certain of our executive officers and key employees.
The Novelis Long-Term Incentive Plan FY 2011— FY 2014 (2011 LTIP) was authorized in May 2010. The 2011 LTIP provides for SARs and phantom restricted stock units (RSUs).
The Novelis Long-Term Incentive Plan FY 2012— FY 2015 (2012 LTIP) was authorized in May 2011. The 2012 LTIP provides for SARs and RSUs.
Under all threefour plans, SARs vest at the rate of 25% per year, subject to performance criteria and expire seven years from their grant date. Each SAR is to be settled in cash based on the difference between the market value of one Hindalco share on the date of grant and the market value on the date of exercise, where market values are denominated in Indian rupees and convertedsubject to a maximum payout as defined by the participant’s payroll currency atplan. If the time of exercise. The amount of cash paidSAR is limited to (i) 2.5 times the target payout if exercised within one year of vesting, or (ii) 3the maximum payout is equal to two and a half times the target payout iftarget. If the SAR is exercised after one year of vesting.vesting, the maximum payout is equal to three times the target. The SARs do not transfer any shareholder rights in Hindalco to a participant. The SARs are classified as liability awards and are remeasured at fair value each reporting period until the SARs are settled.
The performance criterion for vesting is based on the actual overall Novelis operating earnings before interest, taxes, depreciation and amortization, as adjusted (adjusted Operating EBITDA) compared to the target adjusted Operating EBITDA established and approved each fiscal year. The minimum threshold for vesting each year is 75% of each annual target adjusted Operating EBITDA, at which point 75% of the SARs for that period would vest, with an equal pro rata amount of SARs vesting through 100% achievement of the target. Given that the performance criterion is based on an earnings target in a future period for each fiscal year, the grant date of the awards for accounting purposes is generally not established until the performance criterion has been defined.
The RSUs under the 2011 LTIP and 2012 LTIP vest in full three years from the grant date and are not subject to performance criteria. The payout
96
Total compensation expense related to SARs and RSUs under the long term incentive plans for the respective periods is presented in the table below (in millions). These amounts are included in Selling,“Selling, general and administrative expensesexpenses” in our consolidated statements of operations. As the performance criteria for fiscal years 2012, 2013, 2014 and 20142015 have not yet been established, measurement periods for SARs relating to those periods have not yet commenced. As a result, only compensation expense for vested and current year SARs has been recorded for the years ended March 31, 20112012 and 2010.
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Novelis Long-Term Incentive Plan 2009 | $ | 4 | $ | 6 | $ | — | ||||||
| Novelis Long-Term Incentive Plan 2010 | 9 | 3 | — | |||||||||
| Novelis Long-Term Incentive Plan 2011 | 5 | — | — | |||||||||
| $ | 18 | $ | 9 | $ | — | |||||||
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Novelis Long-Term Incentive Plan 2009 | $ | 3 | $ | 4 | $ | 6 | ||||||
Novelis Long-Term Incentive Plan 2010 | (1 | ) | 9 | 3 | ||||||||
Novelis Long-Term Incentive Plan 2011 | (2 | ) | 5 | — | ||||||||
Novelis Long-Term Incentive Plan 2012 | 1 | — | — | |||||||||
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Total compensation (income) expense | $ | 1 | $ | 18 | $ | 9 | ||||||
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The tables below show the RSUs activity under our 2012 LTIP and 2011 LTIP and the SARs activity under our 2012 LTIP, 2011 LTIP, 2010 LTIP and 2009 LTIP.
| Aggregate | ||||||||||||
| Grant Date Fair | Intrinsic | |||||||||||
| Number of | Value | Value (USD in | ||||||||||
2011 LTIP | RSUs | (in Indian Rupees) | millions) | |||||||||
| RSUs outstanding as of March 31, 2010 | — | — | $ | — | ||||||||
| Granted | 918,301 | 148.77 | 3 | |||||||||
| Forfeited/Cancelled | (12,244 | ) | 147.10 | |||||||||
| RSUs outstanding as of March 31, 2011 | 906,057 | 148.79 | $ | 4 | ||||||||
| Weighted | Weighted Average | Aggregate | ||||||||||||||
| Average | Remaining | Intrinsic | ||||||||||||||
| Number of | Exercise Price | Contractual Term | Value (USD in | |||||||||||||
2011 LTIP | SARs | (in Indian Rupees) | (In years) | millions) | ||||||||||||
| SARs outstanding as of March 31, 2010 | — | — | — | $ | — | |||||||||||
| Granted | 7,213,839 | 148.77 | ||||||||||||||
| Forfeited/Cancelled | (96,187 | ) | 147.10 | |||||||||||||
| SARs outstanding as of March 31, 2011 | 7,117,652 | 148.79 | 6.15 | $ | 10 | |||||||||||
| Weighted | Weighted Average | Aggregate | ||||||||||||||
| Average | Remaining | Intrinsic | ||||||||||||||
| Number of | Exercise Price | Contractual Term | Value (USD in | |||||||||||||
2010 LTIP | SARs | (in Indian Rupees) | (In years) | millions) | ||||||||||||
| SARs outstanding as of March 31, 2010 | 13,680,431 | 87.68 | 6.24 | $ | 29 | |||||||||||
| Granted | 32,278 | 125.33 | ||||||||||||||
| Exercised | (2,002,387 | ) | 86.18 | |||||||||||||
| Forfeited/Cancelled | (657,831 | ) | 85.79 | |||||||||||||
| SARs outstanding as of March 31, 2011 | 11,052,491 | 88.46 | 5.24 | $ | 25 | |||||||||||
| Weighted | Weighted Average | Aggregate | ||||||||||||||
| Average | Remaining | Intrinsic | ||||||||||||||
| Number of | Exercise Price | Contractual Term | Value (USD in | |||||||||||||
2009 LTIP | SARs | (in Indian Rupees) | (In years) | millions) | ||||||||||||
| SARs outstanding as of March 31, 2010 | 11,371,399 | 60.50 | 5.25 | $ | 18 | |||||||||||
| Exercised | (1,690,380 | ) | 60.50 | |||||||||||||
| Forfeited/Cancelled | (736,197 | ) | 60.50 | |||||||||||||
| SARs outstanding as of March 31, 2011 | 8,944,822 | 60.50 | 4.22 | $ | 14 | |||||||||||
2012 LTIP - RSUs | Number of RSUs | Grant Date Fair Value (in Indian Rupees) | Aggregate Intrinsic Value (USD in millions) | |||||||||
RSUs outstanding as of March 31, 2011 | — | — | $ | — | ||||||||
Granted | 945,983 | 186.47 | 2 | |||||||||
Forfeited/Cancelled | (67,308 | ) | 192.38 | |||||||||
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RSUs outstanding as of March 31, 2012 | 878,675 | 186.02 | $ | 2 | ||||||||
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2012 LTIP - SARs | Number of SARs | Weighted Average Exercise Price (in Indian Rupees) | Weighted Average Remaining Contractual Term (In years) | Aggregate Intrinsic Value (USD in millions) | ||||||||||||
SARs outstanding as of March 31, 2011 | — | — | — | $ | — | |||||||||||
Granted | 7,201,070 | 188.05 | — | |||||||||||||
Forfeited/Cancelled | (512,353 | ) | 192.38 | |||||||||||||
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SARs outstanding as of March 31, 2012 | 6,688,717 | 186.05 | 6.1 | $ | — | |||||||||||
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2011 LTIP - RSUs | Number of RSUs | Grant Date Fair Value (in Indian Rupees) | Aggregate Intrinsic Value (USD in millions) | |||||||||
RSUs outstanding as of March 31, 2011 | 906,057 | 148.79 | $ | 4 | ||||||||
Forfeited/Cancelled | (103,908 | ) | 147.10 | |||||||||
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RSUs outstanding as of March 31, 2012 | 802,149 | 149.01 | $ | 2 | ||||||||
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2011 LTIP - SARs | Number of SARs | Weighted Average Exercise Price (in Indian Rupees) | Weighted Average Remaining Contractual Term (In years) | Aggregate Intrinsic Value (USD in millions) | ||||||||||||
SARs outstanding as of March 31, 2011 | 7,117,652 | 148.79 | 6.2 | $ | 10 | |||||||||||
Exercised | (69,222 | ) | 191.17 | |||||||||||||
Forfeited/Cancelled | (744,582 | ) | 147.10 | |||||||||||||
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SARs outstanding as of March 31, 2012 | 6,303,848 | 149.01 | 5.1 | $ | — | |||||||||||
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2010 LTIP - SARs | Number of SARs | Weighted Average Exercise Price (in Indian Rupees) | Weighted Average Remaining Contractual Term (In years) | Aggregate Intrinsic Value (USD in millions) | ||||||||||||
SARs outstanding as of March 31, 2011 | 11,052,491 | 88.46 | 5.2 | $ | 25 | |||||||||||
Exercised | (1,670,951 | ) | 174.76 | |||||||||||||
Forfeited/Cancelled | (1,209,954 | ) | 87.16 | |||||||||||||
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SARs outstanding as of March 31, 2012 | 8,171,586 | 88.37 | 4.2 | $ | 7 | |||||||||||
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2009 LTIP - SARs | Number of SARs | Weighted Average Exercise Price (in Indian Rupees) | Weighted Average Remaining Contractual Term (In years) | Aggregate Intrinsic Value (USD in millions) | ||||||||||||
SARs outstanding as of March 31, 2011 | 8,944,822 | 60.50 | 4.2 | $ | 14 | |||||||||||
Exercised | (3,505,010 | ) | 134.23 | |||||||||||||
Forfeited/Cancelled | (594,160 | ) | 60.50 | |||||||||||||
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SARs outstanding as of March 31, 2012 | 4,845,652 | 60.50 | 3.2 | $ | 7 | |||||||||||
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The fair value of each SAR is based on the difference between the fair value of a long call and a short call option. The fair value of each of these call options was determined using the Monte Carlo Simulation model. We used historical stock price volatility data of Hindalco on the National Stock Exchange of India to determine expected volatility assumptions. The fair value of each SAR under the 2012 LTIP, 2011 LTIP, 2010 LTIP and 2009 LTIP was estimated as of March 31, 20112012 using the following assumptions:
97
| 2012 LTIP | 2011 LTIP | 2010 LTIP | 2009 LTIP | |||||||||||||
Risk-free interest rate | 8.59 | % | 8.60 | % | 8.59 | % | 8.27 | % | ||||||||
Dividend yield | 1.04 | % | 1.04 | % | 1.04 | % | 1.04 | % | ||||||||
Volatility | 53 | % | 55 | % | 57 | % | 47 | % | ||||||||
2011 LTIP | 2010 LTIP | 2009 LTIP | ||||
| Risk-free interest rate | 7.61 - 7.91% | 7.63 - 7.93% | 7.65 - 7.95% | |||
| Dividend yield | 0.65% | 0.65% | 0.65% | |||
| Volatility | 49.43% | 52.31% | 54.34% | |||
| Time interval (in years) | 0.004 | 0.004 | 0.004 |
Unrecognized compensation expense related to the non-vested SARs (assuming all future performance criteria are met) is $28$13 million which is expected to be realized over a weighted average period of 1.62.37 years. Unrecognized compensation expense is $1 million related to the2011 RSU’s is $3and $2 million andrelated to 2012 RSU’s, which will be recognized over the remaining vesting period of three years.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 13. | POSTRETIREMENT BENEFIT PLANS |
Our pension obligations relate toto: (1) funded defined benefit pension plans in the U.S., Canada, Switzerland, and the U.K.; and South Korea; (2) unfunded defined benefit pension plans in Germany; and (3) unfunded lump sum indemnities in France, Malaysia and Italy; and partially funded lump sum indemnities in South Korea.Italy. Our other postretirement obligations (Other Benefits, as shown in certain tables below) include unfunded healthcare and life insurance benefits provided to retired employees in Canada, the U.S. and Brazil.
Employer Contributions to Plans
For pension plans, our policy is to fund an amount required to provide for contractual benefits attributed to service to-date, and amortize unfunded actuarial liabilities typically over periods of 15 years or less. We also participate in savings plans in Canada and the U.S., as well as defined contribution pension plans in the U.S., U.K., Canada, Germany, Italy, Switzerland, Malaysia and Brazil. We contributed the following amounts (in millions) to all plans, including the Rio Tinto Alcan plans that cover our employees (in millions).
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Funded pension plans | $ | 41 | $ | 50 | $ | 29 | ||||||
| Unfunded pension plans | 13 | 11 | 16 | |||||||||
| Savings and defined contribution pension plans | 18 | 16 | 16 | |||||||||
| Total contributions | $ | 72 | $ | 77 | $ | 61 | ||||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Funded pension plans | $ | 57 | $ | 41 | $ | 50 | ||||||
Unfunded pension plans | 13 | 13 | 11 | |||||||||
Savings and defined contribution pension plans | 19 | 18 | 16 | |||||||||
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Total contributions | $ | 89 | $ | 72 | $ | 77 | ||||||
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During fiscal year 2012,2013, we expect to contribute $49$47 million to our funded pension plans, $13$14 million to our unfunded pension plans and $20$21 million to our savings and defined contribution plans.
Investment Policy and Asset Allocation
The company’s overall investment strategy is to achieve a mix of approximately 50% of investments for long-term growth (equities, real estate) and 50% for near-term benefit payments (debt securities, other) with a wide diversification of asset categories, investment styles, fund strategies and fund managers. Since most of the defined benefit plans are closed to new entrants, we expect this strategy to gradually shift more investments toward near-term benefit payments.
98
| Allocation in | ||||||||||||
| Aggregate as of | ||||||||||||
| Target | March 31, | |||||||||||
Asset Category | Allocation Ranges | 2011 | 2010 | |||||||||
| Equity securities | 35 - 60 | % | 50 | % | 51 | % | ||||||
| Debt securities | 35 - 55 | % | 39 | % | 40 | % | ||||||
| Real estate | 0 - 25 | % | 4 | % | 4 | % | ||||||
| Other | 0 - 15 | % | 7 | % | 5 | % | ||||||
Asset Category | Target Allocation Ranges | Allocation in Aggregate as of March 31, | ||||||||||
| 2012 | 2011 | |||||||||||
Equity securities | 35 - 60 | % | 48 | % | 50 | % | ||||||
Debt securities | 35 - 55 | % | 47 | % | 39 | % | ||||||
Real estate | 0 - 25 | % | 2 | % | 4 | % | ||||||
Other | 0 - 15 | % | 3 | % | 7 | % | ||||||
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Benefit Obligations, Fair Value of Plan Assets, Funded Status and Amounts Recognized in Financial Statements
| Pension Benefits | ||||||||||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Benefit obligation at beginning of period | $ | 1,275 | $ | 1,154 | $ | 945 | ||||||
Service cost | 41 | 36 | 35 | |||||||||
Interest cost | 68 | 64 | 61 | |||||||||
Members’ contributions | 6 | 5 | 5 | |||||||||
Benefits paid | (51 | ) | (45 | ) | (40 | ) | ||||||
Amendments | (8 | ) | 1 | 1 | ||||||||
Transfers/mergers | 8 | (6 | ) | 4 | ||||||||
Curtailments/settlements/termination benefits | (16 | ) | — | 1 | ||||||||
Actuarial (gains) losses | 175 | 23 | 107 | |||||||||
Currency (gains) losses | (14 | ) | 43 | 35 | ||||||||
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Benefit obligation at end of period | $ | 1,484 | $ | 1,275 | $ | 1,154 | ||||||
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Benefit obligation of funded plans | $ | 1,299 | $ | 1,101 | $ | 976 | ||||||
Benefit obligation of unfunded plans | 185 | 174 | 178 | |||||||||
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Benefit obligation at end of period | $ | 1,484 | $ | 1,275 | $ | 1,154 | ||||||
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The following tables present the change in benefit obligation, change in fair value of plan assets and the funded status for pension and other benefits (in millions), including the Swiss Pension Plan. Other Benefits in the tables below include unfunded healthcare and life insurance benefits provided to retired employees in Canada, Brazil and the U.S.
| Pension Benefits | ||||||||||||
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Benefit obligation at beginning of period | $ | 1,154 | $ | 945 | $ | 991 | ||||||
| Service cost | 36 | 35 | 38 | |||||||||
| Interest cost | 64 | 61 | 57 | |||||||||
| Members’ contributions | 5 | 5 | 9 | |||||||||
| Benefits paid | (45 | ) | (40 | ) | (39 | ) | ||||||
| Amendments | 1 | 1 | — | |||||||||
| Transfers/mergers | (6 | ) | 4 | 48 | ||||||||
| Curtailments/termination benefits | — | 1 | (2 | ) | ||||||||
| Actuarial (gains) losses | 23 | 107 | (33 | ) | ||||||||
| Currency (gains) losses | 43 | 35 | (124 | ) | ||||||||
Benefit obligation at end of period | $ | 1,275 | $ | 1,154 | $ | 945 | ||||||
| Benefit obligation of funded plans | $ | 1,101 | $ | 976 | $ | 787 | ||||||
| Benefit obligation of unfunded plans | 174 | 178 | 158 | |||||||||
Benefit obligation at end of period | $ | 1,275 | $ | 1,154 | $ | 945 | ||||||
| Other Benefits | ||||||||||||
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Benefit obligation at beginning of period | $ | 167 | $ | 162 | $ | 171 | ||||||
| Service cost | 7 | 6 | 7 | |||||||||
| Interest cost | 10 | 10 | 10 | |||||||||
| Benefits paid | (7 | ) | (7 | ) | (7 | ) | ||||||
| Curtailments/termination benefits | — | — | (3 | ) | ||||||||
| Actuarial (gains) losses | 18 | (6 | ) | (14 | ) | |||||||
| Currency (gains) losses | 1 | 2 | (2 | ) | ||||||||
Benefit obligation at end of period | $ | 196 | $ | 167 | $ | 162 | ||||||
| Benefit obligation of funded plans | $ | — | $ | — | $ | — | ||||||
| Benefit obligation of unfunded plans | 196 | 167 | 162 | |||||||||
Benefit obligation at end of period | $ | 196 | $ | 167 | $ | 162 | ||||||
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| Other Benefits | ||||||||||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Benefit obligation at beginning of period | $ | 196 | $ | 167 | $ | 162 | ||||||
Service cost | 9 | 7 | 6 | |||||||||
Interest cost | 10 | 10 | 10 | |||||||||
Benefits paid | (9 | ) | (7 | ) | (7 | ) | ||||||
Curtailments/termination benefits | — | — | — | |||||||||
Actuarial (gains) losses | 22 | 18 | (6 | ) | ||||||||
Currency (gains) losses | — | 1 | 2 | |||||||||
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Benefit obligation at end of period | $ | 228 | $ | 196 | $ | 167 | ||||||
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Benefit obligation of unfunded plans | 228 | 196 | 167 | |||||||||
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Benefit obligation at end of period | $ | 228 | $ | 196 | $ | 167 | ||||||
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| Pension Benefits | ||||||||||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Change in fair value of plan assets | ||||||||||||
Fair value of plan assets at beginning of period | 927 | $ | 805 | $ | 598 | |||||||
Actual return on plan assets | 55 | 81 | 147 | |||||||||
Members’ contributions | 6 | 5 | 5 | |||||||||
Benefits paid | (51 | ) | (45 | ) | (40 | ) | ||||||
Company contributions | 70 | 54 | 62 | |||||||||
Transfers/mergers | 6 | (6 | ) | 4 | ||||||||
Settlements | (14 | ) | — | — | ||||||||
Currency gains (losses) | (3 | ) | 33 | 29 | ||||||||
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Fair value of plan assets at end of period | $ | 996 | $ | 927 | $ | 805 | ||||||
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
| Pension Benefits | ||||||||||||
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Change in fair value of plan assets | ||||||||||||
| Fair value of plan assets at beginning of period | $ | 805 | $ | 598 | $ | 724 | ||||||
| Actual return on plan assets | 81 | 147 | (102 | ) | ||||||||
| Members’ contributions | 5 | 5 | 9 | |||||||||
| Benefits paid | (45 | ) | (40 | ) | (39 | ) | ||||||
| Company contributions | 54 | 62 | 45 | |||||||||
| Transfers/mergers | (6 | ) | 4 | 49 | ||||||||
| Currency gains (losses) | 33 | 29 | (88 | ) | ||||||||
Fair value of plan assets at end of period | $ | 927 | $ | 805 | $ | 598 | ||||||
| March 31, | ||||||||||||||||
| 2011 | 2010 | |||||||||||||||
| Pension | Other | Pension | Other | |||||||||||||
| Benefits | Benefits | Benefits | Benefits | |||||||||||||
Funded status | ||||||||||||||||
| Funded Status at end of period: | ||||||||||||||||
| Assets less the benefit obligation of funded plans | $ | (174 | ) | $ | — | $ | (171 | ) | $ | — | ||||||
| Benefit obligation of unfunded plans | (174 | ) | (196 | ) | (178 | ) | (167 | ) | ||||||||
| $ | (348 | ) | $ | (196 | ) | $ | (349 | ) | $ | (167 | ) | |||||
As included on consolidated balance sheet | ||||||||||||||||
| Accrued expenses and other current liabilities | $ | 11 | $ | 8 | $ | (12 | ) | $ | (7 | ) | ||||||
| Accrued postretirement benefits | 337 | 188 | (337 | ) | (160 | ) | ||||||||||
| $ | 348 | $ | 196 | $ | (349 | ) | $ | (167 | ) | |||||||
| March 31, | ||||||||||||||||
| 2012 | 2011 | |||||||||||||||
| Pension Benefits | Other Benefits | Pension Benefits | Other Benefits | |||||||||||||
Funded status | ||||||||||||||||
Funded Status at end of period: | ||||||||||||||||
Assets less the benefit obligation of funded plans | $ | (303 | ) | $ | — | $ | (174 | ) | $ | — | ||||||
Benefit obligation of unfunded plans | (185 | ) | (228 | ) | (174 | ) | (196 | ) | ||||||||
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| |||||||||
| $ | (488 | ) | $ | (228 | ) | $ | (348 | ) | $ | (196 | ) | |||||
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As included on consolidated balance sheet | ||||||||||||||||
Accrued expenses and other current liabilities | $ | 13 | $ | 8 | $ | 11 | $ | 8 | ||||||||
Accrued postretirement benefits | 475 | 220 | 337 | 188 | ||||||||||||
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| |||||||||
| $ | 488 | $ | 228 | $ | 348 | $ | 196 | |||||||||
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The postretirement amounts recognized in Accumulated“Accumulated other comprehensive income (loss),” before tax effects, are presented in the table below (in millions).
| March 31, | ||||||||||||||||
| 2011 | 2010 | |||||||||||||||
| Pension | Other | Pension | Other | |||||||||||||
| Benefits | Benefits | Benefits | Benefits | |||||||||||||
| Net actuarial loss | $ | 100 | $ | 19 | $ | 111 | $ | 1 | ||||||||
| Prior service cost (credit) | (5 | ) | — | (6 | ) | — | ||||||||||
| Total postretirement amounts recognized in Accumulated other comprehensive loss (income) | $ | 95 | $ | 19 | $ | 105 | $ | 1 | ||||||||
| March 31, | ||||||||||||||||
| 2012 | 2011 | |||||||||||||||
| Pension Benefits | Other Benefits | Pension Benefits | Other Benefits | |||||||||||||
Net actuarial loss | $ | 262 | $ | 39 | $ | 85 | $ | 19 | ||||||||
Prior service cost (credit) | (13 | ) | — | (7 | ) | — | ||||||||||
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Total postretirement amounts recognized in Accumulated other comprehensive loss (income) | $ | 249 | $ | 39 | $ | 78 | $ | 19 | ||||||||
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The estimated amounts that will be amortized from Accumulated“Accumulated other comprehensive income (loss)” into net periodic benefit cost in fiscal 20122013 are $10$26 million for pension benefits and $1$3 million for other postretirement benefits, primarily related to net actuarial losses.
100
| March 31, | ||||||||||||||||
| 2012 | 2011 | |||||||||||||||
| Pension Benefits | Other Benefits | Pension Benefits | Other Benefits | |||||||||||||
Beginning balance in Accumulated other comprehensive loss (income) | $ | 78 | $ | 19 | $ | 95 | $ | 1 | ||||||||
Curtailments and settlements | (2 | ) | — | — | — | |||||||||||
Net actuarial loss (gain) | 190 | 22 | (10 | ) | 18 | |||||||||||
Amortization of: | ||||||||||||||||
Prior service cost | 2 | — | 1 | — | ||||||||||||
Actuarial loss | (11 | ) | (2 | ) | (11 | ) | — | |||||||||
Effect of currency exchange | — | — | 3 | — | ||||||||||||
Plan amendment | (8 | ) | — | — | — | |||||||||||
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Total postretirement amounts recognized in Accumulated other comprehensive loss (income) | $ | 249 | $ | 39 | $ | 78 | $ | 19 | ||||||||
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The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with an accumulated benefit obligation in excess of plan assets as of March 31, 20112012 and 20102011 are presented in the table below (in millions).
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Projected benefit obligation | $ | 1,014 | $ | 940 | ||||
| Accumulated benefit obligation | $ | 918 | $ | 847 | ||||
| Fair value of plan assets | $ | 698 | $ | 615 | ||||
| March 31, | ||||||||
| 2012 | 2011 | |||||||
Projected benefit obligation | $ | 1,467 | $ | 1,014 | ||||
Accumulated benefit obligation | $ | 1,329 | $ | 918 | ||||
Fair value of plan assets | $ | 979 | $ | 698 | ||||
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Future Benefit Payments
Expected benefit payments to be made during the next ten fiscal years are listed in the table below (in millions).
| Pension Benefits | Other Benefits | |||||||
| 2012 | $ | 42 | $ | 8 | ||||
| 2013 | 48 | 9 | ||||||
| 2014 | 53 | 9 | ||||||
| 2015 | 58 | 11 | ||||||
| 2016 | 63 | 12 | ||||||
| 2017 through 2020 | 399 | 76 | ||||||
| Total | $ | 663 | $ | 125 | ||||
| Pension Benefits | Other Benefits | |||||||
2013 | $ | 53 | $ | 8 | ||||
2014 | 57 | 9 | ||||||
2015 | 62 | 10 | ||||||
2016 | 67 | 11 | ||||||
2017 | 73 | 12 | ||||||
2018 through 2022 | 445 | 79 | ||||||
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| |||||
Total | $ | 757 | $ | 129 | ||||
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| Year Ended March 31, | ||||||||||||
Pension Benefits | 2012 | 2011 | 2010 | |||||||||
Net periodic benefit cost | ||||||||||||
Service cost | $ | 42 | $ | 36 | $ | 35 | ||||||
Interest cost | 68 | 64 | 61 | |||||||||
Expected return on assets | (63 | ) | (56 | ) | (43 | ) | ||||||
Amortization | ||||||||||||
— actuarial losses | 11 | 11 | 12 | |||||||||
— prior service cost | (1 | ) | (1 | ) | (1 | ) | ||||||
Curtailment/settlement losses | 1 | — | 1 | |||||||||
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Net periodic benefit cost | 58 | 54 | 65 | |||||||||
Proportionate share of non-consolidated affiliates’ deferred pension costs, net of tax | 3 | 3 | 1 | |||||||||
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Total net periodic benefit costs recognized | $ | 61 | $ | 57 | $ | 66 | ||||||
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Components of Net Periodic Benefit Cost
The components of net periodic benefit cost for the respective periods are listed in the table below (in millions).
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
Pension Benefits | 2011 | 2010 | 2009 | |||||||||
Net periodic benefit cost | ||||||||||||
| Service cost | $ | 36 | $ | 35 | $ | 38 | ||||||
| Interest cost | 64 | 61 | 57 | |||||||||
| Expected return on assets | (56 | ) | (43 | ) | (50 | ) | ||||||
| Amortization | ||||||||||||
| — actuarial losses | 11 | 12 | — | |||||||||
| — prior service cost | (1 | ) | (1 | ) | (1 | ) | ||||||
| Curtailment/settlement losses | — | 1 | (1 | ) | ||||||||
Net periodic benefit cost | 54 | 65 | 43 | |||||||||
| Proportionate share of non-consolidated affiliates’ deferred pension costs, net of tax | 3 | 1 | 4 | |||||||||
Total net periodic benefit costs recognized | $ | 57 | $ | 66 | $ | 47 | ||||||
101
| Year Ended March 31, | ||||||||||||
Other Benefits | 2012 | 2011 | 2010 | |||||||||
Net periodic benefit cost | ||||||||||||
Service cost | $ | 9 | $ | 7 | $ | 6 | ||||||
Interest cost | 10 | 9 | 10 | |||||||||
Amortization — actuarial losses | 1 | — | 1 | |||||||||
Curtailment/termination benefits | — | — | — | |||||||||
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| |||||||
Total net periodic benefit costs recognized | $ | 20 | $ | 16 | $ | 17 | ||||||
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| |||||||
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
Other Benefits | 2011 | 2010 | 2009 | |||||||||
Net periodic benefit cost | ||||||||||||
| Service cost | $ | 7 | $ | 6 | $ | 7 | ||||||
| Interest cost | 9 | 10 | 10 | |||||||||
| Amortization | ||||||||||||
| — actuarial losses | — | 1 | 2 | |||||||||
| Curtailment/termination benefits | — | — | (3 | ) | ||||||||
Total net periodic benefit costs recognized | $ | 16 | $ | 17 | $ | 16 | ||||||
The weighted average assumptions used to determine benefit obligations and net periodic benefit costs for the respective periods are listed in the table below.
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
Pension Benefits | 2011 | 2010 | 2009 | |||||||||
Weighted average assumptions used to determine benefit obligations | ||||||||||||
| Discount rate | 5.3 | % | 5.5 | % | 6.0 | % | ||||||
| Average compensation growth | 3.3 | % | 3.6 | % | 3.6 | % | ||||||
Weighted average assumptions used to determine net periodic benefit cost | ||||||||||||
| Discount rate | 5.5 | % | 6.1 | % | 5.9 | % | ||||||
| Average compensation growth | 3.6 | % | 3.4 | % | 3.6 | % | ||||||
| Expected return on plan assets | 6.8 | % | 6.7 | % | 6.9 | % | ||||||
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
Other Benefits | 2011 | 2010 | 2009 | |||||||||
Weighted average assumptions used to determine benefit obligations | ||||||||||||
| Discount rate | 5.2 | % | 5.6 | % | 6.2 | % | ||||||
| Average compensation growth | 3.9 | % | 3.9 | % | 3.9 | % | ||||||
Weighted average assumptions used to determine net periodic benefit cost | ||||||||||||
| Discount rate | 5.6 | % | 6.2 | % | 6.1 | % | ||||||
| Average compensation growth | 3.9 | % | 4.0 | % | 3.9 | % | ||||||
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Year Ended March 31, | ||||||||||||
Pension Benefits | 2012 | 2011 | 2010 | |||||||||
Weighted average assumptions used to determine benefit obligations | ||||||||||||
Discount rate | 4.4 | % | 5.3 | % | 5.5 | % | ||||||
Average compensation growth | 3.4 | % | 3.3 | % | 3.6 | % | ||||||
Weighted average assumptions used to determine net periodic benefit cost | ||||||||||||
Discount rate | 5.3 | % | 5.5 | % | 6.1 | % | ||||||
Average compensation growth | 3.3 | % | 3.6 | % | 3.4 | % | ||||||
Expected return on plan assets | 6.7 | % | 6.8 | % | 6.7 | % | ||||||
| Year Ended March 31, | ||||||||||||
Other Benefits | 2012 | 2011 | 2010 | |||||||||
Weighted average assumptions used to determine benefit obligations | ||||||||||||
Discount rate | 4.2 | % | 5.2 | % | 5.6 | % | ||||||
Average compensation growth | 3.9 | % | 3.9 | % | 3.9 | % | ||||||
Weighted average assumptions used to determine net periodic benefit cost | ||||||||||||
Discount rate | 5.2 | % | 5.6 | % | 6.2 | % | ||||||
Average compensation growth | 3.9 | % | 3.9 | % | 4.0 | % | ||||||
In selecting the appropriate discount rate for each plan, we generally used a country-specific, high-quality corporate bond index, adjusted to reflect the duration of the particular plan. In the U.S. and Canada, the discount rate was calculated by matching the plan’s projected cash flows with similar duration high-quality corporate bonds to develop a present value, which was then interpolated to develop a single equivalent discount rate.
In estimating the expected return on assets of a pension plan, consideration is given primarily to its target allocation, the current yield on long-term bonds in the country where the plan is established, and the historical risk premium of equity or real estate over long-term bond yields in each relevant country. The approach is consistent with the principle that assets with higher risk provide a greater return over the long-term. The expected long-term rate of return on plan assets is 6.7%6.4% in fiscal 2012.
102
A change of one percentage point in the assumed healthcare cost trend rates would have the following effects on our other benefits (in millions).
| 1% Increase | 1% Decrease | |||||||
Sensitivity Analysis | ||||||||
| Effect on service and interest costs | $ | 2 | $ | (2 | ) | |||
| Effect on benefit obligation | $ | 17 | $ | (15 | ) | |||
| 1% Increase | 1% Decrease | |||||||
Sensitivity Analysis | ||||||||
Effect on service and interest costs | $ | 2 | $ | (2 | ) | |||
Effect on benefit obligation | $ | 21 | $ | (18 | ) | |||
In addition, we provide post-employment benefits, including disability, early retirement and continuation of benefits (medical, dental, and life insurance) to our former or inactive employees, which are accounted for on the accrual basis in accordance ASC No. 712, Compensation — Retirement Benefits. Other“Other long-term liabilitiesliabilities” on our consolidated balance sheets includes $19$18 million and $19 million as of March 31, 20112012 and 2010,2011, respectively, for these benefits.
Fair Value of Plan Assets
The following pension plan assets are measured and recognized at fair value on a recurring basis (in millions). Please see Note 15 —16— Fair Value of Assets and Liabilities for description of the fair value hierarchy. The USU.S. pension plan assets are invested exclusively in commingled funds and classified in Level 2. The foreign pension plan assets are invested in both direct investments (Levels 1 and 2) and commingled funds (Level 2).
| March 31, 2011 | March 31, 2010 | |||||||||||||||||||||||||||||||
| Fair Value Measurements Using | Fair Value Measurements Using | |||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Large Cap Equity | $ | — | $ | 149 | $ | — | $ | 149 | $ | — | $ | 127 | $ | — | $ | 127 | ||||||||||||||||
| Small/Mid Cap Equity | — | 41 | — | 41 | — | 35 | — | 35 | ||||||||||||||||||||||||
| International Equity | — | 86 | — | 86 | — | 77 | — | 77 | ||||||||||||||||||||||||
| Fixed Income | — | 186 | — | 186 | — | 166 | — | 166 | ||||||||||||||||||||||||
| Total | $ | — | $ | 462 | $ | — | $ | 462 | $ | — | $ | 405 | $ | — | $ | 405 | ||||||||||||||||
| March 31, 2011 | March 31, 2010 | |||||||||||||||||||||||||||||||
| Fair Value Measurements Using | Fair Value Measurements Using | |||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Equity | $ | 138 | $ | 53 | $ | — | $ | 191 | $ | 119 | $ | 47 | $ | — | $ | 166 | ||||||||||||||||
| Fixed Income | 16 | 156 | — | 172 | 15 | 146 | — | 161 | ||||||||||||||||||||||||
| Real Estate | 5 | 31 | — | 36 | 3 | 27 | — | 30 | ||||||||||||||||||||||||
| Cash | 34 | — | — | 34 | 13 | — | — | 13 | ||||||||||||||||||||||||
| Other | 8 | 24 | — | 32 | 9 | 21 | — | 30 | ||||||||||||||||||||||||
| Total | $ | 201 | $ | 264 | $ | — | $ | 465 | $ | 159 | $ | 241 | $ | — | $ | 400 | ||||||||||||||||
103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
US Pension Plan Assets
| March 31, 2012 Fair Value Measurements Using | March 31, 2011 Fair Value Measurements Using | |||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
Large Cap Equity | $ | — | $ | 167 | $ | — | $ | 167 | $ | — | $ | 149 | $ | — | $ | 149 | ||||||||||||||||
Small/Mid Cap Equity | — | 44 | — | 44 | — | 41 | — | 41 | ||||||||||||||||||||||||
International Equity | — | 103 | — | 103 | — | 86 | — | 86 | ||||||||||||||||||||||||
Fixed Income | — | 203 | — | 203 | — | 186 | — | 186 | ||||||||||||||||||||||||
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| |||||||||||||||||
Total | $ | — | $ | 517 | $ | — | $ | 517 | $ | — | $ | 462 | $ | — | $ | 462 | ||||||||||||||||
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Foreign Pension Plan Assets
| March 31, 2012 Fair Value Measurements Using | March 31, 2011 Fair Value Measurements Using | |||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
Equity | $ | 103 | $ | 59 | $ | — | $ | 162 | $ | 138 | $ | 53 | $ | — | $ | 191 | ||||||||||||||||
Fixed Income | 47 | 222 | — | 269 | 16 | 156 | — | 172 | ||||||||||||||||||||||||
Real Estate | 12 | 10 | — | 22 | 5 | 31 | — | 36 | ||||||||||||||||||||||||
Cash | 24 | — | — | 24 | 34 | — | — | 34 | ||||||||||||||||||||||||
Other | 2 | — | — | 2 | 8 | 24 | — | 32 | ||||||||||||||||||||||||
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| |||||||||||||||||
Total | $ | 188 | $ | 291 | $ | — | $ | 479 | $ | 201 | $ | 264 | $ | — | $ | 465 | ||||||||||||||||
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| 14. | CURRENCY LOSSES (GAINS) |
The following currency (gains) losses (gains) are included in “Other (income) expense, net” in the accompanying consolidated statements of operations (in millions).
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Net gain on change in fair value of currency derivative instruments(A) | $ | (40 | ) | $ | (72 | ) | $ | (21 | ) | |||
| Net (gain) loss on remeasurement and transaction gains or losses(B) | (1 | ) | (15 | ) | 98 | |||||||
| Net currency (gain) loss | $ | (41 | ) | $ | (87 | ) | $ | 77 | ||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
(Gain) loss on remeasurement of monetary assets and liabilities, net | $ | 16 | $ | (1 | ) | $ | (15 | ) | ||||
Loss released from accumulated other comprehensive income | 1 | — | — | |||||||||
Gain recognized on balance sheet remeasurement currency exchange contracts, net | (6 | ) | — | — | ||||||||
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Currency (gains) losses, net | $ | 11 | $ | (1 | ) | $ | (15 | ) | ||||
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The following currency translation gains (losses) are included in Accumulated other comprehensive loss (AOCI),“AOCI,” net of tax and Noncontrolling interests“Noncontrolling interests” (in millions).
| Year Ended March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Cumulative currency translation adjustment — beginning of period | $ | (3 | ) | $ | (78 | ) | $ | 85 | ||||
| Effect of changes in exchange rates | 117 | 75 | (163 | ) | ||||||||
| Cumulative currency translation adjustment — end of period | $ | 114 | $ | (3 | ) | $ | (78 | ) | ||||
104
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Cumulative currency translation adjustment — beginning of period | $ | 114 | $ | (3 | ) | $ | (78 | ) | ||||
Effect of changes in exchange rates | (79 | ) | 117 | 75 | ||||||||
Sale of investment in foreign entities (A) | (12 | ) | — | — | ||||||||
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Cumulative currency translation adjustment — end of period | $ | 23 | $ | 114 | $ | (3 | ) | |||||
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| (A) | We reclassified $12 million of cumulative currency gains from AOCI to “Loss on assets held for sale” in the year ended March 31, 2012 related to the planned sale of three aluminum foil and packaging plants in Europe. See Note 5 — Assets Held For Sale |
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
| 15. | ||
| FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS |
The gross fair values of our financial instruments and commodity contracts as of March 31, 20112012 and 20102011 are as follows (in millions):
| March 31, 2011 | ||||||||||||||||||||
| Assets | Liabilities | Net Fair Value | ||||||||||||||||||
| Current | Noncurrent | Current | Noncurrent(A) | Assets/(Liabilities) | ||||||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||||||
Cash flow hedges | ||||||||||||||||||||
| Currency exchange contracts | $ | 43 | $ | 10 | $ | (1 | ) | $ | — | $ | 52 | |||||||||
| Interest rate swaps | — | — | — | — | — | |||||||||||||||
| Aluminum contracts | 44 | — | — | — | 44 | |||||||||||||||
Fair value hedge | ||||||||||||||||||||
| Aluminum contracts | 9 | — | — | — | 9 | |||||||||||||||
Total derivatives designated as hedging instruments | 96 | 10 | (1 | ) | — | 105 | ||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||
| Aluminum contracts | 54 | 5 | (49 | ) | — | 10 | ||||||||||||||
| Currency exchange contracts | 15 | 2 | (19 | ) | (1 | ) | (3 | ) | ||||||||||||
| Interest rate swaps | — | — | (4 | ) | — | (4 | ) | |||||||||||||
| Electricity swap | — | — | (6 | ) | (23 | ) | (29 | ) | ||||||||||||
| Energy contracts | — | — | (3 | ) | — | (3 | ) | |||||||||||||
Total derivatives not designated as hedging instruments | 69 | 7 | (81 | ) | (24 | ) | (29 | ) | ||||||||||||
Total derivative fair value | $ | 165 | $ | 17 | $ | (82 | ) | $ | (24 | ) | $ | 76 | ||||||||
| March 31, 2010 | ||||||||||||||||||||
| Assets | Liabilities | Net Fair Value | ||||||||||||||||||
| Current | Noncurrent | Current | Noncurrent(A) | Assets/(Liabilities) | ||||||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||||||
Cash flow hedges | ||||||||||||||||||||
| Currency exchange contracts | $ | — | $ | — | $ | — | $ | (21 | ) | $ | (21 | ) | ||||||||
| Interest rate swaps | — | — | (6 | ) | (1 | ) | (7 | ) | ||||||||||||
| Electricity swap | — | — | (8 | ) | (27 | ) | (35 | ) | ||||||||||||
Total derivatives designated as hedging instruments | — | — | (14 | ) | (49 | ) | (63 | ) | ||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||
| Aluminum contracts | 149 | 6 | (80 | ) | — | 75 | ||||||||||||||
| Currency exchange contracts | 48 | 1 | (10 | ) | (1 | ) | 38 | |||||||||||||
| Energy contracts | — | — | (6 | ) | — | (6 | ) | |||||||||||||
Total derivatives not designated as hedging instruments | 197 | 7 | (96 | ) | (1 | ) | 107 | |||||||||||||
Total derivative fair value | $ | 197 | $ | 7 | $ | (110 | ) | $ | (50 | ) | $ | 44 | ||||||||
| 00000 | 00000 | 00000 | 00000 | 00000 | ||||||||||||||||
| March 31, 2012 | ||||||||||||||||||||
| Assets | Liabilities | Net Fair Value | ||||||||||||||||||
| Current | Noncurrent | Current | Noncurrent(A) | Assets/(Liabilities) | ||||||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||||||
Cash flow hedges | ||||||||||||||||||||
Aluminum contracts | $ | 17 | $ | — | $ | (5 | ) | $ | — | $ | 12 | |||||||||
Currency exchange contracts | 12 | $ | 1 | (6 | ) | (6 | ) | 1 | ||||||||||||
Net Investment hedges | ||||||||||||||||||||
Currency exchange contracts | 2 | — | — | — | 2 | |||||||||||||||
Fair value hedges | ||||||||||||||||||||
Aluminum contracts | 1 | — | (6 | ) | — | (5 | ) | |||||||||||||
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Total derivatives designated as hedging instruments | $ | 32 | $ | 1 | $ | (17 | ) | $ | (6 | ) | $ | 10 | ||||||||
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Derivatives not designated as hedging instruments | ||||||||||||||||||||
Aluminum contracts | 51 | — | (47 | ) | — | 4 | ||||||||||||||
Currency exchange contracts | 16 | 1 | (10 | ) | (1 | ) | 6 | |||||||||||||
Interest rate swaps | — | — | — | — | — | |||||||||||||||
Energy contracts | — | — | (21 | ) | (30 | ) | (51 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total derivatives not designated as hedging instruments | 67 | 1 | (78 | ) | (31 | ) | (41 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total derivative fair value | $ | 99 | $ | 2 | $ | (95 | ) | $ | (37 | ) | $ | (31 | ) | |||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 00000 | 00000 | 00000 | 00000 | 00000 | ||||||||||||||||
| March 31, 2011 | ||||||||||||||||||||
| Assets | Liabilities | Net Fair Value | ||||||||||||||||||
| Current | Noncurrent | Current | Noncurrent(A) | Assets/(Liabilities) | ||||||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||||||
Cash flow hedges | ||||||||||||||||||||
Aluminum contracts | $ | 44 | $ | — | $ | — | $ | — | $ | 44 | ||||||||||
Currency exchange contracts | 43 | 10 | (1 | ) | — | 52 | ||||||||||||||
Net Investment hedges | ||||||||||||||||||||
Currency exchange contracts | ||||||||||||||||||||
Fair value hedges | ||||||||||||||||||||
Aluminum contracts | 9 | — | — | — | 9 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total derivatives designated as hedging instruments | $ | 96 | $ | 10 | $ | (1 | ) | — | $ | 105 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||||||
Aluminum contracts | 54 | 5 | (49 | ) | — | 10 | ||||||||||||||
Currency exchange contracts | 15 | 2 | (19 | ) | (1 | ) | (3 | ) | ||||||||||||
Interest rate swaps | — | — | (4 | ) | — | (4 | ) | |||||||||||||
Energy contracts | — | — | (9 | ) | (23 | ) | (32 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total derivatives not designated as hedging instruments | 69 | 7 | (81 | ) | (24 | ) | (29 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total derivative fair value | $ | 165 | $ | 17 | $ | (82 | ) | $ | (24 | ) | $ | 76 | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| (A) | The noncurrent portions of derivative liabilities are included in |
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Aluminum
We use aluminum forward contracts and options to hedge our exposure to changes aluminum prices.in the London Metal Exchange (LME) price of aluminum. These exposures arise primarily from firm commitments to sell aluminum in future periods at fixed prices, the forecasted output of our smelter operationsoperation in South America and the forecasted metal price lag associated with sales of aluminum sales in future periods at prices based on the LME.
We identify and designate certain aluminum forward contracts as fair value hedges of the metal price risk associated with fixed price sales commitments that qualify as firm commitments. Price risk arises due to fluctuating aluminum prices between the time the sales order is committed and the time the order is shipped. Such exposures do not extend beyond two years in length. We recognized gainslosses on changes in fair value of derivative contracts of $4$11 million and lossesgains on changes in the fair value of designated hedged items of $4$11 million in sales revenue for the year ended March 31, 2011.2012. We had 32 kt and 25 kt of outstanding aluminum forward purchase contracts through December 2012 designated as fair value hedges as of March 31, 2011. No aluminum forward contracts were designated as fair value hedges as of2012 and March 31, 2010.
We identify and designate certain aluminum forward purchase contracts as cash flow hedges of the metal price risk associated with
105
We identify and designate certain aluminum forward sales contracts as cash flow hedges of the metal price risk associated with our future metal sales that vary based on changes in the price of aluminum. Price risk exposure arises due to fixed costs associated with our smelter operations in South America. Price risk exposure also arises due to the timing lag between the LME based pricing of raw material metal purchases and the LME based pricing of finished product sales. Such exposures do not extend beyond one year in length. We had 144 kt of outstanding aluminum forward sales contracts designated as cash flow hedges as of March 31, 2012. No aluminum forward sales contracts were designated as cash flow hedges as of March 31, 2010.
The remainderremaining balance of our aluminum derivative contracts hasare not been designated as accounting hedges. As of March 31, 20112012 and 2010,March 31, 2011, we had short positions of 14642 kt and long positions of 55146 kt, respectively, of outstanding aluminum contracts not designated as hedges. The average duration of undesignated contracts is less than four months. The following table summarizes our notional amount (in kt).
| March 31, | ||||||||
| 2011 | 2010 | |||||||
Hedge Type | ||||||||
Long (Short) | ||||||||
| Cash Flow | 183 | — | ||||||
| Fair Value | 25 | — | ||||||
| Not Designated | (146 | ) | 55 | |||||
| Total | 62 | 55 | ||||||
| March 31, | ||||||||
| 2012 | 2011 | |||||||
Hedge Type | ||||||||
Purchase (Sale) | ||||||||
Cash flow purchases | 16 | 183 | ||||||
Cash flow sales | (144 | ) | — | |||||
Fair value | 32 | 25 | ||||||
Not designated | (42 | ) | (146 | ) | ||||
|
|
|
| |||||
Total | (138 | ) | 62 | |||||
|
|
|
| |||||
Foreign Currency
We use foreign exchange forward contracts and cross-currency swaps to manage our exposure to changes in exchange rates. These exposures arise from recorded assets and liabilities, firm commitments and forecasted cash flows denominated in currencies other than the functional currency of certain operations.
We use foreign currency contracts to hedge expected future foreign currency transactions, which include capital expenditures. These contracts cover the same periods as known or expected exposures. We had $976 million and $644 million of outstanding foreign currency forwards designated as cash flow hedges as of March 31, 2012 and 2011, respectively.
We use foreign currency contracts to hedge our foreign currency exposure to net investment in foreign subsidiaries. We had $123 million of outstanding foreign currency forwards designated as net investment hedges as of March 31, 2012. We had no contracts designated as net investment hedges as of March 31, 2011. We recorded gains of $6 million related to net investment hedges in OCI for the year ended March 31, 2012.
As of March 31, 2012 and 2011, we had outstanding currency exchange contracts with a total notional amount of $1.4 billion and $1.6 billion, respectively, which were not designated as hedges. Contracts that represent the majority of notional amounts will mature during the first quarter of fiscal 2013.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Energy
We own an interest in an electricity swap which we designated as a cash flow hedge of our exposure to fluctuating electricity prices. As of March 31, 2011, due to significant credit deterioration of our counterparty, we discontinued hedge accounting for this electricity swap. The outstanding portion of this swap includes a total of 1.4Approximately 1.2 million megawatt hours through 2017.
We use natural gas swaps to manage our exposure to fluctuating energy prices in North America. As of March 31, 20112012 and 2010,March 31, 2011, we had 6.76.6 million MMBTUs and 4.26.7 million MMBTUs, respectively, of natural gas swaps that were not designated as hedges. Such exposures do not extend beyond two years in length. One MMBTU is the equivalent of one decatherm, or one million British Thermal Units.
Interest Rate
We use interest rate swaps to manage our exposure to changes in the benchmark LIBOR interest rate which impacts our variable-rate debt. Prior to the completion of the December 17, 2010 refinancing transactions (see Note 1011 — Debt), these swaps were designated as cash flow hedges. Upon completion of the refinancing transaction, our exposure to changes in the benchmark LIBOR interest rate was limited. We ceased hedge accounting for these swaps and released all Accumulated“Accumulated Other Comprehensive IncomeIncome” (AOCI) into current period earnings. earnings during the year ended March 31, 2011.
We had $510$220 million of outstanding interest rate swaps with a maturity date of April 2012, which were not designated as cash flow hedges as of March 31, 2010. No2012 and 2011.
In January 2012, we entered into interest rate swaps were designated as cash flow hedges as of March 31, 2011.
106
The following table summarizes the gains (losses) associated with the change in fair value of derivative instruments recognized in earnings“Other (income) expense, net” (in millions).
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Derivative Instruments Not Designated as Hedges | ||||||||||||
| Aluminum contracts | $ | 5 | $ | 123 | $ | (561 | ) | |||||
| Currency exchange contracts | 34 | 72 | 21 | |||||||||
| Interest Rate swaps | (5 | ) | — | — | ||||||||
| Electricity swap | 7 | 6 | 13 | |||||||||
| Energy contracts | (4 | ) | (7 | ) | (29 | ) | ||||||
| Gain (loss) recognized | 37 | 194 | (556 | ) | ||||||||
Derivative Instruments Designated as Hedges | ||||||||||||
Cash flow hedges | ||||||||||||
| Aluminum contracts(A) | — | — | — | |||||||||
| Currency exchange contracts (B) | 6 | — | — | |||||||||
| Interest Rate Swaps | — | — | — | |||||||||
Fair Value hedges | ||||||||||||
| Aluminum contracts | 4 | — | — | |||||||||
| Fixed priced firm sales commitments (A) | (4 | ) | — | — | ||||||||
| Gain recognized | 6 | — | — | |||||||||
Gain (loss) on change in fair value of derivative instruments, net | $ | 43 | $ | 194 | $ | (556 | ) | |||||
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Derivative Instruments Not Designated as Hedges | ||||||||||||
Aluminum contracts | $ | 65 | $ | 5 | $ | 123 | ||||||
Balance sheet remeasurement currency exchange contracts | 7 | — | — | |||||||||
Other currency exchange contracts | 20 | 34 | 72 | |||||||||
Energy contracts (D) | (30 | ) | 3 | (1 | ) | |||||||
Interest Rate swaps | — | (5 | ) | — | ||||||||
|
|
|
|
|
| |||||||
Gain recognized | 62 | 37 | 194 | |||||||||
|
|
|
|
|
| |||||||
Derivative Instruments Designated as Hedges | ||||||||||||
Cash flow hedges | ||||||||||||
Aluminum contracts (C) | 2 | — | — | |||||||||
Currency exchange contracts (A) | 11 | 6 | — | |||||||||
Balance Sheet remeasurement currency exchange contracts (B) | (1 | ) | — | — | ||||||||
Fair Value hedges | ||||||||||||
Aluminum contracts | (11 | ) | 4 | — | ||||||||
Fixed priced firm sales commitments (C) | 11 | (4 | ) | — | ||||||||
|
|
|
|
|
| |||||||
Gain recognized | 12 | 6 | — | |||||||||
|
|
|
|
|
| |||||||
Total gain recognized | $ | 74 | $ | 43 | $ | 194 | ||||||
|
|
|
|
|
| |||||||
Gain on balance sheet remeasurement currency exchange contracts, net | 6 | — | — | |||||||||
Realized gains (losses), net | 130 | 107 | (384 | ) | ||||||||
Unrealized gains (losses) on other derivative instruments, net | (62 | ) | (64 | ) | 578 | |||||||
|
|
|
|
|
| |||||||
Total gain recognized | $ | 74 | $ | 43 | $ | 194 | ||||||
|
|
|
|
|
| |||||||
| (A) | Amount represents excluded forward market premium/discount and hedging relationship ineffectiveness. |
| (B) |
| (C) | An immaterial amount of ineffectiveness exists in both cash flow and fair value hedging relationships involving aluminum derivatives. |
107
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Realized gains (losses) included in segment income | $ | 102 | $ | (385 | ) | $ | (41 | ) | ||||
| Realized gain on other derivatives not in segment income | 5 | 1 | 4 | |||||||||
| Unrealized gains (losses) | (64 | ) | 578 | (519 | ) | |||||||
| Gain (loss) on change in fair value of derivative instruments, net | $ | 43 | $ | 194 | $ | (556 | ) | |||||
| Amount of Gain or (Loss) | ||||||||||||||||||||||||||||||||||||||||
| Recognized in | ||||||||||||||||||||||||||||||||||||||||
| Amount of Gain or (Loss) | Amount of Gain or (Loss) | Income/(Expense) on | ||||||||||||||||||||||||||||||||||||||
| Recognized in OCI on | Location of Gain or | Reclassified from | Derivative (Ineffective Portion | |||||||||||||||||||||||||||||||||||||
| Derivatives in Cash Flow | Derivative | (Loss) | AOCI into Income/(Expense) | and Amount Excluded from | ||||||||||||||||||||||||||||||||||||
| (Effective Portion) | Reclassified from | (Effective Portion) | Effectiveness Testing) | |||||||||||||||||||||||||||||||||||||
| Year Ended | Accumulated OCI | Year Ended | Year Ended | |||||||||||||||||||||||||||||||||||||
| March 31, | into Earnings | March 31, | March 31, | |||||||||||||||||||||||||||||||||||||
| Hedging Relationships | 2011 | 2010 | 2009 | (Effective Portion) | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | ||||||||||||||||||||||||||||||
| Electricity swap | $ | 12 | $ | (13 | ) | $ | (20 | ) | (Gain) loss on derivative instruments, net | $ | 7 | $ | 5 | $ | 13 | $ | — | $ | 1 | $ | — | |||||||||||||||||||
| Aluminum contracts | 41 | — | — | Cost of goods sold | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Interest rate swaps | 1 | 5 | 3 | Interest expense and amortization of debt issuance costs(A) | (5 | ) | — | — | (5 | ) | — | — | ||||||||||||||||||||||||||||
| Currency exchange contracts | 24 | — | — | Depreciation and amortization; Cost of goods sold; Selling, general and administrative expense | — | — | — | 6 | — | — | ||||||||||||||||||||||||||||||
| Total | $ | 78 | $ | (8 | ) | $ | (17 | ) | $ | 2 | $ | 5 | $ | 13 | $ | 1 | $ | 1 | $ | — | ||||||||||||||||||||
| Amount of Gain (Loss) Recognized in OCI (Effective Portion) | Amount of Gain (Loss) Recognized in “Other (Income) Expense, net” (Ineffective and Excluded Portion) | |||||||||||||||||||||||
| Year Ended March 31, | Year Ended March 31, | |||||||||||||||||||||||
Derivatives in Cash Flow | 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||||||||||||||||||
Energy contracts(A) | $ | — | $ | 12 | $ | (13 | ) | $ | — | $ | — | $ | 1 | |||||||||||
Aluminum contracts | (30 | ) | 41 | — | 2 | — | — | |||||||||||||||||
Currency exchange contracts | (26 | ) | 24 | — | 11 | 6 | — | |||||||||||||||||
Interest rate swaps | — | 1 | 5 | — | (5 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | (56 | ) | $ | 78 | $ | (8 | ) | $ | 13 | $ | 1 | $ | 1 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Amount of Gain (Loss) Reclassified from AOCI into Income/(Expense) (Effective Portion) Year Ended March 31, | Location of Gain (Loss) Reclassified from AOCI into Earnings | |||||||||||||
Derivatives in Cash Flow | 2012 | 2011 | 2010 | |||||||||||
Energy contracts(A) | $ | (5 | ) | $ | 7 | $ | 5 | Other (income) expense, net | ||||||
Aluminum contracts | (16 | ) | — | — | Cost of goods sold | |||||||||
Aluminum contracts | 5 | — | — | Sales | ||||||||||
Currency exchange contracts | 7 | — | — | Cost of goods sold and SG&A | ||||||||||
Currency exchange contracts | (3 | ) | — | — | Sales | |||||||||
Currency exchange contracts | (1 | ) | — | — | Other (income) expense, net and Interest Expense | |||||||||
Interest rate swaps | — | (5 | ) | — | Other (income) expense, net and Interest Expense | |||||||||
|
|
|
|
|
| |||||||||
Total | $ | (13 | ) | $ | 2 | $ | 5 | |||||||
|
|
|
|
|
| |||||||||
| (A) |
| 16. | ||
| FAIR VALUE OF ASSETS AND LIABILITIES |
We record certain assets and liabilities, primarily derivative instruments on our consolidated balance sheets at fair value. We also disclose the fair values of certain financial instruments, including debt and loans receivable, which are not recorded at fair value. Our objective in measuring fair value is to estimate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. We consider factors such as liquidity, bid/offer spreads and nonperformance risk, including our own nonperformance risk, in measuring fair value. We use observable market inputs wherever possible. To the extent that observable market inputs are not available, our fair value measurements will reflect the assumptions we use. We grade the level of our fair value measures according to a three-tier hierarchy:
Level 1 — Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that we have the ability to access at the measurement date.
Level 2 — Assets and liabilities valued based on inputs other than quoted prices included within Level 1 that are observable for similar instruments, either directly or indirectly.
Level 3 — Assets and liabilities valued based on significant unobservable inputs for which there is little or no market data, which require us to develop our own assumptions based on the best information available as what market participants would use in pricing the asset or liability.
The following section describes the valuation methodologies we used to measure our various financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified:
108
For certain of our derivative contracts that have fair values based upon trades in liquid markets, such as aluminum forward contracts and options, valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are generally classified within Level 2 of the fair value hierarchy.
The majority of our derivative contracts are valued using industry-standard models that use observable market inputs as their basis, such as time value, forward interest rates, volatility factors, and current (spot) and forward market prices. Valuation model inputs can generally be verified and valuation techniques do not involve significant judgment.prices for foreign exchange rates. We generally classify these instruments within Level 2 of the valuation hierarchy. Such derivatives include interest rate swaps, cross-currency swaps, foreign currency forward contracts aluminum forward contracts and options, and certain energy-related forward contracts (e.g., natural gas).
We classify derivative contracts that are valued based on models with significant unobservable market inputs as Level 3 of the valuation hierarchy. These derivatives include certain of our energy-related forward contracts (e.g., electricity) and commodity location premium contracts.electricity swap). Models for these fair value measurements include inputs based on estimated future prices for periods beyond the term of the quoted prices.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Our electricity swap represents an agreement to buy electricity at a fixed price at our Oswego, New York facility. Forward prices are not observable for this market, so we must make certain assumptions based on available information that we believe to be relevant to market participants. We use observable forward prices for a geographically nearby market. We adjust these prices for 1) historical spreads between the cash prices of the two markets, and 2) historical spreads between retail and wholesale prices.
The average forward price at March 31, 2012, estimated using the method described above was $49 per megawatt hour, which represents an $8 premium over forward prices in the nearby observable market. The actual rate from the most recent swap settlement was approximately $42 per megawatt hour. Each $1 per megawatt hour decline in price decreases the valuation of the electricity swap by approximately $750 thousand.
For Level 2 and 3 of the fair value hierarchy, where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit considerations (nonperformance risk).
The following table presents our derivative assets and liabilities which are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy (in millions).
| March 31, | ||||||||||||||||
| 2011 | 2010 | |||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||
Level 2 | ||||||||||||||||
| Aluminum contracts | $ | 111 | $ | (48 | ) | $ | 151 | $ | (76 | ) | ||||||
| Currency exchange contracts | 70 | (21 | ) | 49 | (32 | ) | ||||||||||
| Electricity swap | — | — | — | — | ||||||||||||
| Energy contracts | — | (3 | ) | — | (6 | ) | ||||||||||
| Interest rate swaps | — | (4 | ) | — | (7 | ) | ||||||||||
Total Level 2 Instruments | 181 | (76 | ) | 200 | (121 | ) | ||||||||||
Level 3 | ||||||||||||||||
| Aluminum contracts | 1 | (1 | ) | 4 | (4 | ) | ||||||||||
| Currency exchange contracts | — | — | — | — | ||||||||||||
| Electricity swap | — | (29 | ) | — | (35 | ) | ||||||||||
Total Level 3 Instruments | 1 | (30 | ) | 4 | (39 | ) | ||||||||||
Total | $ | 182 | $ | (106 | ) | $ | 204 | $ | (160 | ) | ||||||
| March 31, | ||||||||||||||||
| 2012 | 2011 | |||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||
Level 2 Instruments | ||||||||||||||||
Aluminum contracts | $ | 69 | $ | (58 | ) | $ | 111 | $ | (48 | ) | ||||||
Currency exchange contracts | 32 | (23 | ) | 70 | (21 | ) | ||||||||||
Energy contracts | — | (10 | ) | — | (3 | ) | ||||||||||
Interest rate swaps | — | — | — | (4 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Level 2 Instruments | 101 | (91 | ) | 181 | (76 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Level 3 Instruments | ||||||||||||||||
Aluminum contracts | — | — | 1 | (1 | ) | |||||||||||
Energy contracts | — | (41 | ) | — | (29 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Level 3 Instruments | — | (41 | ) | 1 | (30 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 101 | $ | (132 | ) | $ | 182 | $ | (106 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
We recognized less than $1 million of unrealized losses of $17 million related to Level 3 financial instruments that were still held as of March 31, 2011.2012. These unrealized gains are included in (Gain) loss on change in fair value of derivative instruments,“Other (income) expense, net.
109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
The following table presents a reconciliation of fair value activity for Level 3 derivative contracts on a net basis (in millions).
| Level 3 | ||||
| Derivative | ||||
| Instruments(A) | ||||
Balance as of March 31, 2009 | $ | (44 | ) | |
| Net realized/unrealized (losses) included in earnings(B) | 5 | |||
| Net realized/unrealized (losses) included in Other comprehensive income (loss)(C) | (17 | ) | ||
| Net purchases, issuances and settlements | (5 | ) | ||
| Net transfers from Level 3 to Level 2 | 26 | |||
Balance as of March 31, 2010 | (35 | ) | ||
| Net realized/unrealized (losses) included in earnings(B) | 7 | |||
| Net realized/unrealized (losses) included in Other comprehensive income (loss)(C) | 6 | |||
| Net purchases, issuances and settlements | (7 | ) | ||
| Net transfers from Level 3 to Level 2 | — | |||
Balance as of March 31, 2011 | $ | (29 | ) | |
| Level 3 – Derivative Instruments (A) | ||||
Balance as of March 31, 2010 | $ | (35 | ) | |
Realized/unrealized gain included in earnings (B) | 7 | |||
Realized/unrealized gain included in Other Comprehensive income (loss) (C) | 6 | |||
Settlements | (7 | ) | ||
|
| |||
Balance as of March 31, 2011 | (29 | ) | ||
Realized/unrealized losses included in earnings(B) | (16 | ) | ||
Settlements | 4 | |||
|
| |||
Balance as of March 31, 2012 | $ | (41 | ) | |
|
| |||
| (A) | Represents | |
| (B) | Included in | |
| (C) | Included in |
Financial Instruments Not Recorded at Fair Value
The table below presents the estimated fair value of certain financial instruments that are not recorded at fair value on a recurring basis (in millions). The table excludes short-term financial assets and liabilities for which we believe carrying value approximates fair value. The fair value of long-term receivables is based on anticipated cash flows, which approximates carrying value and is classified as Level 2. We value long-term debt using Level 2 inputs. Valuations are based on either market and/or broker ask prices when available. When not available we useor on a standard credit adjusted discounted cash flow model.
| March 31, | ||||||||||||||||
| 2011 | 2010 | |||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| Value | Value | Value | Value | |||||||||||||
Assets | ||||||||||||||||
| Long-term receivables from related parties | $ | 19 | $ | 19 | $ | 21 | $ | 21 | ||||||||
Liabilities | ||||||||||||||||
| Total debt — third parties (excluding short term borrowings) | $ | 4,086 | $ | 4,370 | $ | 2,596 | $ | 2,432 | ||||||||
110
| March 31, | ||||||||||||||||
| 2012 | 2011 | |||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
Assets | ||||||||||||||||
Long-term receivables from related parties | $ | 16 | $ | 16 | $ | 19 | $ | 19 | ||||||||
Liabilities | ||||||||||||||||
Total debt — third parties (excluding short term borrowings) | $ | 4,344 | $ | 4,605 | $ | 4,086 | $ | 4,370 | ||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
| 17. | ||
| OTHER (INCOME) |
“Other (income) expenses, netexpense, net” is comprised of the following (in millions).
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Net (gain) loss on currency remeasurement and transaction gains or losses | $ | (1 | ) | $ | (15 | ) | $ | 98 | ||||
| Gain on reversal of accrued legal claims(A) | — | (3 | ) | (26 | ) | |||||||
| (Gain) loss on Brazilian tax litigation | 3 | (6 | ) | 9 | ||||||||
| (Gain) loss on sale of assets, net | (4 | ) | 1 | — | ||||||||
| Other, net | 9 | (2 | ) | 5 | ||||||||
| Other (income) expenses, net | $ | 7 | $ | (25 | ) | $ | 86 | |||||
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Foreign currency remeasurement (gains) losses, net (A) | $ | 11 | $ | (1 | ) | $ | (15 | ) | ||||
Gain on reversal of accrued legal claims (B) | — | — | (3 | ) | ||||||||
Loss (gain) on change in fair value of other unrealized derivative instruments, net | 62 | 64 | (578 | ) | ||||||||
(Gain) loss on change in fair value of other realized derivative instruments, net | (130 | ) | (107 | ) | 384 | |||||||
Loss on Brazilian tax litigation, net (C) | 13 | 8 | 1 | |||||||||
(Gain) on litigation settlement in Brazil (D) | (8 | ) | — | — | ||||||||
(Gain) loss on sale of assets, net | 3 | (4 | ) | 1 | ||||||||
Other, net | 10 | 4 | (9 | ) | ||||||||
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Other (income) expense, net | $ | (39 | ) | $ | (36 | ) | $ | (219 | ) | |||
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| (A) | Includes “Gain recognized on balance sheet remeasurement currency exchange contracts, net.” |
| (B) | We recognized a |
| (C) | See footnote 19 – Commitments and Contingencies, Brazil Tax Matters for further details. |
| (D) | We received and recognized a gain of $8 million during the year ended March 31, 2012 as settlement related to a lawsuit we filed against a Brazilian vendor. |
| INCOME TAXES |
We are subject to Canadian and United States federal, state, and local income taxes as well as other foreign income taxes. The domestic (Canada) and foreign components of our Income (loss) before income taxes (and after removing our Equity in net (income) loss of non-consolidated affiliates) are as follows (in millions).
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Domestic (Canada) | $ | (181 | ) | $ | (38 | ) | $ | (15 | ) | |||
| Foreign (all other countries) | 436 | 780 | (1,981 | ) | ||||||||
| Pre-tax income (loss) before equity in net (income) loss of non-consolidated affiliates | $ | 255 | $ | 742 | $ | (1,996 | ) | |||||
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Domestic (Canada) | $ | (283 | ) | $ | (181 | ) | $ | (38 | ) | |||
Foreign (all other countries) | 425 | 436 | 780 | |||||||||
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Pre-tax income before equity in net loss of non-consolidated affiliates | $ | 142 | $ | 255 | $ | 742 | ||||||
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The components of the Income tax provision (benefit) are as follows (in millions).
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Current provision (benefit): | ||||||||||||
| Domestic (Canada) | $ | 16 | $ | (24 | ) | $ | 7 | |||||
| Foreign (all other countries) | 112 | 58 | 78 | |||||||||
| Total current | 128 | 34 | 85 | |||||||||
| Deferred provision (benefit): | ||||||||||||
| Domestic (Canada) | (6 | ) | — | — | ||||||||
| Foreign (all other countries) | (39 | ) | 228 | (331 | ) | |||||||
| Total deferred | (45 | ) | 228 | (331 | ) | |||||||
| Income tax provision (benefit) | $ | 83 | $ | 262 | $ | (246 | ) | |||||
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| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Current provision (benefit): | ||||||||||||
Domestic (Canada) | $ | 3 | $ | 16 | $ | (24 | ) | |||||
Foreign (all other countries) | 69 | 112 | 58 | |||||||||
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Total current | 72 | 128 | 34 | |||||||||
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Deferred provision (benefit): | ||||||||||||
Domestic (Canada) | — | (6 | ) | — | ||||||||
Foreign (all other countries) | (33 | ) | (39 | ) | 228 | |||||||
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Total deferred | (33 | ) | (45 | ) | 228 | |||||||
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Income tax provision | $ | 39 | $ | 83 | $ | 262 | ||||||
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| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Pre-tax income (loss) before equity in net (income) loss on non-consolidated affiliates | $ | 255 | $ | 742 | $ | (1,996 | ) | |||||
| Canadian Statutory tax rate | 29 | % | 30 | % | 31 | % | ||||||
| Provision (benefit) at the Canadian statutory rate | $ | 74 | $ | 223 | $ | (619 | ) | |||||
| Increase (decrease) for taxes on income (loss) resulting from: | ||||||||||||
| Non-deductible goodwill impairment | — | — | 415 | |||||||||
| Exchange translation items | — | 19 | (4 | ) | ||||||||
| Exchange remeasurement of deferred income taxes | 20 | 38 | (48 | ) | ||||||||
| Change in valuation allowances | 1 | (3 | ) | 61 | ||||||||
| Tax credits and other allowances | (5 | ) | (4 | ) | (8 | ) | ||||||
| Expense (income) items not subject to tax | (9 | ) | 1 | 3 | ||||||||
| Dividends not subject to tax | (15 | ) | — | — | ||||||||
| Enacted tax rate changes | 8 | 7 | (7 | ) | ||||||||
| Tax rate differences on foreign earnings | (6 | ) | (9 | ) | (33 | ) | ||||||
| Uncertain tax positions | 6 | (10 | ) | 2 | ||||||||
| Other, net | 9 | — | (8 | ) | ||||||||
| Income tax provision (benefit) | $ | 83 | $ | 262 | $ | (246 | ) | |||||
| Effective tax rate | 33 | % | 35 | % | 12 | % | ||||||
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Pre-tax income before equity in net (income) loss on non-consolidated affiliates | $ | 142 | $ | 255 | $ | 742 | ||||||
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Canadian Statutory tax rate | 27 | % | 29 | % | 30 | % | ||||||
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Provision at the Canadian statutory rate | $ | 38 | $ | 74 | $ | 223 | ||||||
Increase (decrease) for taxes on income (loss) resulting from: | ||||||||||||
Exchange translation items | (9 | ) | — | 19 | ||||||||
Exchange remeasurement of deferred income taxes | (26 | ) | 20 | 38 | ||||||||
Change in valuation allowances | 117 | 1 | (3 | ) | ||||||||
Tax credits and other allowances | (6 | ) | (5 | ) | (4 | ) | ||||||
Expense (income) items not subject to tax | (5 | ) | (9 | ) | 1 | |||||||
Dividends not subject to tax | (52 | ) | (15 | ) | — | |||||||
Enacted tax rate changes | 3 | 8 | 7 | |||||||||
Tax rate differences on foreign earnings | (4 | ) | (6 | ) | (9 | ) | ||||||
Uncertain tax positions | (23 | ) | 6 | (10 | ) | |||||||
Other, net | 6 | 9 | — | |||||||||
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Income tax provision | $ | 39 | $ | 83 | $ | 262 | ||||||
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Effective tax rate | 27 | % | 33 | % | 35 | % | ||||||
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Our effective tax rate differs from the Canadian statutory rate primarily due to the following factors: (1) non-deductible impairment of goodwill; (2) pre-tax foreign currency gains or losses with no tax effect and the tax effect of U.S. dollar denominated currency gains or losses with no pre-tax effect, which is shown above as exchange translation items; (3)(2) the remeasurement of deferred income taxes due to foreign currency changes, which is shown above as exchange remeasurement of deferred income taxes; (4)(3) changes in valuation allowances primarily related to tax losses in certain jurisdictions where we believe it is more likely than not that we will not be ableunable to utilize those losses; (5)(4) non-taxable dividends; (6)(5) the effects of enacted tax rate changes on cumulative taxable temporary differences; and (7)(6) differences between the Canadian statutory and foreign effective tax rates applied to entities in different jurisdictions shown above as tax rate differences on foreign earnings and (7) increases or decreases in uncertain tax positions recorded under the provisions of ASC 740,Income Taxes(ASC 740).
In 2005, we entered into a tax sharing and disaffiliation agreement with Alcan that provides indemnification if certain factual representations are breached or if certain transactions are undertaken or certain actions are taken that have the effect of negatively affecting the tax treatment of our spin-off from Alcan. It further governs the disaffiliation of the tax matters of Alcan and its subsidiaries or affiliates other than us, on the one hand, and us and our subsidiaries or affiliates, on the other hand. In this respect it allocates taxes accrued prior to the spin-off and after the spin-off as well as transfer taxes resulting there from. It also allocates obligations for filing tax returns and the management of certain pending or future tax contests and creates mutual collaboration obligations with respect to tax matters.
We enjoy the benefits of favorable tax holidays in various jurisdictions, which resulted in an $11a $10 million reduction to tax expense for the year ended March 31, 2011,2012, and will phase out between December 31, 2013 and March 31, 2020.
112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
Deferred Income Taxes
Deferred income taxes recognize the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts used for income tax purposes, and the impact of available net operating loss (NOL) and tax credit carryforwards. These items are stated at the enacted tax rates that are expected to be in effect when taxes are actually paid or recovered.
Our deferred income tax assets and deferred income tax liabilities are as follows (in millions).
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Deferred income tax assets: | ||||||||
| Provisions not currently deductible for tax purposes | $ | 216 | $ | 221 | ||||
| Tax losses/benefit carryforwards, net | 355 | 404 | ||||||
| Depreciation and amortization | 93 | 86 | ||||||
| Other assets | 35 | 21 | ||||||
| Total deferred income tax assets | 699 | 732 | ||||||
| Less: valuation allowance | (239 | ) | (223 | ) | ||||
| Net deferred income tax assets | $ | 460 | $ | 509 | ||||
| Deferred income tax liabilities: | ||||||||
| Depreciation and amortization | $ | 727 | $ | 824 | ||||
| Inventory valuation reserves | 119 | 97 | ||||||
| Monetary exchange gains, net | 85 | 73 | ||||||
| Other liabilities | 33 | 29 | ||||||
| Total deferred income tax liabilities | $ | 964 | $ | 1,023 | ||||
| Net deferred income tax liabilities | $ | 504 | $ | 514 | ||||
| March 31, | ||||||||
| 2012 | 2011 | |||||||
Deferred income tax assets: | ||||||||
Provisions not currently deductible for tax purposes | $ | 337 | $ | 216 | ||||
Tax losses/benefit carryforwards, net | 294 | 355 | ||||||
Depreciation and amortization | 62 | 93 | ||||||
Other assets | 22 | 35 | ||||||
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Total deferred income tax assets | 715 | 699 | ||||||
Less: valuation allowance | (251 | ) | (239 | ) | ||||
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Net deferred income tax assets | $ | 464 | $ | 460 | ||||
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Deferred income tax liabilities: | ||||||||
Depreciation and amortization | $ | 658 | $ | 727 | ||||
Inventory valuation reserves | 93 | 119 | ||||||
Monetary exchange gains, net | 72 | 85 | ||||||
Other liabilities | 31 | 33 | ||||||
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Total deferred income tax liabilities | $ | 854 | $ | 964 | ||||
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Net deferred income tax liabilities | $ | 390 | $ | 504 | ||||
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As of March 31, 2012, we transferred deferred tax assets of $101 million and related valuation allowances of $101 million into “Assets Held for Sale” for Rugles, France and Dudelange, Luxembourg.
ASC 740 requires that we reduce our deferred income tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized. After consideration of all evidence, both positive and negative, management concluded that it is more likely than not that we will notbe unable to realize a portion of our deferred tax assets and that valuation allowances of $239$251 million and $223$239 million were necessary as of March 31, 2012 and 2011, and 2010, respectively.
It is reasonably possible that our estimates of future taxable income may change within the next 12 months, resulting in a change to the valuation allowance in one or more jurisdictions.
In fiscal 2011, we considered the announced closure of our Bridgnorth operations in our analysis of positive and negative evidence surrounding expected future taxable income in the U.K. and determined that it is more likely than not that we will realize our net deferred tax asset. Therefore, in fiscal 2011,Thus, we reversed the valuation allowance, resulting in a decrease to income tax expense of $49 million.
As of March 31, 2011,2012, we had net operating loss carryforwards of approximately $309$242 million (tax effected) and tax credit carryforwards of $46$52 million, which will be available to offset future taxable income and tax liabilities, respectively. The carryforwards begin expiring in fiscal 2012 with some amounts being carried forward indefinitely. As of March 31, 2011,2012, valuation allowances of $112$140 million and $24$31 million had been recorded against net operating loss carryforwards and tax credit carryforwards, respectively, where it appeared more likely than not that such benefits will not be realized. The net operating loss carryforwards are predominantly in Canada, the U.S., the U.K., Canada, France, Italy, and Luxembourg.
As of March 31, 2010,2011, we had net operating loss carryforwards of approximately $368$309 million (tax effected) and tax credit carryforwards of $36$46 million, which would have been available to offset future taxable income and tax liabilities, respectively. The carryforwards began expiring in fiscal 2011 with some amounts being carried forward indefinitely. As of March 31, 2010,2011, valuation allowances of $88$112 million and $17$24 million had been recorded against net operating loss carryforwards and tax credit carryforwards, respectively, where it appeared more likely than not that such benefits would not be realized. The net operating loss carryforwards were predominantly in the U.S., the U.K., Canada, France, Italy Luxembourg, and Brazil.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
Although realization is not assured, management believes it is more likely than not that all the remaining net deferred tax assets will be realized. In the near term, the amount of deferred tax assets considered realizable could be reduced if we do not generate sufficient taxable income in certain jurisdictions.
We have undistributed earnings in our foreign subsidiaries. For those subsidiaries where the earnings are considered to be permanently reinvested, no provision for Canadian income taxes has been recorded. Upon repatriation of those earnings, in the form of dividends or otherwise, we would be subject to both Canadian income taxes (subject to an adjustment for foreign taxes paid) and withholding taxes payable to the various foreign countries. For those subsidiaries where the earnings are not considered permanently reinvested, taxes have been provided as required. The determination of the unrecorded deferred income tax liability for temporary differences related to investments in foreign subsidiaries and foreign corporate joint ventures that are considered to be permanently reinvested is not considered practicable.
Tax Uncertainties
As of March 31, 20112012 and 2010,2011, the total amount of unrecognized benefits that, if recognized, would affect the effective income tax rate in future periods based on anticipated settlement dates is $28 million and $45 million, and $39 million, respectively.
Tax authorities are currently examiningcontinue to examine certain other of our tax returnsfilings for fiscal years 2004 through 2008. We are evaluating potential adjustments and we do not anticipate that2009. As a result of further settlement of audits, judicial decisions, the examinations will materially affectfiling of amended tax returns or the expiration of statutes of limitations, our financial statements.reserves for unrecognized tax benefits, as well as reserves for interest and penalties, may decrease in the next 12 months by an amount up to approximately $15 million. With few exceptions, tax returns for all jurisdictions for all tax years before 2003 are no longer subject to examination by taxing authorities.
During fiscal 2012, we agreed to certain findings presented by taxing authorities related to tax audits in certain jurisdictions for the years 2004 through 2008. As a result of these findings, we reduced our unrecognized tax benefits, including interest, by approximately $23 million. Of this amount, approximately $17 million was recorded as a reduction to the income tax provision. Certain examination findings relate to issues which impact multiple tax jurisdictions. Based on the proposed resolution of these issues in one jurisdiction, we are pursuing competent authority relief from the offsetting tax jurisdiction(s), and therefore have recorded an offsetting deferred tax asset of approximately $4 million in one such jurisdiction in the year ended March 31, 2012.
During the year ended March 31, 2011, the statute of limitations lapsed with respect to unrecognized tax benefits related to utilization of operating losses and cross-border intercompany pricing of services. As a result, we recognized a reduction in unrecognized tax benefits of $5 million, including a decrease in accrued interest of $2 million, recorded as a reduction to the income tax provisions in the consolidated statement of operations and comprehensive income (loss).
Our policy is to record interest and penalties related to unrecognized tax benefits in the income tax provision (benefit). As of March 31, 2012, 2011 2010 and 2009,2010, we had $12 million, $16 million $14 million and $12$14 million accrued, respectively, for interest and penalties. For the year ended March 31, 2012 we recognized a $4 million tax benefit related to reductions in accrued interest and penalties. For the years ended March 31, 2011 and 2010, we recognized $2 million in interest and penalty expense in each period. For the year ended March 31, 2009, we recognized a $2 million tax benefit.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Beginning balance | $ | 39 | $ | 51 | $ | 61 | ||||||
| Additions based on tax positions related to the current period | 4 | 4 | 1 | |||||||||
| Additions based on tax positions of prior years | 3 | 7 | 3 | |||||||||
| Reductions based on tax positions of prior years | — | — | (3 | ) | ||||||||
| Settlements | — | (1 | ) | (4 | ) | |||||||
| Statute lapses | (3 | ) | (23 | ) | (1 | ) | ||||||
| Foreign exchange | 2 | 1 | (6 | ) | ||||||||
Ending Balance | $ | 45 | $ | 39 | $ | 51 | ||||||
114
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Beginning balance | $ | 45 | $ | 39 | $ | 51 | ||||||
Additions based on tax positions related to the current period | 5 | 4 | 4 | |||||||||
Additions based on tax positions of prior years | — | 3 | 7 | |||||||||
Reductions based on tax positions of prior years | (14 | ) | — | — | ||||||||
Settlements | (5 | ) | — | (1 | ) | |||||||
Statute lapses | — | (3 | ) | (23 | ) | |||||||
Foreign exchange | (3 | ) | 2 | 1 | ||||||||
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Ending Balance | $ | 28 | $ | 45 | $ | 39 | ||||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
Income Taxes Payable
Our consolidated balance sheets include income taxes payable (net) of $87$54 million and $70$87 million as of March 31, 20112012 and 2010,2011, respectively. Of these amounts, $35$19 million and $25$35 million are reflected in Accrued“Accrued expenses and other current liabilitiesliabilities” as of March 31, 2012 and 2011, and 2010, respectively.
| 19. | ||
| COMMITMENTS AND CONTINGENCIES |
We are party to, and contingencies mainly related to our historical rolled products operations, including liabilities in respect of legal claims and environmental matters. As a result, we may be required to indemnify Rio Tinto Alcan for claims successfully brought against Alcan or for the defense of legal actions that arise from time to time in the normal course of our rolled products business including commercial and contract disputes, employee-related claims and tax disputes (including several disputes with Brazil’s Ministry of Treasury regarding various forms of manufacturing taxes and social security contributions). In addition to these assumed liabilities and contingencies, we may in the future be involved in, or subject to, other disputes, claims and proceedings that arise in the ordinary course of our business, including some that we assert against others, such as environmental, health and safety, product liability, employee, tax, personal injury and other matters. Where appropriate, weWe have established reserves ina liability with respect of these matters (or, if required,to contingencies for which a loss is probable and we have posted cash guarantees).are able to reasonably estimate such loss. While the ultimate resolution of and liability and costs related to, these matters cannot be determined with reasonable certainty due to the considerable uncertainties that exist, we do not believe that any of these pending actions, individually or in the aggregate, will materially impair our operations or materially affect our financial condition or liquidity.
For certain matters in which the Company is involved, for which a loss is probable or reasonably possible, we are unable to reasonably estimate a loss. For certain other matters where we have not established a liability for which a loss is reasonably possible and the loss is reasonably estimable, we have estimated the aggregated range of loss as $0 to $40 million. This estimated aggregate range of reasonably possible losses is based upon currently available information. The Company’s estimates involve significant judgment, and therefore, the estimate will change from time to time and actual losses may differ from the current estimate.
The following describes certain legal proceedingscontingencies relating to our business, including those for which we assumed liability as a result of our spin-off from Alcan Inc.
Legal Proceedings
We own and operate numerous manufacturing and other facilities in various countries around the world. Our operations are subject to environmental laws and regulations from various jurisdictions, which govern, among other things, air emissions, wastewater discharges, the handling, storage and disposal of hazardous substances and wastes, the remediation of contaminated sites, post-mining reclamation and restoration of natural resources, and employee health and safety. Future environmental regulations may be expected to impose stricter compliance requirements on the industries in which we operate. Additional equipment or process changes at some of our facilities may be needed to meet future requirements. The cost of meeting these requirements may be significant. Failure to comply with such laws and regulations could subject us to administrative, civil or criminal penalties, obligations to pay damages or other costs, and injunctions and other orders, including orders to cease operations.
We are involved in proceedings under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act, also known as CERCLA or Superfund, or analogous state provisions regarding liability arising from the usage, storage, treatment or disposal of hazardous substances and wastes at a number of sites in the United States, as well as similar proceedings under the laws and regulations of the other jurisdictions in which we have operations, including Brazil and certain countries in the European Union. Many of these jurisdictions have laws that impose joint and several liability, without regard to fault or the legality of the original conduct, for the costs of environmental remediation, natural resource damages, third party claims, and other expenses. In addition, we
115
With respect to environmental loss contingencies, we record a loss contingency whenever such contingency is probable and reasonably estimable. The evaluation model includes all asserted and unasserted claims that can be reasonably identified. Under this evaluation model, the liability and the related costs are quantified based upon the best available evidence regarding actual liability loss and cost estimates. Except for those loss contingencies where no estimate can reasonably be made, the evaluation model is fact-driven and attempts to estimate the full costs of each claim. Management reviews the status of, and estimated liability related to, pending claims and civil actions on a quarterly basis. The estimated costs in respect of such reported liabilities are not offset by amounts related to cost-sharing between parties, insurance, indemnification arrangements or contribution from other potentially responsible parties (PRPs) unless otherwise noted.
We have established procedures for regularly evaluating environmental loss contingencies, including those arising from such environmental reviews and investigations and any other environmental remediation or compliance matters. We believe we have a reasonable basis for evaluating these environmental loss contingencies, and we believe we have made reasonable estimates of the costs that are likely to be borne by us for these environmental loss contingencies. Accordingly, we have established reservesliabilities based on our reasonable estimates for the currently anticipated costs associated with these environmental matters. We estimate that the undiscounted remaining clean-up costs related to all of our known environmental matters as of March 31, 20112012 will be approximately $57$12 million. Of this amount, $24$5 million is included in Other“Other long-term liabilities,” with the remaining $33$7 million included in Accrued“Accrued expenses and other current liabilitiesliabilities” in our consolidated balance sheet as of
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
March 31, 2011.2012. Management has reviewed the environmental matters, including those for which we assumed liability as a result of our spin-off from Alcan Inc. As a result of this review, management has determined that the currently anticipated costs associated with these environmental matters will not, individually or in the aggregate, materially impact our operations or materially adversely affect our financial condition, results of operations or liquidity.
Brazil Tax Matters
As a result of legal proceedings with Brazil’s Ministry of Treasury regarding certain taxes, in South America, as of March 31, 20112012 and 2010,2011, we had cash deposits aggregating approximately $54$33 million and $45$50 million, respectively, in judicial depository accounts pending finalization of the related cases. The depository accounts are in the name ofwith the Brazilian government and will be expended towards these legal proceedings or released to us, depending on the outcome of the legal cases.government. These deposits, which are included in Other“Other long-term assets —- third partiesparties” in our accompanying consolidated balance sheets. sheets, will be expended toward these legal proceedings.
In addition, under a federal tax dispute settlement program established by the Brazilian government, we are involved inhave settled several disputes with Brazil’s Ministry of Treasury aboutregarding various forms of manufacturing taxes and social security contributions, for whichcontributions. In most cases we have made no judicial deposits but for whichare paying the settlement amounts over a period of 180 months, although in some cases we are paying the settlement amounts over a shorter period. We have established reserves ranging from $6liabilities for these settlements as of March 31, 2012. In total, the liabilities approximate $163 million to $145and $179 million as of March 31, 2011. In total, these reserves approximate $168 million2012 and $149 million as2011, respectively. As of March 31, 20112012, $13 million and 2010, respectively, and$150 million of liabilities are included in Other“Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, in our accompanying consolidated balance sheets.
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| Maximum | Liability | |||||||
| Potential | Carrying | |||||||
Type of Entity | Future Payment | Value | ||||||
| Wholly-owned subsidiaries | $ | 134 | $ | 63 | ||||
| 20. | ||
| SEGMENT, GEOGRAPHICAL AREA, MAJOR CUSTOMER AND MAJOR SUPPLIER INFORMATION |
Segment Information
Due in part to the regional nature of supply and demand of aluminum rolled products and in order to best serve our customers, we manage our activities on the basis of geographical areas and are organized under four operating segments: North America; Europe; Asia and South America.
The following is a description of our operating segments:
| • | North America.Headquartered in Atlanta, Georgia, this segment manufactures aluminum sheet and light gauge products and operates | ||
| • | Europe.Headquartered in Zurich, Switzerland, this segment manufactures aluminum sheet and light gauge products and operates | ||
| • | Asia.Headquartered in Seoul, South Korea, this segment manufactures aluminum sheet and light gauge products and operates three plants in two countries. | ||
| • | South America.Headquartered in Sao Paulo, Brazil, this segment comprises |
Net sales and expenses are measured in accordance with the policies and procedures described in Note 1 — Business and Summary of Significant Accounting Policies. For Segment income“Segment income” purposes we only include the impact of the derivative gains or losses to the extent they are settled in cash (i.e., realized) during that period.
We measure the profitability and financial performance of our operating segments based on Segment“Segment income. Segment income” “Segment income” provides a measure of our underlying segment results that is in line with our portfolio approach to risk management. We define Segment income“Segment income” as earnings before (a) depreciation“depreciation and amortization;amortization”; (b) interest“interest expense and amortization of debt issuance costs;costs”; (c) interest income;“interest income”; (d) unrealized gains (losses) on change in fair value of derivative instruments, net;net, except for
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
foreign currency derivatives on our foreign currency balance sheet exposures, which are included in segment income; (e) impairment“impairment of goodwill;goodwill”; (f) impairment charges on long-lived assets (other than goodwill); (g) gain or loss on extinguishment of debt; (h) noncontrolling interests’
117
Adjustment to eliminate proportional consolidation.Eliminate Proportional Consolidation.The financial information for our segments includes the results of our non-consolidated affiliates on a proportionately consolidated basis, which is consistent with the way we manage our business segments. However, under GAAP, these non-consolidated affiliates are accounted for using the equity method of accounting. Therefore, inIn order to reconcile the financial information for the segments shown in the tables below to the relevant U.S. GAAP-based measure,measures, we must remove ouradjust proportional shareconsolidation of each line item that we included in the segment amounts.item. See Note 88— Consolidation and Note 9 — Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for further information about these non-consolidated affiliates.
The tables below show selected segment financial information (in millions). The “Other“Eliminations and Eliminations”other” column in the table below include eliminations and functions that are managed directly from our corporate office that have not been allocated to our operating segments.
Selected Segment Financial Information
| Selected Operating Results | North | South | Other and | |||||||||||||||||||||
Year Ended March 31, 2011 | America | Europe | Asia | America | Eliminations | Total | ||||||||||||||||||
| Net sales | $ | 3,922 | $ | 3,589 | $ | 1,866 | $ | 1,214 | $ | (14 | ) | $ | 10,577 | |||||||||||
| Write-off and amortization of fair value adjustments | (7 | ) | 1 | — | — | (3 | ) | (9 | ) | |||||||||||||||
| Depreciation and amortization | 168 | 141 | 56 | 80 | (41 | ) | 404 | |||||||||||||||||
| Income tax provision (benefit) | 3 | 1 | 27 | 44 | 8 | 83 | ||||||||||||||||||
| Capital expenditures | 61 | 73 | 37 | 81 | (18 | ) | 234 | |||||||||||||||||
| Total assets as of March 31, 2011 | $ | 2,683 | $ | 3,170 | $ | 1,015 | $ | 1,481 | $ | (53 | ) | $ | 8,296 | |||||||||||
| Selected Operating Results | North | South | Other and | |||||||||||||||||||||
Year Ended March 31, 2010 | America | Europe | Asia | America | Eliminations | Total | ||||||||||||||||||
| Net sales | $ | 3,292 | $ | 2,975 | $ | 1,501 | $ | 948 | $ | (43 | ) | $ | 8,673 | |||||||||||
| Write-off and amortization of fair value adjustments | 128 | (1 | ) | — | — | 7 | 134 | |||||||||||||||||
| Depreciation and amortization | 162 | 153 | 48 | 64 | (43 | ) | 384 | |||||||||||||||||
| Income tax provision (benefit) | 116 | 73 | �� | 31 | 69 | (27 | ) | 262 | ||||||||||||||||
| Capital expenditures | 38 | 48 | 15 | 18 | (18 | ) | 101 | |||||||||||||||||
| Total assets as of March 31, 2010 | $ | 2,726 | $ | 2,870 | $ | 965 | $ | 1,344 | $ | (143 | ) | $ | 7,762 | |||||||||||
| Selected Operating Results | North | South | Other and | |||||||||||||||||||||
Year Ended March 31, 2009 | America | Europe | Asia | America | Eliminations | Total | ||||||||||||||||||
| Net sales | $ | 3,930 | $ | 3,718 | $ | 1,536 | $ | 1,007 | $ | (14 | ) | $ | 10,177 | |||||||||||
| Write-off and amortization of fair value adjustments | 218 | 7 | — | — | 8 | 233 | ||||||||||||||||||
| Depreciation and amortization | 166 | 226 | 50 | 72 | (75 | ) | 439 | |||||||||||||||||
| Income tax provision (benefit) | (156 | ) | (13 | ) | (8 | ) | (62 | ) | (7 | ) | (246 | ) | ||||||||||||
| Capital expenditures | 42 | 76 | 20 | 25 | (18 | ) | 145 | |||||||||||||||||
| Total assets as of March 31, 2009 | $ | 2,973 | $ | 2,750 | $ | 732 | $ | 1,296 | $ | (184 | ) | $ | 7,567 | |||||||||||
118
| 0000000 | 0000000 | 0000000 | 0000000 | 0000000 | 0000000 | |||||||||||||||||||
Selected Operating Results Year Ended March 31, 2012 | North America | Europe | Asia | South America | Eliminations and Other | Total | ||||||||||||||||||
Net sales | $ | 3,967 | $ | 3,840 | $ | 1,830 | $ | 1,278 | $ | 148 | $ | 11,063 | ||||||||||||
Write-off and amortization of fair value adjustments | (13 | ) | — | — | — | 7 | (6 | ) | ||||||||||||||||
Depreciation and amortization | 136 | 129 | 55 | 55 | (46 | ) | 329 | |||||||||||||||||
Income tax provision (benefit) | 21 | 2 | 23 | (10 | ) | 3 | 39 | |||||||||||||||||
Capital expenditures | 108 | 73 | 151 | 177 | 7 | 516 | ||||||||||||||||||
Total assets as of March 31, 2012 | $ | 2,668 | $ | 2,754 | $ | 1,039 | $ | 1,493 | $ | 89 | $ | 8,043 | ||||||||||||
| 0000000 | 0000000 | 0000000 | 0000000 | 0000000 | 0000000 | |||||||||||||||||||
Selected Operating Results Year Ended March 31, 2011 | North America | Europe | Asia | South America | Eliminations and Other | Total | ||||||||||||||||||
Net sales | $ | 3,760 | $ | 3,589 | $ | 1,866 | $ | 1,214 | $ | 148 | $ | 10,577 | ||||||||||||
Write-off and amortization of fair value adjustments | (7 | ) | 1 | — | — | (3 | ) | (9 | ) | |||||||||||||||
Depreciation and amortization | 168 | 141 | 56 | 80 | (41 | ) | 404 | |||||||||||||||||
Income tax provision (benefit) | 3 | 1 | 27 | 44 | 8 | 83 | ||||||||||||||||||
Capital expenditures | 61 | 73 | 37 | 81 | (18 | ) | 234 | |||||||||||||||||
Total assets as of March 31, 2011 | $ | 2,613 | $ | 3,170 | $ | 1,015 | $ | 1,481 | $ | 17 | $ | 8,296 | ||||||||||||
| 0000000 | 0000000 | 0000000 | 0000000 | 0000000 | 0000000 | |||||||||||||||||||
Selected Operating Results Year Ended March 31, 2010 | North America | Europe | Asia | South America | Eliminations and Other | Total | ||||||||||||||||||
Net sales | $ | 3,130 | $ | 2,975 | $ | 1,501 | $ | 948 | $ | 119 | $ | 8,673 | ||||||||||||
Write-off and amortization of fair value adjustments | 128 | (1 | ) | — | — | 7 | 134 | |||||||||||||||||
Depreciation and amortization | 162 | 153 | 48 | 64 | (43 | ) | 384 | |||||||||||||||||
Income tax provision (benefit) | 116 | 73 | 31 | 69 | (27 | ) | 262 | |||||||||||||||||
Capital expenditures | 38 | 48 | 15 | 18 | (18 | ) | 101 | |||||||||||||||||
Total assets as of March 31, 2010 | $ | 2,663 | $ | 2,870 | $ | 965 | $ | 1,344 | $ | (80 | ) | $ | 7,762 | |||||||||||
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
The following table shows the reconciliation from income from reportable segments to Net“Net income (loss) attributable to our common shareholdershareholder” (in millions).
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| North America | $ | 382 | $ | 292 | $ | 60 | ||||||
| Europe | 313 | 212 | 214 | |||||||||
| Asia | 225 | 154 | 79 | |||||||||
| South America | 152 | 97 | 132 | |||||||||
| Depreciation and amortization | (404 | ) | (384 | ) | (439 | ) | ||||||
| Interest expense and amortization of debt issuance costs | (207 | ) | (175 | ) | (182 | ) | ||||||
| Interest income | 13 | 11 | 14 | |||||||||
| Unrealized gains on change in fair value of derivative instruments, net | (64 | ) | 578 | (519 | ) | |||||||
| Realized gains (losses) on derivative instruments not included in segment income(A) | 5 | — | — | |||||||||
| Adjustment to eliminate proportional consolidation(B) | (45 | ) | (52 | ) | (225 | ) | ||||||
| Impairment of goodwill | — | — | (1,340 | ) | ||||||||
| Gain (loss) on extinguishment of debt | (84 | ) | — | 122 | ||||||||
| Restructuring charges, net | (34 | ) | (14 | ) | (95 | ) | ||||||
| Other costs, net | (9 | ) | 8 | 11 | ||||||||
| Income (loss) before income taxes | 243 | 727 | (2,168 | ) | ||||||||
| Income tax provision (benefit) | 83 | 262 | (246 | ) | ||||||||
| Net income (loss) | 160 | 465 | (1,922 | ) | ||||||||
| Net income (loss) attributable to noncontrolling interests | 44 | 60 | (12 | ) | ||||||||
Net income (loss) attributable to our common shareholder | $ | 116 | $ | 405 | $ | (1,910 | ) | |||||
119
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
North America | $ | 407 | $ | 382 | $ | 292 | ||||||
Europe | 284 | 313 | 212 | |||||||||
Asia | 181 | 225 | 154 | |||||||||
South America | 181 | 152 | 97 | |||||||||
Depreciation and amortization | (329 | ) | (404 | ) | (384 | ) | ||||||
Interest expense and amortization of debt issuance costs | (305 | ) | (207 | ) | (175 | ) | ||||||
Interest income | 15 | 13 | 11 | |||||||||
Unrealized gains (losses) on change in fair value of derivative instruments, net | (62 | ) | (64 | ) | 578 | |||||||
Realized gains (losses) on derivative instruments not included in segment income | 1 | 5 | — | |||||||||
Adjustment to eliminate proportional consolidation | (49 | ) | (45 | ) | (52 | ) | ||||||
Loss on extinguishment of debt | — | (84 | ) | — | ||||||||
Restructuring charges, net | (60 | ) | (34 | ) | (14 | ) | ||||||
Loss on assets held for sale | (111 | ) | — | — | ||||||||
Other (costs) income, net | (24 | ) | (9 | ) | 8 | |||||||
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Income before income taxes | 129 | 243 | 727 | |||||||||
Income tax provision | 39 | 83 | 262 | |||||||||
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Net income | 90 | 160 | 465 | |||||||||
Net income attributable to noncontrolling interests | 27 | 44 | 60 | |||||||||
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Net income attributable to our common shareholder | $ | 63 | $ | 116 | $ | 405 | ||||||
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We had 3029 operating facilities in eleven countries as of March 31, 2011.2012. The tables below present Net sales“Net sales” and Long-lived assets“Long-lived assets” by geographical area (in millions). Net sales“Net sales” are attributed to geographical areas based on the origin of the sale. Long-lived assets“Long-lived assets” are attributed to geographical areas based on asset location and exclude investments in and advances to our non-consolidated affiliates and goodwill.
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Net sales: | ||||||||||||
| United States | $ | 3,737 | $ | 3,134 | $ | 3,685 | ||||||
| Asia and Other Pacific | 1,866 | 1,481 | 1,536 | |||||||||
| Brazil | 1,214 | 947 | 1,006 | |||||||||
| Canada | 182 | 152 | 243 | |||||||||
| Germany | 2,483 | 2,041 | 2,439 | |||||||||
| United Kingdom | 178 | 165 | 347 | |||||||||
| Other Europe | 917 | 753 | 921 | |||||||||
| Total Net sales | $ | 10,577 | $ | 8,673 | $ | 10,177 | ||||||
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Long-lived assets: | ||||||||
| United States | $ | 1,341 | $ | 1,449 | ||||
| Asia and Other Pacific | 411 | 421 | ||||||
| Brazil | 630 | 625 | ||||||
| Canada | 126 | 135 | ||||||
| Germany | 364 | 384 | ||||||
| United Kingdom | 45 | 52 | ||||||
| Other Europe | 332 | 315 | ||||||
| Total long-lived assets | $ | 3,249 | $ | 3,381 | ||||
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Net sales: | ||||||||||||
United States | $ | 3,914 | $ | 3,737 | $ | 3,134 | ||||||
Asia and Other Pacific | 1,830 | 1,866 | 1,481 | |||||||||
Brazil | 1,278 | 1,214 | 947 | |||||||||
Canada | 234 | 182 | 152 | |||||||||
Germany | 2,755 | 2,483 | 2,041 | |||||||||
United Kingdom | 77 | 178 | 165 | |||||||||
Other Europe | 975 | 917 | 753 | |||||||||
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Total Net sales | $ | 11,063 | $ | 10,577 | $ | 8,673 | ||||||
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| March 31, | ||||||||
| 2012 | 2011 | |||||||
Long-lived assets: | ||||||||
United States | $ | 1,365 | $ | 1,341 | ||||
Asia and Other Pacific | 506 | 411 | ||||||
Brazil | 786 | 630 | ||||||
Canada | 92 | 126 | ||||||
Germany | 283 | 364 | ||||||
United Kingdom | 31 | 45 | ||||||
Other Europe | 304 | 332 | ||||||
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Total long-lived assets | $ | 3,367 | $ | 3,249 | ||||
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Information about Major Customers and Primary Supplier
The table below shows our net sales to Rexam Plc (Rexam) and, Anheuser-Busch InBev (Anheuser-Busch), and Affiliates of Ball Corporation our twothree largest customers, as a percentage of total Net“Net sales.
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Rexam | 15 | % | 16 | % | 17 | % | ||||||
| Anheuser-Busch | 13 | % | 11 | % | 7 | % | ||||||
120
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Rexam | 14 | % | 15 | % | 16 | % | ||||||
Anheuser-Busch | 10 | % | 13 | % | 11 | % | ||||||
Affiliates of Ball Corporation | 10 | % | 8 | % | 6 | % | ||||||
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Purchases from Alcan as a percentage of total combined metal purchases in kt(A)(B) | 33 | % | 38 | % | 37 | % | ||||||
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Purchases from Alcan as a percentage of total combined metal purchases in kt (A) | 27 | % | 31 | % | 33 | % | ||||||
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| (A) | One kilotonne (kt) is 1,000 metric tonnes. One metric tonne is equivalent to 2,204.6 pounds. |
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 21. | ||
| SUPPLEMENTAL INFORMATION |
“Accumulated other comprehensive (loss) income,” net of tax, consists of the following (in millions).
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Currency translation adjustment | $ | 102 | $ | (8 | ) | |||
| Fair value of effective portion of hedges | 22 | (27 | ) | |||||
| Pension and other benefits | (67 | ) | (68 | ) | ||||
| AOCI | $ | 57 | $ | (103 | ) | |||
| Year Ended | ||||||||||||
| March 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Supplemental disclosures of cash flow information: | ||||||||||||
| Interest paid | $ | 134 | $ | 158 | $ | 169 | ||||||
| Income taxes paid | 115 | 50 | 65 | |||||||||
| Return of capital | 1,700 | — | — | |||||||||
121
| March 31, 2012 | March 31, 2011 | |||||||
Currency translation adjustment | $ | 20 | $ | 102 | ||||
Fair value of effective portion of cash flow hedges | (7 | ) | 22 | |||||
Pension and other benefits | (204 | ) | (67 | ) | ||||
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Accumulated other comprehensive (loss) income | $ | (191 | ) | $ | 57 | |||
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Supplemental cash flow information (in millions):
| Year Ended March 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Interest paid | $ | 284 | $ | 134 | $ | 158 | ||||||
Income taxes paid | 105 | 115 | 50 | |||||||||
Return of capital | — | 1,700 | — | |||||||||
As of March 31, 2012, we recorded $113 million of outstanding accounts payable and accrued liabilities related to capital expenditures in which the cash outflows will occur subsequent to March 31, 2012.
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
| 22. | ||
| QUARTERLY RESULTS |
The table below presents select operating results (in millions) by period.
| (Unaudited) | ||||||||||||||||
| Quarter Ended | ||||||||||||||||
| June 30, | September 30, | December 31, | March 31, | |||||||||||||
| 2010 | 2010 | 2010 | 2011 | |||||||||||||
| Net sales | $ | 2,533 | $ | 2,524 | $ | 2,560 | $ | 2,960 | ||||||||
| Cost of goods sold (exclusive of depreciation and amortization) | 2,208 | 2,188 | 2,232 | 2,599 | ||||||||||||
| Selling, general and administrative expenses | 81 | 97 | 94 | 103 | ||||||||||||
| Depreciation and amortization | 103 | 104 | 100 | 97 | ||||||||||||
| Research and development expenses | 9 | 9 | 9 | 13 | ||||||||||||
| Interest expense and amortization of debt issuance costs | 39 | 40 | 46 | 82 | ||||||||||||
| Interest income | (3 | ) | (3 | ) | (4 | ) | (3 | ) | ||||||||
| (Gain) loss on change in fair value of derivative instruments, net | 6 | (34 | ) | (30 | ) | 15 | ||||||||||
| Loss on early extinguishment of debt | — | — | 74 | 10 | ||||||||||||
| Restructuring charges, net | 6 | 9 | 20 | (1 | ) | |||||||||||
| Equity in net loss of non-consolidated affiliates | 3 | 3 | 5 | 1 | ||||||||||||
| Other (income) expenses, net | 7 | (18 | ) | 16 | 2 | |||||||||||
| Income tax provision (benefit) | 15 | 56 | 33 | (21 | ) | |||||||||||
| Net income (loss) | 59 | 73 | (35 | ) | 63 | |||||||||||
| Net income attributable to noncontrolling interests | 9 | 11 | 11 | 13 | ||||||||||||
| Net income (loss) attributable to our common shareholder | $ | 50 | $ | 62 | $ | (46 | ) | $ | 50 | |||||||
| (Unaudited) | ||||||||||||||||
| Quarter Ended | ||||||||||||||||
| June 30, | September 30, | December 31, | March 31, | |||||||||||||
| 2009 | 2009 | 2009 | 2010 | |||||||||||||
| Net sales | $ | 1,960 | $ | 2,181 | $ | 2,112 | $ | 2,420 | ||||||||
| Cost of goods sold (exclusive of depreciation and amortization) | 1,537 | 1,734 | 1,795 | 2,147 | ||||||||||||
| Selling, general and administrative expenses | 74 | 77 | 92 | 94 | ||||||||||||
| Depreciation and amortization | 100 | 92 | 93 | 99 | ||||||||||||
| Research and development expenses | 8 | 9 | 10 | 11 | ||||||||||||
| Interest expense and amortization of debt issuance costs | 43 | 44 | 44 | 44 | ||||||||||||
| Interest income | (3 | ) | (3 | ) | (2 | ) | (3 | ) | ||||||||
| Gain on change in fair value of derivative instruments, net | (72 | ) | (80 | ) | (40 | ) | (2 | ) | ||||||||
| Restructuring charges, net | 3 | 3 | 1 | 7 | ||||||||||||
| Equity in net (income) loss of non-consolidated affiliates | 10 | 10 | (8 | ) | 3 | |||||||||||
| Other (income) expenses, net | (13 | ) | (6 | ) | (2 | ) | (4 | ) | ||||||||
| Income tax provision (benefit) | 112 | 87 | 48 | 15 | ||||||||||||
| Net income | 161 | 214 | 81 | 9 | ||||||||||||
| Net income attributable to noncontrolling interests | 18 | 19 | 13 | 10 | ||||||||||||
| Net income (loss) attributable to our common shareholder | $ | 143 | $ | 195 | $ | 68 | $ | (1 | ) | |||||||
122
| (Unaudited) Quarter Ended | ||||||||||||||||
| June 30, 2011 | September 30, 2011 | December 31, 2011 | March 31, 2012 | |||||||||||||
Net sales | $ | 3,113 | $ | 2,880 | $ | 2,462 | $ | 2,608 | ||||||||
Cost of goods sold (exclusive of depreciation and amortization) | 2,708 | 2,549 | 2,224 | 2,262 | ||||||||||||
Selling, general and administrative expenses | 95 | 91 | 95 | 102 | ||||||||||||
Depreciation and amortization | 89 | 81 | 79 | 80 | ||||||||||||
Research and development expenses | 12 | 12 | 10 | 10 | ||||||||||||
Interest expense and amortization of debt issuance costs | 77 | 77 | 74 | 77 | ||||||||||||
Interest income | (4 | ) | (4 | ) | (3 | ) | (4 | ) | ||||||||
Loss on assets held for sale | — | — | — | 111 | ||||||||||||
Restructuring charges, net | 19 | 11 | 1 | 29 | ||||||||||||
Equity in net loss of non-consolidated affiliates | 2 | 3 | 4 | 4 | ||||||||||||
Other (income) expense, net | (21 | ) | (63 | ) | (1 | ) | 46 | |||||||||
Income tax provision (benefit) | 59 | (7 | ) | (10 | ) | (3 | ) | |||||||||
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Net income (loss) | 77 | 130 | (11 | ) | (106 | ) | ||||||||||
Net income attributable to noncontrolling interests | 15 | 10 | 1 | 1 | ||||||||||||
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Net income (loss) attributable to our common shareholder | $ | 62 | $ | 120 | $ | (12 | ) | $ | (107 | ) | ||||||
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| (Unaudited) Quarter Ended | ||||||||||||||||
| June 30, 2010 | September 30, 2010 | December 31, 2010 | March 31, 2011 | |||||||||||||
Net sales | $ | 2,533 | $ | 2,524 | $ | 2,560 | $ | 2,960 | ||||||||
Cost of goods sold (exclusive of depreciation and amortization) | 2,208 | 2,188 | 2,232 | 2,599 | ||||||||||||
Selling, general and administrative expenses | 81 | 97 | 94 | 103 | ||||||||||||
Depreciation and amortization | 103 | 104 | 100 | 97 | ||||||||||||
Research and development expenses | 9 | 9 | 9 | 13 | ||||||||||||
Interest expense and amortization of debt issuance costs | 39 | 40 | 46 | 82 | ||||||||||||
Interest income | (3 | ) | (3 | ) | (4 | ) | (3 | ) | ||||||||
Loss on early extinguishment of debt | — | — | 74 | 10 | ||||||||||||
Restructuring charges, net | 6 | 9 | 20 | (1 | ) | |||||||||||
Equity in net loss of non-consolidated affiliates | 3 | 3 | 5 | 1 | ||||||||||||
Other (income) expense, net | 13 | (52 | ) | (14 | ) | 17 | ||||||||||
Income tax provision (benefit) | 15 | 56 | 33 | (21 | ) | |||||||||||
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Net income (loss) | 59 | 73 | (35 | ) | 63 | |||||||||||
Net income attributable to noncontrolling interests | 9 | 11 | 11 | 13 | ||||||||||||
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Net income (loss) attributable to our common shareholder | $ | 50 | $ | 62 | $ | (46 | ) | $ | 50 | |||||||
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
| 23. | ||
| SUPPLEMENTAL GUARANTOR INFORMATION |
In connection with the issuance of our 7.25% Notes, 2017 Notes and 2020 Notes, certain of our wholly-owned subsidiaries, which are 100% owned within the meaning of Rule 3-10(h)(1) of Regulation S-X, provided guarantees. These guarantees are full and unconditional as well as joint and several. The guarantor subsidiaries (the Guarantors) are comprised of the majority of our businesses in Canada, the U.S., the U.K., Brazil, Portugal, Luxembourg and Switzerland, as well as certain businesses in Germany and France. Certain Guarantors may be subject to restrictions on their ability to distribute earnings to Novelis Inc. (the Parent). The remaining subsidiaries (the Non-Guarantors) of the Parent are not guarantors of the Notes.
The following information presents condensed consolidating statements of operations, balance sheets and statements of cash flows of the Parent, the Guarantors, and the Non-Guarantors. Investments include investment in and advances to non-consolidated affiliates as well as investments in net assets of divisions included in the Parent, and have been presented using the equity method of accounting.
| Year Ended March 31, 2011 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
| Net sales | $ | 1,048 | $ | 8,515 | $ | 3,118 | $ | (2,104 | ) | $ | 10,577 | |||||||||
| Cost of goods sold (exclusive of depreciation and amortization) | 1,006 | 7,512 | 2,813 | (2,104 | ) | 9,227 | ||||||||||||||
| Selling, general and administrative expenses | 40 | 272 | 63 | — | 375 | |||||||||||||||
| Depreciation and amortization | 5 | 306 | 93 | — | 404 | |||||||||||||||
| Research and development expenses | 28 | 10 | 2 | — | 40 | |||||||||||||||
| Interest expense and amortization of debt issuance costs | 177 | 85 | 4 | (59 | ) | 207 | ||||||||||||||
| Interest income | (58 | ) | (13 | ) | (1 | ) | 59 | (13 | ) | |||||||||||
| Gain on change in fair value of derivative instruments, net | 1 | (49 | ) | 5 | — | (43 | ) | |||||||||||||
| Loss on extinguishment of debt | 33 | 51 | — | — | 84 | |||||||||||||||
| Restructuring charges, net | 3 | 28 | 3 | — | 34 | |||||||||||||||
| Equity in net (income) loss of non-consolidated affiliates | (289 | ) | 12 | — | 289 | 12 | ||||||||||||||
| Other (income) expenses, net | (24 | ) | 50 | (19 | ) | — | 7 | |||||||||||||
| 922 | 8,264 | 2,963 | (1,815 | ) | 10,334 | |||||||||||||||
| Income (loss) before income taxes | 126 | 251 | 155 | (289 | ) | 243 | ||||||||||||||
| Income tax provision | 10 | 41 | 32 | — | 83 | |||||||||||||||
| Net income (loss) | 116 | 210 | 123 | (289 | ) | 160 | ||||||||||||||
| Net income attributable to noncontrolling interests | — | — | 44 | — | 44 | |||||||||||||||
Net income (loss) attributable to our common shareholder | $ | 116 | $ | 210 | $ | 79 | $ | (289 | ) | $ | 116 | |||||||||
123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
NOVELIS INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)
| Year Ended March 31, 2010 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
| Net sales | $ | 849 | $ | 6,906 | $ | 2,468 | $ | (1,550 | ) | $ | 8,673 | |||||||||
| Cost of goods sold (exclusive of depreciation and amortization) | 772 | 5,850 | 2,141 | (1,550 | ) | 7,213 | ||||||||||||||
| Selling, general and administrative expenses | 51 | 226 | 60 | — | 337 | |||||||||||||||
| Depreciation and amortization | 4 | 289 | 91 | — | 384 | |||||||||||||||
| Research and development expenses | 26 | 11 | 1 | — | 38 | |||||||||||||||
| Interest expense and amortization of debt issuance costs | 114 | 117 | 8 | (64 | ) | 175 | ||||||||||||||
| Interest income | (63 | ) | (10 | ) | (2 | ) | 64 | (11 | ) | |||||||||||
| Gain on change in fair value of derivative instruments, net | (5 | ) | (165 | ) | (24 | ) | — | (194 | ) | |||||||||||
| Restructuring charges, net | — | 8 | 6 | — | 14 | |||||||||||||||
| Equity in net (income) loss of non-consolidated affiliates | (396 | ) | 15 | — | 396 | 15 | ||||||||||||||
| Other (income) expenses, net | (34 | ) | 46 | (37 | ) | — | (25 | ) | ||||||||||||
| 469 | 6,387 | 2,244 | (1,154 | ) | 7,946 | |||||||||||||||
| Income (loss) before income taxes | 380 | 519 | 224 | (396 | ) | 727 | ||||||||||||||
| Income tax provision (benefit) | (25 | ) | 249 | 38 | — | 262 | ||||||||||||||
| Net income (loss) | 405 | 270 | 186 | (396 | ) | 465 | ||||||||||||||
| Net income attributable to noncontrolling interests | — | — | 60 | — | 60 | |||||||||||||||
Net income (loss) attributable to our common shareholder | $ | 405 | $ | 270 | $ | 126 | $ | (396 | ) | $ | 405 | |||||||||
124
| Year Ended March 31, 2012 | ||||||||||||||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | 1,129 | $ | 8,953 | $ | 3,300 | $ | (2,319 | ) | $ | 11,063 | |||||||||
Cost of goods sold (exclusive of depreciation and amortization) | 1,102 | 7,921 | 3,039 | (2,319 | ) | 9,743 | ||||||||||||||
Selling, general and administrative expenses | (7 | ) | 318 | 72 | — | 383 | ||||||||||||||
Depreciation and amortization | 17 | 246 | 86 | (20 | ) | 329 | ||||||||||||||
Research and development expenses | 31 | 12 | 1 | — | 44 | |||||||||||||||
Interest expense and amortization of debt issuance costs | 311 | 56 | 3 | (65 | ) | 305 | ||||||||||||||
Interest income | (63 | ) | (14 | ) | (3 | ) | 65 | (15 | ) | |||||||||||
Loss on assets held for sale | 1 | 26 | 84 | — | 111 | |||||||||||||||
Restructuring charges, net | 33 | 24 | 3 | — | 60 | |||||||||||||||
Equity in net (income) loss of non-consolidated affiliates | (419 | ) | 13 | — | 419 | 13 | ||||||||||||||
Other (income) expense, net | 61 | (102 | ) | (18 | ) | 20 | (39 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 1,067 | 8,500 | 3,267 | (1,900 | ) | 10,934 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) before income taxes | 62 | 453 | 33 | (419 | ) | 129 | ||||||||||||||
Income tax (benefit) provision | (1 | ) | 11 | 29 | — | 39 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | 63 | 442 | 4 | (419 | ) | 90 | ||||||||||||||
Net income attributable to noncontrolling interests | — | — | 27 | — | 27 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) attributable to our common shareholder | $ | 63 | $ | 442 | $ | (23 | ) | $ | (419 | ) | $ | 63 | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
NOVELIS INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)
| Year Ended March 31, 2009 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
| Net sales | $ | 1,186 | $ | 8,421 | $ | 2,647 | $ | (2,077 | ) | $ | 10,177 | |||||||||
| Cost of goods sold (exclusive of depreciation and amortization) | 1,182 | 7,704 | 2,467 | (2,077 | ) | 9,276 | ||||||||||||||
| Selling, general and administrative expenses | 9 | 217 | 68 | — | 294 | |||||||||||||||
| Depreciation and amortization | 16 | 328 | 95 | — | 439 | |||||||||||||||
| Research and development expenses | 29 | 10 | 2 | — | 41 | |||||||||||||||
| Interest expense and amortization of debt issuance costs | 114 | 134 | 23 | (89 | ) | 182 | ||||||||||||||
| Interest income | (78 | ) | (15 | ) | (10 | ) | 89 | (14 | ) | |||||||||||
| Loss on change in fair value of derivative instruments, net | 5 | 511 | 40 | — | 556 | |||||||||||||||
| Impairment of goodwill | — | 1,340 | — | — | 1,340 | |||||||||||||||
| Gain on extinguishment of debt, net | (67 | ) | (55 | ) | — | — | (122 | ) | ||||||||||||
| Restructuring charges, net | 5 | 74 | 16 | — | 95 | |||||||||||||||
| Equity in net (income) loss of non-consolidated affiliates | 1,890 | 172 | — | (1,890 | ) | 172 | ||||||||||||||
| Other (income) expenses, net | (14 | ) | 11 | 89 | — | 86 | ||||||||||||||
| 3,091 | 10,431 | 2,790 | (3,967 | ) | 12,345 | |||||||||||||||
| Income (loss) before income taxes | (1,905 | ) | (2,010 | ) | (143 | ) | 1,890 | (2,168 | ) | |||||||||||
| Income tax provision (benefit) | 5 | (237 | ) | (14 | ) | — | (246 | ) | ||||||||||||
| Net income (loss) | (1,910 | ) | (1,773 | ) | (129 | ) | 1,890 | (1,922 | ) | |||||||||||
| Net loss attributable to noncontrolling interests | — | — | (12 | ) | — | (12 | ) | |||||||||||||
Net loss attributable to our common shareholder | $ | (1,910 | ) | $ | (1,773 | ) | $ | (117 | ) | $ | 1,890 | $ | (1,910 | ) | ||||||
125
| Year Ended March 31, 2011 | ||||||||||||||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | 1,048 | $ | 8,515 | $ | 3,118 | $ | (2,104 | ) | $ | 10,577 | |||||||||
Cost of goods sold (exclusive of depreciation and amortization) | 1,006 | 7,512 | 2,813 | (2,104 | ) | 9,227 | ||||||||||||||
Selling, general and administrative expenses | 40 | 272 | 63 | — | 375 | |||||||||||||||
Depreciation and amortization | 5 | 306 | 93 | — | 404 | |||||||||||||||
Research and development expenses | 28 | 10 | 2 | — | 40 | |||||||||||||||
Interest expense and amortization of debt issuance costs | 177 | 85 | 4 | (59 | ) | 207 | ||||||||||||||
Interest income | (58 | ) | (13 | ) | (1 | ) | 59 | (13 | ) | |||||||||||
Loss on extinguishment of debt | 33 | 51 | — | — | 84 | |||||||||||||||
Restructuring charges, net | 3 | 28 | 3 | — | 34 | |||||||||||||||
Equity in net (income) loss of non-consolidated affiliates | (289 | ) | 12 | — | 289 | 12 | ||||||||||||||
Other (income) expense, net | (23 | ) | 1 | (14 | ) | — | (36 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 922 | 8,264 | 2,963 | (1,815 | ) | 10,334 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) before income taxes | 126 | 251 | 155 | (289 | ) | 243 | ||||||||||||||
Income tax provision | 10 | 41 | 32 | — | 83 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | 116 | 210 | 123 | (289 | ) | 160 | ||||||||||||||
Net income attributable to noncontrolling interests | — | — | 44 | — | 44 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) attributable to our common shareholder | $ | 116 | $ | 210 | $ | 79 | $ | (289 | ) | $ | 116 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
NOVELIS INC.
CONSOLIDATING BALANCE SHEET
STATEMENT OF OPERATIONS
(In millions)
| As of March 31, 2011 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | 1 | $ | 225 | $ | 85 | $ | — | $ | 311 | ||||||||||
| Accounts receivable, net of allowances | ||||||||||||||||||||
| — third parties | 31 | 920 | 529 | — | 1,480 | |||||||||||||||
| — related parties | 640 | 319 | 89 | (1,020 | ) | 28 | ||||||||||||||
| Inventories | 60 | 961 | 317 | — | 1,338 | |||||||||||||||
| Prepaid expenses and other current assets | 2 | 40 | 8 | — | 50 | |||||||||||||||
| Fair value of derivative instruments | 5 | 140 | 30 | (10 | ) | 165 | ||||||||||||||
| Deferred income tax assets | — | 37 | 2 | — | 39 | |||||||||||||||
Total current assets | 739 | 2,642 | 1,060 | (1,030 | ) | 3,411 | ||||||||||||||
| Property, plant and equipment, net | 136 | 1,898 | 509 | — | 2,543 | |||||||||||||||
| Goodwill | — | 600 | 11 | — | 611 | |||||||||||||||
| Intangible assets, net | 15 | 699 | (7 | ) | — | 707 | ||||||||||||||
| Investments in and advances to non-consolidated affiliates | 1,273 | 743 | — | (1,273 | ) | 743 | ||||||||||||||
| Fair value of derivative instruments, net of current portion | — | 16 | 3 | (2 | ) | 17 | ||||||||||||||
| Deferred income tax assets | — | 39 | 13 | — | 52 | |||||||||||||||
| Other long-term assets | 2,768 | 195 | 68 | (2,819 | ) | 212 | ||||||||||||||
Total assets | $ | 4,931 | $ | 6,832 | $ | 1,657 | $ | (5,124 | ) | $ | 8,296 | |||||||||
| LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
| Current portion of long-term debt | $ | 15 | $ | 5 | $ | 1 | $ | — | $ | 21 | ||||||||||
| Short-term borrowings | ||||||||||||||||||||
| — third parties | — | — | 17 | — | 17 | |||||||||||||||
| — related parties | 22 | 334 | 20 | (376 | ) | — | ||||||||||||||
| Accounts payable | ||||||||||||||||||||
| — third parties | 73 | 812 | 493 | — | 1,378 | |||||||||||||||
| — related parties | 78 | 438 | 175 | (641 | ) | 50 | ||||||||||||||
| Fair value of derivative instruments | 4 | 73 | 17 | (12 | ) | 82 | ||||||||||||||
| Accrued expenses and other current liabilities | 119 | 332 | 119 | (2 | ) | 568 | ||||||||||||||
| Deferred income tax liabilities | — | 43 | — | — | 43 | |||||||||||||||
Total current liabilities | 311 | 2,037 | 842 | (1,031 | ) | 2,159 | ||||||||||||||
| Long-term debt, net of current portion | ||||||||||||||||||||
| — third parties | 4,019 | 46 | — | — | 4,065 | |||||||||||||||
| — related parties | 97 | 2,644 | 77 | (2,818 | ) | — | ||||||||||||||
| Deferred income tax liabilities | — | 542 | 10 | — | 552 | |||||||||||||||
| Accrued postretirement benefits | 40 | 344 | 142 | — | 526 | |||||||||||||||
| Other long-term liabilities | 19 | 336 | 6 | (2 | ) | 359 | ||||||||||||||
| 4,486 | 5,949 | 1,077 | (3,851 | ) | 7,661 | |||||||||||||||
| Commitments and contingencies | ||||||||||||||||||||
Shareholder’s equity | ||||||||||||||||||||
| Common stock | — | — | — | — | — | |||||||||||||||
| Additional paid-in capital | 1,830 | — | — | — | 1,830 | |||||||||||||||
| Retained earnings (accumulated deficit) | (1,442 | ) | 892 | 434 | (1,326 | ) | (1,442 | ) | ||||||||||||
| Accumulated other comprehensive income (loss) | 57 | (9 | ) | (44 | ) | 53 | 57 | |||||||||||||
Total equity of our common shareholder | 445 | 883 | 390 | (1,273 | ) | 445 | ||||||||||||||
Noncontrolling interests | — | — | 190 | — | 190 | |||||||||||||||
Total equity | 445 | 883 | 580 | (1,273 | ) | 635 | ||||||||||||||
Total liabilities and equity | $ | 4,931 | $ | 6,832 | $ | 1,657 | $ | (5,124 | ) | $ | 8,296 | |||||||||
126
| Year Ended March 31, 2010 | ||||||||||||||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | 849 | $ | 6,906 | $ | 2,468 | $ | (1,550 | ) | $ | 8,673 | |||||||||
Cost of goods sold (exclusive of depreciation and amortization) | 772 | 5,850 | 2,141 | (1,550 | ) | 7,213 | ||||||||||||||
Selling, general and administrative expenses | 51 | 226 | 60 | — | 337 | |||||||||||||||
Depreciation and amortization | 4 | 289 | 91 | — | 384 | |||||||||||||||
Research and development expenses | 26 | 11 | 1 | — | 38 | |||||||||||||||
Interest expense and amortization of debt issuance costs | 114 | 117 | 8 | (64 | ) | 175 | ||||||||||||||
Interest income | (63 | ) | (10 | ) | (2 | ) | 64 | (11 | ) | |||||||||||
Restructuring charges, net | — | 8 | 6 | — | 14 | |||||||||||||||
Equity in net (income) loss of non-consolidated affiliates | (396 | ) | 15 | — | 396 | 15 | ||||||||||||||
Other (income) expense, net | (39 | ) | (119 | ) | (61 | ) | — | (219 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 469 | 6,387 | 2,244 | (1,154 | ) | 7,946 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) before income taxes | 380 | 519 | 224 | (396 | ) | 727 | ||||||||||||||
Income tax provision (benefit) | (25 | ) | 249 | 38 | — | 262 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | 405 | 270 | 186 | (396 | ) | 465 | ||||||||||||||
Net income attributable to noncontrolling interests | — | — | 60 | — | 60 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) attributable to our common shareholder | $ | 405 | $ | 270 | $ | 126 | $ | (396 | ) | $ | 405 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
CONSOLIDATING BALANCE SHEET
(In millions)
| As of March 31, 2010 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | 22 | $ | 266 | $ | 149 | $ | — | $ | 437 | ||||||||||
| Accounts receivable, net of allowances | ||||||||||||||||||||
| — third parties | 24 | 747 | 372 | — | 1,143 | |||||||||||||||
| — related parties | 695 | 312 | 62 | (1,045 | ) | 24 | ||||||||||||||
| Inventories | 47 | 770 | 266 | — | 1,083 | |||||||||||||||
| Prepaid expenses and other current assets | 2 | 28 | 9 | — | 39 | |||||||||||||||
| Fair value of derivative instruments | 5 | 161 | 43 | (12 | ) | 197 | ||||||||||||||
| Deferred income tax assets | — | 7 | 5 | — | 12 | |||||||||||||||
Total current assets | 795 | 2,291 | 906 | (1,057 | ) | 2,935 | ||||||||||||||
| Property, plant and equipment, net | 138 | 1,976 | 518 | — | 2,632 | |||||||||||||||
| Goodwill | — | 600 | 11 | — | 611 | |||||||||||||||
| Intangible assets, net | 6 | 740 | 3 | — | 749 | |||||||||||||||
| Investments in and advances to non-consolidated affiliates | 1,998 | 708 | 1 | (1,998 | ) | 709 | ||||||||||||||
| Fair value of derivative instruments, net of current portion | — | 7 | 2 | (2 | ) | 7 | ||||||||||||||
| Deferred income tax assets | 1 | 3 | 1 | — | 5 | |||||||||||||||
| Other long-term assets | 976 | 199 | 78 | (1,139 | ) | 114 | ||||||||||||||
Total assets | $ | 3,914 | $ | 6,524 | $ | 1,520 | $ | (4,196 | ) | $ | 7,762 | |||||||||
| LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
| Current portion of long-term debt | $ | 3 | $ | 13 | $ | 100 | $ | — | $ | 116 | ||||||||||
| Short-term borrowings | ||||||||||||||||||||
| — third parties | — | 61 | 14 | — | 75 | |||||||||||||||
| — related parties | 41 | 457 | 21 | (519 | ) | — | ||||||||||||||
| Accounts payable | ||||||||||||||||||||
| — third parties | 58 | 600 | 418 | — | 1,076 | |||||||||||||||
| — related parties | 62 | 350 | 166 | (525 | ) | 53 | ||||||||||||||
| Fair value of derivative instruments | 7 | 102 | 13 | (12 | ) | 110 | ||||||||||||||
| Accrued expenses and other current liabilities | 52 | 279 | 106 | (1 | ) | 436 | ||||||||||||||
| Deferred income tax liabilities | — | 33 | 1 | — | 34 | |||||||||||||||
Total current liabilities | 223 | 1,895 | 839 | (1,057 | ) | 1,900 | ||||||||||||||
| Long-term debt, net of current portion | ||||||||||||||||||||
| — third parties | 1,635 | 844 | 1 | — | 2,480 | |||||||||||||||
| — related parties | 115 | 929 | 94 | (1,138 | ) | — | ||||||||||||||
| Deferred income tax liabilities | — | 485 | 12 | — | 497 | |||||||||||||||
| Accrued postretirement benefits | 31 | 349 | 119 | — | 499 | |||||||||||||||
| Other long-term liabilities | 41 | 333 | 5 | (3 | ) | 376 | ||||||||||||||
| 2,045 | 4,835 | 1,070 | (2,198 | ) | 5,752 | |||||||||||||||
| Commitments and contingencies | ||||||||||||||||||||
Shareholder’s equity | ||||||||||||||||||||
| Common stock | — | — | — | — | — | |||||||||||||||
| Additional paid-in capital | 3,530 | — | — | — | 3,530 | |||||||||||||||
| Retained earnings (accumulated deficit) | (1,558 | ) | 1,818 | 349 | (2,167 | ) | (1,558 | ) | ||||||||||||
| Accumulated other comprehensive income (loss) | (103 | ) | (129 | ) | (40 | ) | 169 | (103 | ) | |||||||||||
Total equity of our common shareholder | 1,869 | 1,689 | 309 | (1,998 | ) | 1,869 | ||||||||||||||
Noncontrolling interests | — | — | 141 | — | 141 | |||||||||||||||
Total equity | 1,869 | 1,689 | 450 | (1,998 | ) | 2,010 | ||||||||||||||
Total liabilities and equity | $ | 3,914 | $ | 6,524 | $ | 1,520 | $ | (4,196 | ) | $ | 7,762 | |||||||||
127
| As of March 31, 2012 | ||||||||||||||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 6 | $ | 199 | $ | 112 | $ | — | $ | 317 | ||||||||||
Accounts receivable, net of allowances - third parties | 34 | 910 | 387 | — | 1,331 | |||||||||||||||
- related parties | 745 | 341 | 59 | (1,109 | ) | 36 | ||||||||||||||
Inventories | 51 | 744 | 229 | — | 1,024 | |||||||||||||||
Prepaid expenses and other current assets | 4 | 46 | 11 | — | 61 | |||||||||||||||
Fair value of derivative instruments | 9 | 76 | 19 | (5 | ) | 99 | ||||||||||||||
Deferred income tax assets | — | 148 | 3 | — | 151 | |||||||||||||||
Assets held for sale | — | 24 | 57 | — | 81 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 849 | 2,488 | 877 | (1,114 | ) | 3,100 | ||||||||||||||
Property, plant and equipment, net | 123 | 2,019 | 547 | — | 2,689 | |||||||||||||||
Goodwill | (2 | ) | 601 | 12 | — | 611 | ||||||||||||||
Intangible assets, net | 7 | 666 | 5 | — | 678 | |||||||||||||||
Investments in and advances to non-consolidated affiliates | — | 683 | — | — | 683 | |||||||||||||||
Investments in consolidated subsidiaries | 1,411 | — | — | (1,411 | ) | — | ||||||||||||||
Fair value of derivative instruments, net of current portion | — | 1 | 1 | — | 2 | |||||||||||||||
Deferred income tax assets | — | 51 | 22 | 1 | 74 | |||||||||||||||
Other long-term assets | 2,391 | 157 | 40 | (2,404 | ) | 184 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total assets | $ | 4,779 | $ | 6,666 | $ | 1,504 | $ | (4,928 | ) | $ | 8,021 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Current portion of long-term debt | $ | 17 | $ | 5 | $ | 1 | $ | — | $ | 23 | ||||||||||
Short-term borrowings | ||||||||||||||||||||
— third parties | — | — | 18 | — | 18 | |||||||||||||||
— related parties | 10 | 316 | 27 | (353 | ) | — | ||||||||||||||
Accounts payable | ||||||||||||||||||||
— third parties | 79 | 757 | 409 | — | 1,245 | |||||||||||||||
— related parties | 80 | 529 | 192 | (750 | ) | 51 | ||||||||||||||
Fair value of derivative instruments | 1 | 75 | 24 | (5 | ) | 95 | ||||||||||||||
Accrued expenses and other current liabilities | 125 | 274 | 83 | (6 | ) | 476 | ||||||||||||||
Deferred income tax liabilities | — | 32 | 2 | — | 34 | |||||||||||||||
Liabilities held for sale | — | 10 | 47 | — | 57 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 312 | 1,998 | 803 | (1,114 | ) | 1,999 | ||||||||||||||
Long-term debt, net of current portion | ||||||||||||||||||||
— third parties | 4,227 | 51 | 43 | — | 4,321 | |||||||||||||||
— related parties | 74 | 2,275 | 55 | (2,404 | ) | — | ||||||||||||||
Deferred income tax liabilities | — | 571 | 10 | — | 581 | |||||||||||||||
Accrued postretirement benefits | 56 | 475 | 156 | — | 687 | |||||||||||||||
Other long-term liabilities | 21 | 282 | 7 | — | 310 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 4,690 | 5,652 | 1,074 | (3,518 | ) | 7,898 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Commitments and contingencies | ||||||||||||||||||||
Shareholder’s equity | ||||||||||||||||||||
Common stock | — | — | — | — | — | |||||||||||||||
Additional paid-in capital | 1,659 | — | — | — | 1,659 | |||||||||||||||
Retained earnings (accumulated deficit) | (1,379 | ) | 1,206 | 470 | (1,676 | ) | (1,379 | ) | ||||||||||||
Accumulated other comprehensive income (loss) | (191 | ) | (191 | ) | (74 | ) | 265 | (191 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total equity of our common shareholder | 89 | 1,015 | 396 | (1,411 | ) | 89 | ||||||||||||||
Noncontrolling interests | — | (1 | ) | 34 | 1 | 34 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total equity | 89 | 1,014 | 430 | (1,410 | ) | 123 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities and equity | $ | 4,779 | $ | 6,666 | $ | 1,504 | $ | (4,928 | ) | $ | 8,021 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
NOVELIS INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
BALANCE SHEET
(In millions)
| Year Ended March 31, 2011 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (520 | ) | $ | (626 | ) | $ | 99 | $ | 1,501 | $ | 454 | ||||||||
INVESTING ACTIVITIES | ||||||||||||||||||||
| Capital expenditures | (21 | ) | (162 | ) | (51 | ) | — | (234 | ) | |||||||||||
| Proceeds from sales of assets | — | 29 | 2 | — | 31 | |||||||||||||||
| Changes to investment in and advances to non-consolidated affiliates | — | — | — | — | — | |||||||||||||||
| Proceeds from loans receivable, net — related parties | — | (1 | ) | — | — | (1 | ) | |||||||||||||
| Net proceeds from settlement of derivative instruments | (5 | ) | 80 | 16 | — | 91 | ||||||||||||||
Net cash provided by (used in) investing activities | (26 | ) | (54 | ) | (33 | ) | — | (113 | ) | |||||||||||
FINANCING ACTIVITIES | ||||||||||||||||||||
| Proceeds from issuance of debt | ||||||||||||||||||||
| — third parties | 3,985 | — | — | — | 3,985 | |||||||||||||||
| — related parties | — | 1,681 | — | (1,681 | ) | — | ||||||||||||||
| Principal repayments | ||||||||||||||||||||
| — third parties | (1,530 | ) | (859 | ) | (100 | ) | — | (2,489 | ) | |||||||||||
| — related parties | (18 | ) | — | (18 | ) | 36 | — | |||||||||||||
| Short-term borrowings, net | ||||||||||||||||||||
| — third parties | — | (58 | ) | 2 | — | (56 | ) | |||||||||||||
| — related parties | (19 | ) | (124 | ) | (1 | ) | 144 | — | ||||||||||||
| Return of capital | (1,700 | ) | — | — | — | (1,700 | ) | |||||||||||||
| Dividends | ||||||||||||||||||||
| — noncontrolling interests | — | — | (18 | ) | — | (18 | ) | |||||||||||||
| Debt issuance costs | (193 | ) | — | — | — | (193 | ) | |||||||||||||
Net cash provided by (used in) financing activities | 525 | 640 | (135 | ) | (1,501 | ) | (471 | ) | ||||||||||||
| Net increase in cash and cash equivalents | (21 | ) | (40 | ) | (69 | ) | — | (130 | ) | |||||||||||
Effect of exchange rate changes on cash balances held in foreign currencies | — | (1 | ) | 5 | — | 4 | ||||||||||||||
| Cash and cash equivalents — beginning of period | 22 | 266 | 149 | — | 437 | |||||||||||||||
| Cash and cash equivalents — end of period | $ | 1 | $ | 225 | $ | 85 | $ | — | $ | 311 | ||||||||||
128
| As of March 31, 2011 | ||||||||||||||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 1 | $ | 225 | $ | 85 | $ | — | $ | 311 | ||||||||||
Accounts receivable, net of allowances - third parties | 31 | 920 | 529 | — | 1,480 | |||||||||||||||
- related parties | 640 | 319 | 89 | (1,020 | ) | 28 | ||||||||||||||
Inventories | 60 | 961 | 317 | — | 1,338 | |||||||||||||||
Prepaid expenses and other current assets | 2 | 40 | 8 | — | 50 | |||||||||||||||
Fair value of derivative instruments | 5 | 140 | 30 | (10 | ) | 165 | ||||||||||||||
Deferred income tax assets | — | 37 | 2 | — | 39 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 739 | 2,642 | 1,060 | (1,030 | ) | 3,411 | ||||||||||||||
Property, plant and equipment, net | 136 | 1,898 | 509 | — | 2,543 | |||||||||||||||
Goodwill | — | 600 | 11 | — | 611 | |||||||||||||||
Intangible assets, net | 5 | 699 | 3 | — | 707 | |||||||||||||||
Investments in and advances to non-consolidated affiliates | — | 743 | — | — | 743 | |||||||||||||||
Investments in consolidated subsidiaries | 1,273 | — | — | (1,273 | ) | — | ||||||||||||||
Fair value of derivative instruments, net of current portion | — | 16 | 3 | (2 | ) | 17 | ||||||||||||||
Deferred income tax assets | — | 39 | 13 | — | 52 | |||||||||||||||
Other long-term assets | 2,778 | 195 | 58 | (2,819 | ) | 212 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total assets | $ | 4,931 | $ | 6,832 | $ | 1,657 | $ | (5,124 | ) | $ | 8,296 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Current portion of long-term debt | $ | 15 | $ | 5 | $ | 1 | $ | — | $ | 21 | ||||||||||
Short-term borrowings | ||||||||||||||||||||
— third parties | — | — | 17 | — | 17 | |||||||||||||||
— related parties | 22 | 334 | 20 | (376 | ) | — | ||||||||||||||
Accounts payable | ||||||||||||||||||||
— third parties | 73 | 812 | 493 | — | 1,378 | |||||||||||||||
— related parties | 78 | 438 | 175 | (641 | ) | 50 | ||||||||||||||
Fair value of derivative instruments | 4 | 73 | 17 | (12 | ) | 82 | ||||||||||||||
Accrued expenses and other current liabilities | 119 | 332 | 119 | (2 | ) | 568 | ||||||||||||||
Deferred income tax liabilities | — | 43 | — | — | 43 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 311 | 2,037 | 842 | (1,031 | ) | 2,159 | ||||||||||||||
Long-term debt, net of current portion | ||||||||||||||||||||
— third parties | 4,019 | 46 | — | — | 4,065 | |||||||||||||||
— related parties | 97 | 2,644 | 77 | (2,818 | ) | — | ||||||||||||||
Deferred income tax liabilities | — | 542 | 10 | — | 552 | |||||||||||||||
Accrued postretirement benefits | 40 | 344 | 142 | — | 526 | |||||||||||||||
Other long-term liabilities | 19 | 336 | 6 | (2 | ) | 359 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 4,486 | 5,949 | 1,077 | (3,851 | ) | 7,661 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Commitments and contingencies | ||||||||||||||||||||
Shareholder’s equity | ||||||||||||||||||||
Common stock | — | — | — | — | — | |||||||||||||||
Additional paid-in capital | 1,830 | — | — | — | 1,830 | |||||||||||||||
Retained earnings (accumulated deficit) | (1,442 | ) | 892 | 434 | (1,326 | ) | (1,442 | ) | ||||||||||||
Accumulated other comprehensive income (loss) | 57 | (9 | ) | (44 | ) | 53 | 57 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total equity of our common shareholder | 445 | 883 | 390 | (1,273 | ) | 445 | ||||||||||||||
Noncontrolling interests | — | — | 190 | — | 190 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total equity | 445 | 883 | 580 | (1,273 | ) | 635 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities and equity | $ | 4,931 | $ | 6,832 | $ | 1,657 | $ | (5,124 | ) | $ | 8,296 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —– (Continued)
NOVELIS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
| Year Ended March 31, 2010 | ||||||||||||||||||||
| Non- | ||||||||||||||||||||
| Parent | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (16 | ) | $ | 564 | $ | 296 | $ | — | $ | 844 | |||||||||
INVESTING ACTIVITIES | ||||||||||||||||||||
| Capital expenditures | (7 | ) | (66 | ) | (28 | ) | — | (101 | ) | |||||||||||
| Proceeds from sales of assets | — | 1 | 4 | — | 5 | |||||||||||||||
| Changes to investment in and advances to non-consolidated affiliates | — | 3 | — | — | 3 | |||||||||||||||
| Proceeds from loans receivable, net — related parties | — | 4 | — | — | 4 | |||||||||||||||
| Net proceeds from settlement of derivative instruments | (3 | ) | (285 | ) | (107 | ) | — | (395 | ) | |||||||||||
Net cash provided by (used in) investing activities | (10 | ) | (343 | ) | (131 | ) | — | (484 | ) | |||||||||||
FINANCING ACTIVITIES | ||||||||||||||||||||
| Proceeds from issuance of debt | ||||||||||||||||||||
| — third parties | 177 | — | — | — | 177 | |||||||||||||||
| — related parties | 4 | — | — | — | 4 | |||||||||||||||
| Principal repayments | ||||||||||||||||||||
| — third parties | (3 | ) | (13 | ) | (51 | ) | — | (67 | ) | |||||||||||
| — related parties | (166 | ) | (76 | ) | (12 | ) | 159 | (95 | ) | |||||||||||
| Short-term borrowings, net | ||||||||||||||||||||
| — third parties | — | (172 | ) | (21 | ) | — | (193 | ) | ||||||||||||
| — related parties | 34 | 127 | (2 | ) | (159 | ) | — | |||||||||||||
| Dividends | ||||||||||||||||||||
| — noncontrolling interests | — | — | (13 | ) | — | (13 | ) | |||||||||||||
| Debt issuance costs | (1 | ) | — | — | — | (1 | ) | |||||||||||||
Net cash provided by (used in) financing activities | 45 | (134 | ) | (99 | ) | — | (188 | ) | ||||||||||||
| Net increase in cash and cash equivalents | 19 | 87 | 66 | — | 172 | |||||||||||||||
Effect of exchange rate changes on cash balances held in foreign currencies | — | 4 | 13 | — | 17 | |||||||||||||||
| Cash and cash equivalents — beginning of period | 3 | 175 | 70 | — | 248 | |||||||||||||||
| Cash and cash equivalents — end of period | $ | 22 | $ | 266 | $ | 149 | $ | — | $ | 437 | ||||||||||
129
| Year Ended March 31, 2012 | ||||||||||||||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 198 | $ | 620 | $ | 130 | $ | (392 | ) | $ | 556 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
INVESTING ACTIVITIES | ||||||||||||||||||||
Capital expenditures | (14 | ) | (339 | ) | (163 | ) | — | (516 | ) | |||||||||||
Proceeds from sales of assets | (1 | ) | 16 | 1 | — | 16 | ||||||||||||||
Proceeds from investment in and advances to non-consolidated affiliates, net | — | 2 | — | — | 2 | |||||||||||||||
Outflow from related party loans receivable, net | — | (3 | ) | — | — | (3 | ) | |||||||||||||
Proceeds from settlement of other undesignated derivative instruments, net | 3 | 36 | 20 | — | 59 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) investing activities | (12 | ) | (288 | ) | (142 | ) | — | (442 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
FINANCING ACTIVITIES | ||||||||||||||||||||
Proceeds from issuance of debt | ||||||||||||||||||||
— third parties | 216 | 12 | 43 | — | 271 | |||||||||||||||
— related parties | — | 348 | — | (348 | ) | — | ||||||||||||||
Principal repayments | ||||||||||||||||||||
— third parties | (16 | ) | (6 | ) | — | — | (22 | ) | ||||||||||||
— related parties | (22 | ) | (513 | ) | (22 | ) | 557 | — | ||||||||||||
Short-term borrowings, net | ||||||||||||||||||||
— third parties | — | 1 | 1 | — | 2 | |||||||||||||||
— related parties | (13 | ) | (181 | ) | 11 | 183 | — | |||||||||||||
Return of capital | — | — | — | — | — | |||||||||||||||
Dividends noncontrolling interests | — | — | (1 | ) | — | (1 | ) | |||||||||||||
Acquisition of noncontrolling interest in Novelis Korea, Ltd. | (344 | ) | — | — | — | (344 | ) | |||||||||||||
Debt issuance costs | (2 | ) | — | — | — | (2 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) financing activities | (181 | ) | (339 | ) | 32 | 392 | (96 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase in cash and cash equivalents | 5 | (7 | ) | 20 | — | 18 | ||||||||||||||
Effect of exchange rate changes on cash | — | (19 | ) | 7 | — | (12 | ) | |||||||||||||
Cash and cash equivalents — beginning of period | 1 | 225 | 85 | — | 311 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash and cash equivalents — end of period | $ | 6 | $ | 199 | $ | 112 | $ | — | $ | 317 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOVELIS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
| Year Ended March 31, 2011 | ||||||||||||||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (520 | ) | $ | (626 | ) | $ | 99 | $ | 1,501 | $ | 454 | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
INVESTING ACTIVITIES | ||||||||||||||||||||
Capital expenditures | (21 | ) | (162 | ) | (51 | ) | — | (234 | ) | |||||||||||
Proceeds from sales of assets | — | 29 | 2 | — | 31 | |||||||||||||||
Changes to investment in and advances to non-consolidated affiliates | — | — | — | — | — | |||||||||||||||
Proceeds from loans receivable, net — related parties | — | (1 | ) | — | — | (1 | ) | |||||||||||||
Net proceeds from settlement of derivative instruments | (5 | ) | 80 | 16 | — | 91 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) investing activities | (26 | ) | (54 | ) | (33 | ) | — | (113 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
FINANCING ACTIVITIES | ||||||||||||||||||||
Proceeds from issuance of debt | ||||||||||||||||||||
— third parties | 3,985 | — | — | — | 3,985 | |||||||||||||||
— related parties | — | 1,681 | — | (1,681 | ) | — | ||||||||||||||
Principal repayments | ||||||||||||||||||||
— third parties | (1,530 | ) | (859 | ) | (100 | ) | — | (2,489 | ) | |||||||||||
— related parties | (18 | ) | — | (18 | ) | 36 | — | |||||||||||||
Short-term borrowings, net | ||||||||||||||||||||
— third parties | — | (58 | ) | 2 | — | (56 | ) | |||||||||||||
— related parties | (19 | ) | (124 | ) | (1 | ) | 144 | — | ||||||||||||
Return of capital | (1,700 | ) | — | — | — | (1,700 | ) | |||||||||||||
Dividends noncontrolling interests | — | — | (18 | ) | — | (18 | ) | |||||||||||||
Debt issuance costs | (193 | ) | — | — | — | (193 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) financing activities | 525 | 640 | (135 | ) | (1,501 | ) | (471 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase in cash and cash equivalents | (21 | ) | (40 | ) | (69 | ) | — | (130 | ) | |||||||||||
Effect of exchange rate changes on cash | — | (1 | ) | 5 | — | 4 | ||||||||||||||
Cash and cash equivalents — beginning of period | 22 | 266 | 149 | — | 437 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash and cash equivalents — end of period | $ | 1 | $ | 225 | $ | 85 | $ | — | $ | 311 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOVELIS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
| Year Ended March 31, 2010 | ||||||||||||||||||||
| Parent | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (16 | ) | $ | 564 | $ | 296 | $ | — | $ | 844 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
INVESTING ACTIVITIES | ||||||||||||||||||||
Capital expenditures | (7 | ) | (66 | ) | (28 | ) | — | (101 | ) | |||||||||||
Proceeds from sales of assets | — | 1 | 4 | — | 5 | |||||||||||||||
Changes to investment in and advances to non-consolidated affiliates | — | 3 | — | — | 3 | |||||||||||||||
Proceeds from loans receivable, net — related parties | — | 4 | — | — | 4 | |||||||||||||||
Net proceeds from settlement of derivative instruments | (3 | ) | (285 | ) | (107 | ) | — | (395 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) investing activities | (10 | ) | (343 | ) | (131 | ) | — | (484 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
FINANCING ACTIVITIES | ||||||||||||||||||||
Proceeds from issuance of debt | ||||||||||||||||||||
— third parties | 177 | — | — | — | 177 | |||||||||||||||
— related parties | 4 | — | — | — | 4 | |||||||||||||||
Principal repayments | ||||||||||||||||||||
— third parties | (3 | ) | (13 | ) | (51 | ) | — | (67 | ) | |||||||||||
— related parties | (166 | ) | (76 | ) | (12 | ) | 159 | (95 | ) | |||||||||||
Short-term borrowings, net | ||||||||||||||||||||
— third parties | — | (172 | ) | (21 | ) | — | (193 | ) | ||||||||||||
— related parties | 34 | 127 | (2 | ) | (159 | ) | — | |||||||||||||
Dividends noncontrolling interests | — | — | (13 | ) | — | (13 | ) | |||||||||||||
Debt issuance costs | (1 | ) | — | — | — | (1 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by (used in) financing activities | 45 | (134 | ) | (99 | ) | — | (188 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase in cash and cash equivalents | 19 | 87 | 66 | — | 172 | |||||||||||||||
Effect of exchange rate changes on cash | — | 4 | 13 | — | 17 | |||||||||||||||
Cash and cash equivalents — beginning of period | 3 | 175 | 70 | — | 248 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash and cash equivalents — end of period | $ | 22 | $ | 266 | $ | 149 | $ | — | $ | 437 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| Item 9. | Changes |
None.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, include controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.
As required by Securities and Exchange Commission rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. This evaluation was carried out under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer. Based on this evaluation, our management, including our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2011.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance as to the reliability of the Company’s financial reporting and the preparation of financial statements in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2011.2012. In making this assessment, management used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in“Internal Control — Integrated Framework.”Based on its assessment, management has concluded that, as of March 31, 2011,2012, the Company’s internal control over financial reporting was effective based on those criteria.
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Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Our Directors
Our Board of Directors is currently comprised of five directors. All of our directors were appointed by our sole shareholder, Hindalco. Our directors’ terms will expire at each annual shareholders meeting provided that if an election of directors is not held at an annual meeting of the shareholders, the directors then in office shall continue in office or until their successors shall be elected. Biographical details for each of our directors are set forth below.
Name | Director Since | Age | Position | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Kumar Mangalam Birla | May 15, 2007 | 44 | Chairman of the | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Askaran Agarwala(B) | May 15, 2007 | 78 | Director | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
D. Bhattacharya(A)(B) | May 15, 2007 | 63 | Director and Vice Chairman of the
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (A) | Member of our Audit Committee. | |
| (B) | Member |
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Mr. Kumar Mangalam Birlawas elected as the Chairman of the Board of Directors of Novelis on May 15, 2007. Mr. Birla is the Chairman of Hindalco Industries Limited which is an industry leader in aluminum and copper. He is also the Chairman of Aditya Birla Group’s leading blue-chip companies: Grasim, UltraTech Cement, Aditya Birla Nuvo and Idea Cellular and globally — Novelis, Aditya Birla Chemicals (Thailand) Limited, Indo Phil Textile Mills Inc. Philippines, ect. Mr. Birla also serves as director on the board of the Group’s international companies spanning Thailand, Indonesia, Philippines, Egypt, and Canada. Additionally, Mr. Birla serves on the board of the G.D. Birla Medical Research & Education Foundation, and is a Chancellor of the Birla Institute of Technology & Science, Pilani. He is a member of the London Business School’s Asia Pacific Advisory Board. He is a part time nonofficial director on Central Board of Reserve Bank of India. Mr. Birla’s past affiliations include service on the boards of Indian Aluminum Company Limited, Maruti Udyog Limited, Indo Gulf Fertilisers Limited and Tata Iron and Steel Limited. Mr. Birla brings to the board significant global leadership experience acquired through his service as a director of numerous corporate, professional and regulatory entities in various regions of the world. Mr. Birla provides valuable insight into the business and political conditions in which we conduct our global operations.
Askaran Agarwalahas served as a Director of Hindalco since July 2004. He was Chairman of the Business Review Council of the Aditya Birla Group from October 2003 to March 2010. From 1982 to October 2003, he was President and full time director of Hindalco. Mr. Agarwala serves on the Compensation Committee of the Novelis Board of Directors. Mr. Agarwala also serves as a director of several other companies including Udyog Services Ltd., Aditya Birla Chemicals (India) Limited formerly known as Bihar Caustic & Chemicals Ltd., Tanfac Industries Ltd., and Aditya Birla Insurance Brokers Ltd. (formerly know an Birla Insurance Advisory Services Limited). He is a Trustee of G.D. Birla Medical Research and Education Foundation, Vaibhav Medical and Education Foundation, Sarla Basant Birla Memorial Trust and Aditya Vikram Birla Memorial Trust. Mr. Agarwala has served as a director of Renusagar Engineering & Power Services Limited, Rosa Power Supply Company Ltd., Aditya Birla Science & Technology Company Limited and Bina Power Supply Company Limited. Mr. Agarwala’s past and current service as a director of several companies and industry associations in the metals and manufacturing industries adds a valuable perspective to the board. Having served as president of our parent company, Hindalco Industries, Mr. Agarwala also brings a depth of understanding of our business and operations.
Mr. Debnarayan Bhattacharyahas served as Managing Director of Hindalco since 2004. Mr. Bhattacharya is Vice Chairman of Novelis and serves on the Audit and Compensation Committees of the Novelis Board of Directors. He is the Chairman of Utkal Alumina International Limited and of Aditya Birla Minerals Limited in Australia. Mr. Bhattacharya also serves as a Director of Aditya Birla Management Corporation Private Ltd., and Pidilite Industries Limited. In addition, he has served as a director of Aditya Birla Science & Technology Company Limited and Hindalco Almex-Aerospace Limited. Mr. Bhattacharya’s extensive knowledge of the aluminum and metals industries provides a valuable resource to the company in the setting and implementation of its operating business plans as the company considers various strategic alternatives. Mr. Bhattacharya brings to the board a high degree of financial literacy.
Clarence J. Chandranhas been a director of the Company since 2005. Mr. Chandran serves on the Compensation and Audit Committees of the Novelis Board of Directors, and acts as the Chairman of the Compensation Committee. He is a director of Windtronics LLC and Windtronics India Pvt. Ltd. Mr. Chandran is Executive Chairman of 4Front Capital Partners Inc. and GreenEdge Capital Partners. Mr. Chandran serves as Venture Partner of The Walsingham Growth Fund. He is a past director of Marfort Deep Sea Technologies Inc. and is a past director of Alcan Inc. and MDS Inc. He retired as Chief Operating Officer of Nortel Networks Corporation (communications) in 2001. Mr. Chandran is a member of the Board of Visitors of the Pratt School of Engineering at Duke University. Mr. Chandran has acquired years of significant experience through his leadership and management of companies with international business operations. Mr. Chandran brings to the board his deep knowledge in the areas of technology, sales, global operations, mergers & acquisitions and joint ventures.
Donald A. Stewartis the retired Chief Executive Officer and Director of Sun Life Financial Inc. and Sun Life Assurance Company of Canada. Mr. Stewart serves on the Audit Committee of the Novelis Board of Directors and serves as its Chairman. Mr. Stewart also serves as the Chairman of Sun Life Assurance Company of Canada (UK) and of Birla Sun Life Asset Management Company. He is a director of Birla Sun Life Insurance Company and of Sun Life Everbright Life Insurance Company. His past affiliations include service as a director of the American Council of Life Insurers, the Canadian Life and Health Insurance Association, CI Financial Corp. and the Geneva Association. Mr. Stewart brings extensive financial management and operating experience to the board.
Our Executive Officers
The following table sets forth information for persons currently serving as executive officers of our company. Biographical details for each of our executive officers are also set forth below.
Name | Age | Position | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Philip Martens | 52 | President and Chief Executive Officer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Steven Fisher | 41 | Senior Vice President and | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shashi Maudgal | 58 | Senior Vice President and | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Antonio Tadeu Coelho Nardocci | 54 | Senior Vice President and | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Marco Palmieri | 55 | Senior Vice President and | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas Walpole | 57 | Senior Vice President and | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leslie Joyce | 51 | Senior Vice President and | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John Clark | 53 | Chief Technical Officer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nicholas Madden | 55 | Senior Vice President and | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Erwin Mayr | 42 | Senior Vice President and
Karen Renner 50 | Vice President and Chief | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Philip Martenswas appointed President and Chief Executive Officer effective February 3, 2011, and previously served as President and Chief Operating Officer since May 8, 2009. Prior to joining Novelis, Mr. Martens most recently served as Senior Vice President and President, Light Vehicle Systems, ArvinMeritor Inc. from September 2006 to January 2009. He was also President and CEO designate, Arvin Innovation. Prior to that, he served as President and Chief Operating Officer of Plastech Engineered Products from 2005 to 2006. From 1987 to 2005, he held various engineering and leadership positions at Ford Motor Company, most recently serving as Group Vice President of Product Creation. He is also a member of the board of directors of Plexus Corp. since September 2010. Mr. Martens holds a degree in mechanical engineering from Virginia Polytechnic Institute and State University and an M.B.A. from the University of Michigan. In 2003, Mr. Martens received a Doctorate in Automotive Engineering from Lawrence Technological University for his extensive contributions to the global automotive industry.
Steven Fisheris our Senior Vice President and Chief Financial Officer. Mr. Fisher joined Novelis in February 2006 as Vice President, Strategic Planning and Corporate Development. He was appointed Chief Financial Officer in May 2007 following the acquisition of Novelis by Hindalco. Mr. Fisher served as Vice President and Controller for TXU Energy, the non-regulated subsidiary of TXU Corp. from July 2005 to February 2006. Prior to joining TXU Energy, Mr. Fisher served in various senior finance roles at Aquila, Inc., an international electric and gas utility and energy trading company, including Vice President, Controller and Strategic Planning, from 2001 to 2005. He is also a member of the board of directors of Lionbridge Technologies, Inc. since 2009. Mr. Fisher is
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Alexandre AlmeidaShashi Maudgalis ajoined Novelis May 14, 2012, as Senior Vice President and President Novelis South America. Prior to this appointment in August 2008, Mr. Almeida had served as Chief Financial Officer of Novelis South America beginning in January 2005. Formerly, he was Managing Director of Alcan Composites Brasil Ltda. from 2003 to 2005 andAsia. Mr. Maudgal was previously Chief Operating Officer and Chief FinancialMarketing Officer for Líder Aviacao (formerly Linder Taxi Aereo S.A).Hindalco Industries Limited, an Aditya Birla Group company, from February 2001 to May 2012. During his tenure at Hindalco, Maudgal built and led the company’s marketing department, led the European due diligence process during the Hindalco acquisition of Novelis in 2007, and served as a member of the executive leadership team in setting strategic direction. In addition, Mr. Almeida holds a degree in Metallurgical Engineering and a Masters Degree in Computer Science from Universidade Federal de Minas Gerais, and also a postgraduate degree in Finance Administration from João Pinheiro Foundation.
Antonio Tadeu Coelho Nardoccihas served as our Senior Vice President and President, Novelis Europe since June 2009. He previously served as our Senior Vice President, Strategy, Innovation and Technology from August 2008 to June 2009, and as Senior Vice President and President of our South American operations from February 2005 to August 2008. Prior to our spin-off from Alcan, Mr. Nardocci held a number of leadership positions with Alcan, most recently serving as President of Rolled Products South America from March 2002 until January 2005. Mr. Nardocci graduated from the University of São Paulo in Brazil with a degree in metallurgy. Mr. Nardocci is the Chairman of the Executive Committee of the European Aluminium Association.
Marco Palmierihas served as our Senior Vice President and President, Novelis South America since August 2011. Prior to joining Novelis, Marco spent more than 30 years in the metals and engineering industries, including more than 25 years with Rio Tinto Alcan, where he held a succession of international leadership positions in various areas, including business development, primary metal and energy production. Marco was most recently Aluminum Business Director for Votorantim Metais Ltd.
Thomas Walpolehasis our Senior Vice President and President, Novelis North America since February 2012. Mr. Walpole previously served as our Senior Vice President, Global Manufacturing Excellence and President, Novelis Asia effectivefrom April 20, 2011 until February 2012, and previousserved as Senior Vice President and the President, Novelis Asia since June 25, 2009. Mr. Walpole wasfrom 2006 to 2011. Prior to that he served as our Vice President and General Manager, Can Products Business Unit, from January 2005 until February 2006. Mr. Walpole joined Alcan in 1979 and has held various senior management roles. Mr. Walpole held international positions within Alcan in Europe and Asia until 2004. He began as Vice President, Sales, Marketing & Business Development for Alcan Taihan Aluminum Ltd. and most recently was President of the Litho/Can and Painted Products for the European region. Mr. Walpole graduated from State University of New York at Oswego with a B.S. in Accounting, and holds an M.B.A. from Case Western Reserve University.
Eric DrummondJohn Clarkhas served as our Chief People and CommunicationsTechnical Officer since November 2009. PriorApril 2012. Mr. Clark joined Novelis in April 2010 to joininglead the global engineering group. In April 2011, he was appointed Vice President, Operational Excellence. Most recently, he has taken on the additional role of interim leader for the Global Manufacturing Services group. Mr. Clark has more than 30 years of industry experience, having begun his career with Alcoa as a mechanical engineer at Davenport Works in Iowa. He went on to roles of increasing responsibility with Alcoa in North America and Europe, culminating in his role as Vice President of Operations for Alcoa China Rolled Products. Mr. Clark graduated from Purdue University with B.S. in Mechanical Engineering.
Leslie W. Joyce has served as our company, heSenior Vice President and Chief People Officer since September 2011. Dr. Joyce previously served as Vice President, Global Human Resources for the National Basketball AssociationTalent Management from April 20072009 to November 2009.2011. Prior to joining Novelis in 2009, she was employed by The Home Depot where she served as Vice President and Chief Learning Officer from 2004 to 2008 and Senior Director, Organization Effectiveness from 2002 to 2004. Before that, Mr. Drummond served in various leadershipshe held positions of increasing responsibility with BOC Linde Gases from November 2003 to March 2007. Mr. Drummond holdsGlaxoSmithKline, a B.S., Employee and International Relationsleading global pharmaceutical company. Dr. Joyce earned a Masters of Science, and a Masters degreeDoctorate from North Carolina State University in LaborIndustrial and Industrial Relations, both from Michigan State University.
Nicholas Maddenis our Senior Vice President and Chief Procurement Officer. Prior to this role, which he assumed in October 2006,January 2012, Mr. Madden served as Vice President and Chief Procurement Officer from October 2006 until December 2011 and President of Novelis Europe’s Can, Litho and Recycling business unit beginning in October 2004. He was Vice President of Metal Management and Procurement for Alcan Rio Tinto Alcan’sTinto’s Rolled Products division in Europe from December 2000 until September 2004 and was also responsible for the secondary recycling business. Mr. Madden holds a B.Sc. (Hons) degree in Economics and Social Studies from University College in Cardiff, Wales.
Erwin Mayrhas served as our Senior Vice President and Chief Strategy and Commercial Officer effective April 20, 2011, and previously served as our Senior Vice President and Chief Strategy Officer since October 2009. He previously held a number of leadership positions within our European operations, including Business Unit President, Advanced Rolled Products, from 2002 until 2009. Prior to joining our company in 2002, Mr. Mayr was an associate partner with the consulting firm Monitor Group. Mr. Mayr earned his Ph.D., Physics from Ulm University (Germany).
Randal P. Milleris our Vice President, Treasurer. Prior to joining Novelis in July 2008, Mr. Miller served as Vice President and Treasurer of Transocean Offshore Deepwater Drilling from May 2006 to November 2007 where he was responsible for all treasury,
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Robert Nelsonis our Vice President, Controller and Chief Accounting Officer. Mr. Nelson served as the Acting Controller of Novelis Inc. beginning in July 2008 and was appointed Vice President, Controller and Chief Accounting Officer in November 2008. Previously, he worked for 22 years at Georgia Pacific, one of the world’s leading manufacturers of tissue, pulp, paper, packaging, and building products. Mr. Nelson served in a variety of corporate and operational financial roles at Georgia Pacific, most recently as Vice President and Controller from 2004 to 2006. Prior to that, he was Vice President Finance, Consumer Products & Packaging. Mr. Nelson earned a degree in Accountancy from the University of Illinois — Urbana — Champaign and is a Certified Public Accountant in the State of Georgia.
Leslie J. Parrette, Jr.rejoined our company in October 2009 to serve as our Senior Vice President, General Counsel and Compliance Officer, and he was appointed Corporate Secretary in February 2010. Before rejoining our company, Mr. Parrette served as Senior Vice President, Legal Affairs and General Counsel for WESCO International, Inc. (formerly Westinghouse Electric Supply Co.) (electrical product distribution) from March 2009 until October 2009. From March 2005 until March 2009, he served as our Senior Vice President, General Counsel, Secretary and Compliance Officer. Prior to that, Mr. Parrette served as Senior Vice President, General Counsel and Secretary for Aquila, Inc. (gas and electric utility; energy trading) from July 2000 until February 2005. Mr. Parrette holds an A.B. in Sociology from Harvard College and received his J.D. from Harvard Law School.
Karen Rennerhas served as our Vice President and Chief Information Officer since October 2010, and is a member of the Executive Committee. Prior to joining Novelis, Ms. Renner worked at General Electric Company where she spent the last 18 years in progressively senior IT leadership roles, including CIO of GE Digital Energy, GE Security and GE Share Services/Quality. Ms. Renner earned both her undergraduate and Master’s degree in Industrial Engineering from Auburn University as well as an M.B.A. from Georgia State University.
Board of Directors and Corporate Governance Matters
We are committed to our corporate governance practices, which we believe are essential to our success and to the enhancement of shareholder value. Our Senior Notes are publicly traded in the U.S., and, accordingly, we make required filings with U.S. securities regulators. We make these filings available on our website at www.novelis.com as soon as reasonably practicable after they are electronically filed. We are subject to a variety of corporate governance and disclosure requirements. Our corporate governance practices meet applicable regulatory requirements to ensure transparency and effective governance of the Company.
Our Board of Directors annually reviews corporate governance practices in light of developing requirements in this field. As new provisions come into effect, our Board of Directors will reassess our corporate governance practices and implement changes as and when appropriate. The following is an overview of our corporate governance practices.
Novelis Board of Directors
Our Board of Directors currently has five members, all of whom are appointed by our sole shareholder. Our Board of Directors has the responsibility for stewardship of Novelis Inc., including the responsibility to ensure that we are managed in the interest of our sole shareholder, while taking into account the interests of other stakeholders. Our Board of Directors supervises the management of our business and affairs and discharges its duties and obligations in accordance with the provisions of: (1) our articles of incorporation and bylaws; (2) the charters of its committees and (3) other applicable legislation and company policies.
Our corporate governance practices require that, in addition to certain statutory duties, the following matters be subject to our Board of Directors’ approval: (1) capital expenditure budgets and significant investments and divestments; (2) our strategic and value-maximizing plans; (3) the number of directors within the limits provided by our by-laws and (4) any matter which may have the potential for substantial impact on our Company. Our Board of Directors reviews the composition and size of our Board of Directors once a year. Senior management makes regular presentations to our Board of Directors on the main areas of our business.
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Holders of our Senior Notes and other interested parties may communicate with the Board of Directors, a committee or an individual director by writing to Novelis Inc., Two Alliance Center, 3560 Lenox Road N.E., Suite 2000, Atlanta, GA 30326, Attention: Corporate Secretary — Board Communication. All such communications will be compiled by the Corporate Secretary and submitted to the appropriate director or board committee. The Corporate Secretary will reply or take other actions in accordance with instructions from the applicable board contact.
Committees of Our Board of Directors
Our Board of Directors has established two standing committees: the Audit Committee and the Compensation Committee. Each committee is governed by its own charter.
According to their authority as set out in their charters, our Board of Directors and each of its committees may engage outside advisors at the expense of Novelis.
Audit Committee and Financial Experts
Our Board of Directors has established an Audit Committee. Messrs. Stewart, Bhattacharya and Chandran are the members of the Audit Committee. Mr. Stewart, an independent director, has been identified as an “audit committee financial expert” as that term is defined in the rules and regulations of the SEC.
Our Audit Committee’s main objective is to assist our Board of Directors in fulfilling its oversight responsibilities for the integrity of our financial statements, our compliance with legal and regulatory requirements, the qualifications and independence of our independent registered public accounting firm and the performance of both our internal audit function and our independent registered public accounting firm. Under the Audit Committee charter, the Audit Committee is responsible for, among other matters:
evaluating and compensating our independent registered public accounting firm;
making recommendations to the Board of Directors and shareholders relating to the appointment, retention and termination of our independent registered public accounting firm;
discussing with our independent registered public accounting firm their qualifications and independence from management;
reviewing with our independent registered public accounting firm the scope and results of their audit;
pre-approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;
reviewing areas of potential significant financial risk and the steps taken to monitor and manage such exposures;
overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC; and
reviewing and monitoring our accounting principles, accounting policies and disclosure, internal control over financial reporting and disclosure controls and procedures.
Compensation Committee
Our Compensation Committee establishes our general compensation philosophy and oversees the development and implementation of compensation policies and programs. It also reviews and approves the level of and/or changes in the compensation of individual executive officers taking into consideration individual performance and competitive compensation practices. The committee’s specific roles and responsibilities are set out in its charter. Our Compensation Committee periodically reviews the effectiveness of our overall
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Code of Conduct and Guidelines for Ethical Behavior
Novelis has adopted a Code of Conduct for the Board of Directors and Senior Managers and maintains a Code of Ethics for Senior Financial Officers that applies to our senior financial officers including our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions. We also maintain a Code of Conduct that governs all of our employees. Copies of the Code of Conduct for the Board of Directors and Senior Managers and the Code of Ethics for Senior Financial Officers are available on our website at www.novelis.com. We will promptly disclose any future amendments to these codes on our website as well as any waivers from these codes for executive officers and directors. Copies of these codes are also available in print from our Corporate Secretary upon request.
This section provides a discussion of the background and objectives of our compensation programs for senior management, as well as a discussion of all material elements of the compensation of each of the named executive officers for fiscal 20112012 identified in the following table. The named executive officers are determined in accordance with SEC rules and include our principal executive officer, our principal financial officer, and the three other highest paid executive officers that were employed on March 31, 2011.
Named Executive Officer | Title | |
Philip Martens | President and Chief Executive Officer | |
Steven Fisher | Senior Vice President and Chief Financial Officer | |
Tadeu Nardocci | Senior Vice President and President of Novelis Europe | |
Thomas Walpole | Senior Vice President and President of Novelis North America | |
Erwin Mayr | Senior Vice President and Chief Strategy and Commercial Officer | |
Compensation Committee and Role of Management
The Compensation Committee of our board of directors (the Committee) is responsible for approving the compensation programs for our named executive officers and making decisions regarding specific compensation to be paid or awarded to them. The Committee acts pursuant to a charter approved by our board.
Our Chief People Officer serves as the management liaison officer for the Committee. Our human resources and legal departments provide assistance to the Committee in the administration of the Committee’s responsibilities.
Our named executive officers have no direct role in setting their own compensation. The Committee, however, normally meets with our management team to evaluate performance against pre-established goals, and management makes recommendations to the board regarding budgets, which affect certain goals. Our President and Chief Executive Officer also makes recommendations regarding compensation matters related to other named executive officers and provides input regarding executive compensation programs and policies generally.
Management also assists the Committee by providing information needed or requested by the Committee (such as our performance against budget and objectives, historic compensation, compensation expense, policies and programs, and peer company metrics) and by providing input and advice regarding compensation programs and policies and their impact on the Company and its executives.
With the assistance of management, the Committee develops an annual agenda to assist it in fulfilling its responsibilities. In the first quarter of each fiscal year, the Committee (1) reviews prior year performance and authorizes the distribution of short-term incentive and long-term incentive pay-outs, if any, for the prior year, (2) reviews base pay and short-term incentive targets for executives for the current year, and (3) recommends to the board of directors the form of award and performance criteria for the current cycle of the long-term incentive program. The Committee may deviate from the above practice when appropriate under the circumstances.
The Committee did not engage a third party compensation consultant to assist in developing our fiscal 20112012 compensation program. However, management worked with Mercer LLC (a global human resource consulting firm) to evaluate and benchmark our
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Objectives and Design of Our Compensation Program
Our executive compensation program is designed to attract, retain, and reward talented executives who will contribute to our long-term success and thereby build value for our shareholder. The program is organized around three fundamental principles:
| • | Provide Total Cash and Total Direct Compensation Opportunities That Are Competitive with Similar Positions at Comparable Companies: To enable us to attract, motivate and retain qualified executives, total cash compensation (base pay and annual short-term incentives) and total direct compensation opportunities for each executive (base pay, annual short-term incentives and long-term incentives) are targeted at levels to be competitive with similar positions at comparable companies. |
| • | A Substantial Portion of Total Direct Compensation Should Be at Risk Because It Is Performance-Based: We believe executives should be rewarded for their performance. Consequently, a substantial portion of an executive’s total direct compensation should be at risk, with amounts actually paid dependent on performance against pre-established objectives for the individual and the Company. The portion of an individual’s total direct compensation that is based upon these performance objectives should increase as the individual’s business responsibilities increase. |
| • | A Substantial Portion of Total Direct Compensation Should be Delivered in the Form of Long-Term Performance Based Awards: We believe a long-term stake in the sustained performance of Novelis effectively aligns executive and shareholder interests and provides motivation for enhancing shareholder value. |
The Committee recognizes that the engagement of strong talent in critical functions may entail recruiting new executives and involve negotiations with individual candidates. As a result, the Committee may determine in a particular situation that it is in our best interests to negotiate a compensation package that deviates from the principles set forth above.
Key Elements of Our Compensation Program
Our compensation program consists of four key elements: base pay, short-term (annual) incentives, long-term incentives, and employee benefits. The Committee, at least annually, compares the competitiveness of these key elements to that of companies in our peer group and to publicly available market data. Our general goal is to be at or near the 50th percentile among our peer group for total cash compensation and the 50th percentile for total direct compensation. In fiscal 2011,2012, this review revealed that, in the aggregate, total cash compensation for our executive officers was at our target and total direct compensation opportunity for our executive officers was below our target.
Base Pay. Based on market practices, the Committee believes it is appropriate that some portion of total direct compensation be provided in a form that is fixed and liquid.fixed. Base salary for our named executive officers is generally reviewed by the Committee in the first quarter of each fiscal year and any increases are generally effective on July 1. In setting base salary, the Committee is mindful of its overall goal for allocation of total compensation to base pay and considers the median base salary for comparable positions at companies in our peer group.
Short-Term (Annual) Incentives. We believe having an annual incentive opportunity is necessary to attract, retain and reward key employees. Our general philosophy is that annual cash incentives should be primarily based on achievement of Company-wide business goals. The Committee also retains the discretion to adjust, up or down, annual cash incentives earned based on the Committee’s subjective assessment of individual performance. Annual incentives should be consistent with the strategic goals set by the board, and performance benchmarks should be sufficiently ambitious so as to provide meaningful incentive to our executive officers.
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The table below shows for each named executive officer, the target AIP bonus amount, the applicable performance objectives and relevant weightings, target and actual performance for each goal and the amount earned based on actual performance.
2012 AIP
| Actual | ||||||||||||||||||||||
| Target | Performance | |||||||||||||||||||||
| Bonus | As a Percentage of | |||||||||||||||||||||
| as Percentage of | Performance | Performance | Targeted | Actual | Target | |||||||||||||||||
Name | Salary | Objective | Weighting | Performance (A) | Performance (A) | Performance | ||||||||||||||||
| Philip Martens | 120% | (E) | EBITDA(B) | 40 | % | 369,000 | 468,000 | 126.8 | % | |||||||||||||
| Cash Flow (C) | 40 | % | 369,000 | 621,188 | 168.3 | % | ||||||||||||||||
| EHS (D) | 10 | % | 92,250 | 92,035 | 99.8 | % | ||||||||||||||||
| Individual | 10 | % | 92,250 | 184,500 | 200.0 | % | ||||||||||||||||
| Steven Fisher | 75 | % | EBITDA(B) | 40 | % | 140,400 | 178,068 | 126.8 | % | |||||||||||||
| Cash Flow (C) | 40 | % | 140,400 | 236,355 | 168.3 | % | ||||||||||||||||
| EHS (D) | 10 | % | 35,100 | 35,018 | 99.8 | % | ||||||||||||||||
| Individual | 10 | % | 35,100 | 42,120 | 120.0 | % | ||||||||||||||||
| Tadeau Nardocci | 65 | % | EBITDA(B) | 40 | % | 109,100 | 138,371 | 126.8 | % | |||||||||||||
| Cash Flow (C) | 40 | % | 109,100 | 183,663 | 168.3 | % | ||||||||||||||||
| EHS (D) | 10 | % | 27,275 | 27,211 | 99.8 | % | ||||||||||||||||
| Individual | 10 | % | 27,275 | 27,275 | 100.0 | % | ||||||||||||||||
| Erwin Mayr | 50 | % | EBITDA (B) | 40 | % | 94,182 | 119,450 | 126.8 | % | |||||||||||||
| Cash Flow (C) | 40 | % | 94,182 | 158,549 | 168.3 | % | ||||||||||||||||
| EHS (D) | 10 | % | 23,546 | 23,491 | 99.8 | % | ||||||||||||||||
| Individual | 10 | % | 23,546 | 28,255 | 120.0 | % | ||||||||||||||||
| Jean-Marc Germain | 65 | % | EBITDA (B) | 40 | % | 104,098 | 132,026 | 126.8 | % | |||||||||||||
| Cash Flow (C) | 40 | % | 104,098 | 175,241 | 168.3 | % | ||||||||||||||||
| EHS (D) | 10 | % | 26,024 | 25,964 | 99.8 | % | ||||||||||||||||
| Individual | 10 | % | 26,024 | 52,049 | 200.0 | % | ||||||||||||||||
Name | Target Bonus as Percentage of Salary | Performance Objective | Performance Weighting | Targeted Performance (A) | Actual Performance (A) | Actual Performance As a Percentage of Target Performance | ||||||||||||||||
Philip Martens | 120 | % | EBITDA (B) | 60 | % | 655,344 | 511,824 | 78.1 | % | |||||||||||||
| Cash Flow (C) | 20 | % | 218,448 | 167,768 | 76.8 | % | ||||||||||||||||
| EHS (D) | 10 | % | 109,224 | 154,006 | 141.0 | % | ||||||||||||||||
| Individual | 10 | % | 109,224 | 131,069 | 120.0 | % | ||||||||||||||||
Steven Fisher | 75 | % | EBITDA (B) | 60 | % | 225,000 | 175,725 | 78.1 | % | |||||||||||||
| Cash Flow (C) | 20 | % | 75,000 | 57,600 | 76.8 | % | ||||||||||||||||
| EHS (D) | 10 | % | 37,500 | 52,875 | 141.0 | % | ||||||||||||||||
| Individual | 10 | % | 37,500 | 37,500 | 100.0 | % | ||||||||||||||||
Tadeu Nardocci | 65 | % | EBITDA (B) | 60 | % | 186,945 | 146,004 | 78.1 | % | |||||||||||||
| Cash Flow (C) | 20 | % | 62,315 | 47,858 | 76.8 | % | ||||||||||||||||
| EHS (D) | 10 | % | 31,158 | 43,932 | 141.0 | % | ||||||||||||||||
| Individual | 10 | % | 31,158 | 37,389 | 120.0 | % | ||||||||||||||||
Thomas Walpole | 57 | % | EBITDA (B) | 60 | % | 119,700 | 93,486 | 78.1 | % | |||||||||||||
| Cash Flow (C) | 20 | % | 39,900 | 30,643 | 76.8 | % | ||||||||||||||||
| EHS (D) | 10 | % | 19,950 | 28,130 | 141.0 | % | ||||||||||||||||
| Individual | 10 | % | 19,950 | 19,950 | 100.0 | % | ||||||||||||||||
Erwin Mayr | 50 | % | EBITDA (B) | 60 | % | 161,383 | 126,040 | 78.1 | % | |||||||||||||
| Cash Flow (C) | 20 | % | 53,794 | 41,314 | 76.8 | % | ||||||||||||||||
| EHS (D) | 10 | % | 26,897 | 37,925 | 141.0 | % | ||||||||||||||||
| Individual | 10 | % | 26,897 | 26,897 | 100.0 | % | ||||||||||||||||
| (A) | All amounts earned in currencies other than U.S dollars are reflected in this table and in the entire Compensation Discussion and Analysis as U.S. Dollars as adjusted by the average of all month-end exchange rates for the period April 1, | |
| (B) | “EBITDA” refers to our normalized operating EBITDA and is calculated by removing the following three items from | |
| (C) | “Cash Flow” refers to our operating free cash flow and is defined as (1) operating EBITDA (2) minus capital expenditures (3) plus (minus) net cash inflows (outflows) for working capital and other assets/liabilities. For the Company-wide metric, we also include net cash inflows (outflows) for (4) interest, (5) taxes, (6) dividends, (7) corporate expenses, (8) restructuring charges and (9) proceeds from asset sales. | |
| (D) | “EHS” refers to our recordable case rates, lost time injury and illness case rates and certain strategic EHS initiatives. The recordable case rate establishes targets for reducing the level of workplace accidents resulting in an injury requiring more than first aid treatment. The lost time injury and illness case rate establishes targets for reducing the level of workplace injuries or illnesses resulting in lost time of one shift or more. The strategic EHS initiatives establish targets for the completion of environmental initiatives that lead to significant reductions in water emissions, energy or waste aligned with site specific issues, and, establish targets for the completion of occupational health and safety |
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| initiatives that reduce site specific risks and exposures. | ||
Long-Term Incentives. The Committee believes that a substantial portion of each executive’s total direct compensation opportunity should be based on long-term performance. The awards should align the interests of our executives and our shareholder. As noted above, the opportunity to receive long-term incentive compensation by an executive in a given year is generally determined by reference to the market for long-term incentive compensation among our peer group companies.
On May 25, 2010,20, 2011, our board of directors authorized the long term incentive plan covering fiscal years 20112012 through 20142015 (“20112012 LTIP”). Under the 20112012 LTIP, 80% of a participant’s total long term incentive opportunity consists of performance-based stock appreciation rights (“SARs”) and the remaining 20% consists of restricted stock units (“RSUs”). For fiscal 2009 and 2010, the long term incentives were granted entirely in the form of SARs. For fiscal 2011, the Committee decided to incorporate RSUs into the long term incentive program to ensure that our executives have the opportunity to retain some intrinsic value with respect to the underlying award over the entire incentive cycle.
SARs vest at a rate of 25% per year, subject to performance criteria (see below) and expire seven years from their grant date. Each SAR is to be settled in cash based on the difference between the market value of one Hindalco share on the date of grant and the market value on the date of exercise, where market values are denominated in Indian rupees and converted to the participant’s payroll currency at the time of exercise. The amount of cash paid is limited to (i) 2.5two and half times the target payout if exercised within one year of vesting or (ii) three times the target payout if exercised after one year of vesting. SARs do not transfer any shareholder rights in Hindalco to a participant.
The performance criterion for vesting is based on the actual overall Novelis normalized operating earnings before interest, taxes, depreciation and amortization,EBITDA, as adjusted (adjusted Operating EBITDA) compared to the target adjusted Operatingnormalized operating EBITDA established and approved each fiscal year. The minimum threshold for vesting each year is 75% of each annual target adjusted Operating EBITDA, at which point 75% of the SARs for that period would vest, with an equal pro rata amount of SARs vesting through 100% achievement of the target.
In the event a participant resigns, unvested SARs will lapse and vested SARs must be exercised within 90 days. If a participant retires more than one year from the date of grant, SARs will continue to vest and must be exercised no later than the third anniversary of retirement. In the event of death or disability, there will be immediate vesting of all SARs with one year to exercise. Upon a change in control, there would be immediate vesting and cash-out of SARs.
The RSUs under the 20112012 LTIP vest in full, three years from the grant date, and are not subject to performance criteria. The payout on the RSUs is limited to three times the grant price. Except in the case of death or disability, if a participant’s employment ends before the RSUs are fully vested, the RSUs will be forfeited. In the case of a change of control, death or disability, the RSUs would be vested and paid out.
The following long term incentive grants were made to our named executive officers under the 20112012 LTIP.
2012 LTIP
| 2011 LTIP | Number of | Number of | ||||||||||
| Approved | SARs | RSUs | ||||||||||
Name | Grant ($) | Granted (A) | Granted | |||||||||
| Philip Martens | 2,500,000 | 1,253,082 | 159,517 | |||||||||
| Steven Fisher | 577,500 | 289,462 | 36,849 | |||||||||
| Tadeu Nardocci | 577,500 | 289,462 | 36,849 | |||||||||
| Erwin Mayr | 300,000 | 150,370 | 19,142 | |||||||||
| Jean-Marc Germain | 577,500 | 289,462 | 36,849 | |||||||||
Name | 2012 LTIP Approved Grant ($) | Number of SARs Granted (A) | Number of RSUs Granted | |||||||||
Philip Martens | 3,800,000 | 1,352,992 | 177,749 | |||||||||
Steven Fisher | 750,000 | 267,038 | 35,082 | |||||||||
Tadeu Nardocci | 600,000 | 213,630 | 28,065 | |||||||||
Thomas Walpole | 350,000 | 124,617 | 16,371 | |||||||||
Erwin Mayr | 350,000 | 124,617 | 16,371 | |||||||||
| (A) |
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Employment-Related Agreements
Employment Agreements. Each of our named executive officers was subject to an employment agreement during fiscal 2011.2012. The terms of each such agreement generally provides for a minimum base salary, short and long term incentive opportunity and benefits and perquisites customarily provided to our executives. Certain of our named executives are also eligible for an expatriate premium and certain other related payments.See “Summary Compensation Table” below for details.
Change in Control Agreements. Each of our named executive officers was subject to a Change in Control Agreement during fiscal 2011,2012, which provides that the executive will be entitled to certain payments and benefits if the executive’s employment is terminated by the Company without cause, or by the executive for good reason, within 24 months of a change in control of the Company. The change in control severance payment is equal to 2.0 (or 1.5 in the case of Mr. Mayr) times the sum the executive’s annual base salary plus target short-term incentive for the year and is payable in a lump sum. The executive may also receive a (i) a special one-time payment to assist with post-employment medical coverage; (ii) continuation of coverage under the Company’s group life insurance plan for a period of 12 months; (iii) 12 months of additional credit for benefit accrual or contribution purposes under our retirement plans; and (iv) accelerated vesting, if applicable, under our retirement plans. If the payment to Mr. Martens would cause him to be subject to an excise tax under Section 4999 of the U.S. Internal Revenue Code, then he would also be entitled to receive a tax gross-up payment.See “Potential Payments Upon Termination or Change in Control” below for details.
Severance Compensation Agreements. Each.Each named executive officer (other than Mr. Martens) is a party to a Severance Agreement, which provides that the executive will be entitled to certain payments and benefits if his employment is terminated by the Company without cause. The severance provisions for Mr. Martens are set forth in his employment agreement. The severance payment is equal to 1.5 times the executive’s annual base salary (or, in the case of Mr. Mayr, 1.0 times annual base salary, and in the case of Mr. Martens, 2.0 times the sum of annual base salary plus target short-term incentive for the year) in effect at termination and is payable in a lump sum. The executive may also receive a (i) a special one-time payment to assist with post-employment medical coverage; (ii) continuation of coverage under the Company’s group life insurance plan for a period of 12 months; (iii) 12 months of additional credit for benefit accrual or contribution purposes under our retirement plans; and (iv) accelerated vesting, if applicable, under our retirement plans. Each agreement also contains a non-competition and non-solicitation provision which prohibits the executive from competing with us or soliciting our customers, suppliers or employees for a period of 18 months (or 12 months in the case of Mr. Mayr, and 24 months in the case of Mr. Martens) following termination.See “Potential Payments Upon Termination or Change in Control” below for details.
Retention Agreements. On July 1, 2009, we entered into individual retention agreements with our named executive officers employed at that time. The agreements provide for cash payments to the named executive officers on July 1, 2010, July, 1 2011 and July 1, 2012, unless the named executive officer voluntarily terminates employment or is terminated by the Company for cause prior to those dates. The remaining cash amounts payable under the retention agreements are as follows:
| July 1, | July 1, | |||||||
| 2011 ($) | 2012 ($) | |||||||
| Steven Fisher | 75,000 | 75,000 | ||||||
| Tadeu Nardocci | 72,847 | 72,847 | (A) | |||||
| Erwin Mayr | 73,199 | 73,199 | (A) | |||||
| Jean-Marc Germain | 54,000 | 54,000 | ||||||
| July 1, 2012 ($) | ||||
Steven Fisher | 75,000 | |||
Tadeu Nardocci | 74,038 | (A) | ||
Thomas Walpole | 47,500 | |||
Erwin Mayr | 83,703 | (A) | ||
| (A) | These amounts represent BRL 125,000 for Mr. Nardocci and CHF 73,250 for Mr. Mayr, converted to USD. |
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Compensation Risk Assessment
In fiscal 2011,2012, the Committee reviewed the Company’s executive compensation policies and practices, and determined that the Company’s executive compensation programs are not reasonably likely to have a material adverse effect on the Company. The Committee also reviewed the Company’s compensation programs for certain design features which have been identified by experts as having the potential to encourage excessive risk-taking, including: (i) too much focus on equity; (ii) compensation mix overly weighted toward annual incentives; (iii) uncapped payouts; (iv) unreasonable goals or thresholds; or (v) steep payout cliffs at certain performance levels that may encourage short-term decisions to meet payout thresholds. Based on its review, the Committee determined that, for all employees, the Company’s compensation programs do not encourage excessive risk and instead encourage behaviors that support sustainable value creation.
Compensation Committee Report
The Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on the Committee’s review of and discussions with management, the Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for fiscal 2011.
The foregoing report is provided by the following directors, who constitute the Committee:
Mr. Clarence J. Chandran, Chairman
Mr. Debnarayan Bhattacharya
Mr. Askaran Agarwala
Summary Compensation Table
The table below sets forth information regarding compensation for our named executive officers for fiscal 20092010 through 2011,2012, as applicable.
| Non-Equity | ||||||||||||||||||||||||||||||||||||
| Incentive | Change in | |||||||||||||||||||||||||||||||||||
| Stock | Option | Plan | Pension | All Other | ||||||||||||||||||||||||||||||||
| Salary | Bonus | Awards | Awards | Compensation | Value | Compensation | ||||||||||||||||||||||||||||||
Name and Principal Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | Total ($) | |||||||||||||||||||||||||||
| Philip Martens, | 2011 | 755,000 | — | 500,000 | (A) | 2,000,000 | (B) | 1,365,723 | (C) | — | 128,802 | (D) | 4,749,525 | |||||||||||||||||||||||
| President and | 2010 | 670,833 | — | — | 2,000,000 | 1,123,775 | — | 338,350 | 4,132,958 | |||||||||||||||||||||||||||
| Chief Executive Officer | ||||||||||||||||||||||||||||||||||||
| Steven Fisher, | 2011 | 463,500 | — | 115,500 | (A) | 462,000 | (B) | 491,561 | (C) | — | 160,555 | (D) | 1,693,116 | |||||||||||||||||||||||
| Senior Vice President and | 2010 | 450,000 | — | 180,000 | 525,000 | 911,982 | — | 75,428 | 2,142,410 | |||||||||||||||||||||||||||
| Chief Financial Officer | 2009 | 425,000 | — | 42,370 | 500,000 | 46,575 | — | 67,657 | 1,081,602 | |||||||||||||||||||||||||||
| Tadeu Nardocci, | 2011 | 417,558 | — | 115,500 | (A) | 462,000 | (B) | 376,520 | (C) | — | 1,064,622 | (D) | 2,436,200 | |||||||||||||||||||||||
| Senior Vice President and | 2010 | 457,779 | (E) | — | 154,020 | 525,000 | 611,149 | — | 353,327 | 2,101,275 | ||||||||||||||||||||||||||
| President of Novelis Europe | ||||||||||||||||||||||||||||||||||||
| Erwin Mayr, Senior Vice | 2011 | 468,602 | — | 60,000 | (A) | 240,000 | (B) | 329,745 | (C) | 46,836 | (F) | 737,805 | (D) | 1,882,988 | ||||||||||||||||||||||
| President and Chief Strategy and Commercial Officer | ||||||||||||||||||||||||||||||||||||
| Jean-Marc Germain, Senior Vice | 2011 | 381,531 | — | 115,500 | (A) | 462,000 | (B) | 385,280 | (C) | 88,297 | (G) | 433,836 | (D) | 1,866,444 | ||||||||||||||||||||||
| President and President of | 2010 | 325,044 | — | 130,000 | 525,000 | 542,142 | 40,886 | 86,333 | 1,649,405 | |||||||||||||||||||||||||||
| Novelis North America | 2009 | 318,625 | — | 40,140 | 500,000 | 15,422 | 24,847 | 126,681 | 1,025,715 | |||||||||||||||||||||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
Philip Martens, | 2012 | 887,650 | 760,000 | (A) | 3,040,000 | (B) | 964,667 | (C) | — | 153,682 | (D) | 5,805,999 | ||||||||||||||||||||||||
| 2011 | 755,000 | — | 500,000 | 2,000,000 | 1,365,723 | — | 128,802 | 4,749,525 | ||||||||||||||||||||||||||||
| 2010 | 670,833 | — | — | 2,000,000 | 1,123,775 | — | 338,350 | 4,132,958 | ||||||||||||||||||||||||||||
Steven Fisher, | 2012 | 492,000 | — | 150,000 | (A) | 600,000 | (B) | 323,700 | (C) | — | 170,079 | (D) | 1,735,279 | |||||||||||||||||||||||
| 2011 | 463,500 | — | 115,500 | 462,000 | 491,561 | — | 160,555 | 1,693,116 | ||||||||||||||||||||||||||||
| 2010 | 450,000 | — | 180,000 | 525,000 | 911,982 | — | 75,428 | 2,142,410 | ||||||||||||||||||||||||||||
Tadeu Nardocci, | 2012 | 475,856 | — | 120,000 | (A) | 480,000 | (B) | 275,183 | (C) | — | 1,151,337 | (D) | 2,502,375 | |||||||||||||||||||||||
| 2011 | 417,558 | — | 115,500 | 462,000 | 376,520 | — | 1,064,622 | 2,436,200 | ||||||||||||||||||||||||||||
| 2010 | 457,779 | (E) | — | 154,020 | 525,000 | 611,149 | — | 353,327 | 2,101,275 | |||||||||||||||||||||||||||
Thomas Walpole, | 2012 | 343,775 | — | 70,000 | (A) | 280,000 | (B) | 172,209 | (C) | 770,930 | (F) | 784,807 | (D) | 2,421,721 | ||||||||||||||||||||||
| 2011 | 315,075 | — | 70,000 | 280,000 | 259,515 | 405,423 | 684,573 | 2,014,586 | ||||||||||||||||||||||||||||
| 2010 | 285,000 | — | 114,000 | 350,000 | 524,977 | 369,297 | 425,936 | 2,069,210 | ||||||||||||||||||||||||||||
Erwin Mayr, | 2012 | 534,026 | — | 70,000 | (A) | 280,000 | (B) | 232,176 | (C) | 19,691 | (G) | 1,130,430 | (D) | 2,266,323 | ||||||||||||||||||||||
| 2011 | 468,602 | — | 60,000 | 240,000 | (B) | 329,745 | 46,836 | 737,805 | 1,882,988 | |||||||||||||||||||||||||||
| (A) | This amount reflects the grant date fair value of the RSUs granted under the | |
| (B) | This amount reflects the grant date fair value of the SARs granted under the | |
| (C) | This amount reflects the cash award earned under the |
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| (D) | The amounts shown in the All Other Compensation Column reflect the values from the table below. | |
| (E) | This amount represents base salary and a cash payout of vacation days not utilized at the end of Mr. Nardocci’s Brazilian employment contract. | |
| (F) | ||
| U.S. based executives hired before January 1, 2005 participate in the Novelis Pension Plan and the Novelis Supplemental Executive Retirement Plan (Novelis SERP). The Novelis Pension Plan is a defined benefit pension plan based on the participant’s final earning (up to the IRS limit) and service up to 35 years. The Novelis SERP has the same formula as the Novelis |
| Company | ||||||||||||||||||||||||
| Contribution to | Other | |||||||||||||||||||||||
| Defined | Relocation and | Perquisites and | ||||||||||||||||||||||
| Contribution | Group | Retention | Housing Related | Personal | ||||||||||||||||||||
| Plans | Life | Payments | Payments | Benefits | Total | |||||||||||||||||||
Name | ($) | Insurance ($) (B) | ($) | ($) | ($) | ($) | ||||||||||||||||||
| Philip Martens | 81,625 | (A) | 3,233 | — | 5,519 | (C) | 38,425 | (D) | 128,802 | |||||||||||||||
| Steven Fisher | 51,278 | (A) | 1,423 | 75,000 | (E) | — | 32,854 | (F) | 160,555 | |||||||||||||||
| Tadeu Nardocci | 101,590 | (G) | 2,280 | 74,731 | (H) | 874,102 | (I) | 11,919 | (J) | 1,064,622 | ||||||||||||||
| Erwin Mayr | 51,775 | (K) | 389 | 73,199 | (L) | 556,277 | (M) | 56,165 | (N) | 737,805 | ||||||||||||||
| Jean-Marc Germain | 11,873 | (A) | 1,081 | 54,000 | (E) | 343,520 | (O) | 23,362 | (P) | 433,836 | ||||||||||||||
| (G) | Since our spin-off from Alcan in 2005 until December 31, 2011, we continued to participate in Alcan’s two pension plans in Switzerland: (1) Pensionskasse Alcan Schweiz (defined benefit plan) and (2) Erganzungskasse Alcan Schweiz (supplemental defined contribution plan). Effective January 1, 2012, Novelis adopted a new defined contribution plan (Novelis Pensionskasse) and a supplemental plan (Novelis Zusatzskasse). The amount shown in the Summary Compensation Table above represents the aggregate change in actuarial present value of the named executive officer’s accumulated benefit under the defined benefit plan during fiscal year 2012. Assumptions used in the calculation of these amounts are included in Note 12 to our audited consolidated financial statements for the year ended March 31, 2012. Company contributions to the Novelis defined contribution plan and the supplemental plan in fiscal year 2012 are shown in the table below. | |
Name | Company Contribution to Defined Contribution Plans ($) | Group Life Insurance ($) (B) | Retention Payments ($) | Relocation and Housing Related Payments ($) | Other Perquisites and Personal Benefits ($) | Total ($) | ||||||||||||||||||
Philip Martens | 102,547 | (A) | 7,135 | — | — | 44,000 | (C) | 153,682 | ||||||||||||||||
Steven Fisher | 53,535 | (A) | 3,544 | 75,000 | (D) | — | 38,000 | (E) | 170,079 | |||||||||||||||
Tadeu Nardocci | 104,304 | (F) | 2,181 | 74,036 | (G) | 943,947 | (H) | 26,869 | (I) | 1,151,337 | ||||||||||||||
Thomas Walpole | 11,305 | (A) | 4,902 | 47,500 | (J) | 511,616 | (K) | 209,484 | (L) | 784,807 | ||||||||||||||
Erwin Mayr | 63,944 | (M) | 1,556 | 83,703 | (N) | 887,254 | (O) | 93,973 | (P) | 1,130,430 | ||||||||||||||
| (A) | All U.S. based executives are eligible to participate in our qualified and non-qualified savings plans. We | |
| (B) | Executives are entitled to participate in life insurance benefits on the same basis as other employees. Our named executive officers are entitled to additional | |
| (C) | ||
| This amount includes executive flex allowance and car allowance, each of which individually had an aggregate incremental cost less than $25,000. |
| (D) | This amount represents second payment under the July 1, 2009 retention arrangement. |
| This amount includes executive flex allowance and car allowance, each of which individually had an aggregate incremental cost less than $25,000. |
| (F) | All Brazil employees are eligible to participate in a defined contribution pension plan. Employees may voluntarily contribute from 0-12% of base salary. Independent of any employee contribution, the |
| (G) | This amount represents the |
| (H) | This amount includes |
| (I) | This amount includes car allowance, health care expenses, lunch premium, accident insurance, global assignment services and home security, each of which individually had an aggregate incremental cost less than $25,000. |
| (J) | This amount represents second payment under the July 1, 2009 retention arrangement. |
| (K) | This amount represents $75,756 relocation expenses, $117,480 housing expenses, $166,633 expatriate compensation and $151,747 Korean tax liability (paid on behalf of the employee). |
| (L) | This amount represents $2667 flex allowance, $168,553 home sale expenses, $27,601 foreign compensation and $10,663 global assignment services. |
| (M) | This amount represents the |
| (N) | This amount represents the |
| (O) | This amount includes |
| (P) | This amount includes | |
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The table below sets forth information regarding grants of plan-based awards made to our named executive officers for the year ended March 31, 2011.
| All Other Stock | All Other Option | |||||||||||||||||||||||||||||||
| Estimated Future Payout | Awards: Number of | Awards: Number of | Exercise or Base | |||||||||||||||||||||||||||||
| Under Non-Equity | Shares of Stock or | Securities | Price of Option | Grant Date Fair | ||||||||||||||||||||||||||||
| Incentive Plan Awards (A) | Units | Underlying Options | Awards | Value of Stock and | ||||||||||||||||||||||||||||
| Threshold | Target | Maximum | (#) | (#) | ($/Sh) | Option Awards | ||||||||||||||||||||||||||
Name | Grant Date | ($) | ($) | ($) | (B) | (C) | (D) | (E) | ||||||||||||||||||||||||
| Philip Martens | 5/25/2010 | — | 922,500 | 1,845,000 | — | — | — | — | ||||||||||||||||||||||||
| 5/25/2010 | — | — | — | — | 1,253,082 | 3.13 | 2,000,000 | |||||||||||||||||||||||||
| 5/25/2010 | — | — | — | 159,517 | — | 3.13 | 500,000 | |||||||||||||||||||||||||
| Steven Fisher | 5/25/2010 | — | 351,000 | 702,000 | — | — | — | — | ||||||||||||||||||||||||
| 5/25/2010 | — | — | — | — | 289,462 | 3.13 | 462,000 | |||||||||||||||||||||||||
| 5/25/2010 | — | — | — | 36,849 | — | 3.13 | 115,500 | |||||||||||||||||||||||||
| Tadeu Nardocci | 5/25/2010 | — | 272,750 | 545,500 | — | — | — | — | ||||||||||||||||||||||||
| 5/25/2010 | — | — | — | — | 289,462 | 3.13 | 462,000 | |||||||||||||||||||||||||
| 5/25/2010 | — | — | — | 36,849 | — | 3.13 | 115,500 | |||||||||||||||||||||||||
| Erwin Mayr | 5/25/2010 | — | 235,455 | 470,910 | — | — | — | — | ||||||||||||||||||||||||
| 5/25/2010 | — | — | — | — | 150,370 | 3.13 | 240,000 | |||||||||||||||||||||||||
| 5/25/2010 | — | — | — | 19,142 | — | 3.13 | 60,000 | |||||||||||||||||||||||||
| Jean-Marc Germain | 5/25/2010 | — | 260,244 | 520,488 | — | — | — | — | ||||||||||||||||||||||||
| 5/25/2010 | — | — | — | — | 289,462 | 3.13 | 462,000 | |||||||||||||||||||||||||
| 5/25/2010 | — | — | — | 36,849 | — | 3.13 | 115,500 | |||||||||||||||||||||||||
| Estimated Future Payout Under Non-Equity Incentive Plan Awards (A) | All Other Stock Awards: Number of Shares of Stock or Units (#) (B) | All Other Option Awards: Number of Securities Underlying Options (#) (C) | Exercise or Base Price of Option Awards ($/Sh) (D) | Grant Date Fair Value of Stock and Option Awards (E) | ||||||||||||||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | ||||||||||||||||||||||||||||
Martens | 5/20/2011 | — | 1,092,240 | 2,184,480 | — | — | 0 | 0 | ||||||||||||||||||||||||
| 5/20/2011 | — | — | — | 177,749 | — | 4.28 | 760,000 | |||||||||||||||||||||||||
| 5/20/2011 | — | — | — | — | 1,352,992 | 4.28 | 3,040,000 | |||||||||||||||||||||||||
Fisher | 5/20/2011 | — | 375,000 | 750,000 | — | — | 0 | 0 | ||||||||||||||||||||||||
| 5/20/2011 | — | — | — | 35,082 | — | 4.28 | 150,000 | |||||||||||||||||||||||||
| 5/20/2011 | — | — | — | — | 267,038 | 4.28 | 600,000 | |||||||||||||||||||||||||
Nardocci | 5/20/2011 | — | 311,576 | 623,152 | — | — | 0 | 0 | ||||||||||||||||||||||||
| 5/20/2011 | — | — | — | 28,065 | — | 4.28 | 120,000 | |||||||||||||||||||||||||
| 5/20/2011 | — | — | — | — | 213,630 | 4.28 | 480,000 | |||||||||||||||||||||||||
Walpole | 5/20/2011 | — | 199,500 | 399,000 | — | — | 0 | 0 | ||||||||||||||||||||||||
| 5/20/2011 | — | — | — | 16,371 | — | 4.28 | 70,000 | |||||||||||||||||||||||||
| 5/20/2011 | — | — | — | — | 124,617 | 4.28 | 280,000 | |||||||||||||||||||||||||
Mayr | 5/20/2011 | — | 268,971 | 537,942 | — | — | 0 | 0 | ||||||||||||||||||||||||
| 5/20/2011 | — | — | — | 16,371 | — | 4.28 | 70,000 | |||||||||||||||||||||||||
| 5/20/2011 | — | — | — | 124,617 | 4.28 | 280,000 | ||||||||||||||||||||||||||
| (A) | These amounts reflect the cash awards under our | |
| (B) | These amounts represent the number of | |
| (C) | These amounts represent the number of SARs granted under the | |
| (D) | ||
| (E) | These amounts are reflected in the Summary Compensation Table. |
Outstanding Equity Awards as of March 31, 2011
| OPTION AWARDS | STOCK AWARDS | |||||||||||||||||||||||
| Number of | Number of | |||||||||||||||||||||||
| Securities | Securities | |||||||||||||||||||||||
| Underlying | Underlying | Number of Shares | Market Value of | |||||||||||||||||||||
| Unexercised | Unexercised | or Units of Stock | Shares or Units of | |||||||||||||||||||||
| Options | Options | Option Exercise | That Have Not | Stock That Have | ||||||||||||||||||||
| (#) | (#) | Price | Option Expiration | Vested | Not Vested | |||||||||||||||||||
Name | Exercisable | Unexercisable | ($) (A) | Date | (#) | ($) | ||||||||||||||||||
| Philip Martens | — | 1,253,082 | 3.13 | May 25, 2017(B) | 159,517 | (E) | 749,393 | |||||||||||||||||
| — | 1,755,004 | 1.79 | June 25, 2016(C) | — | — | |||||||||||||||||||
| Steven Fisher | — | 289,462 | 3.13 | May 25, 2017(B) | 140,516 | (F) | 533,112 | |||||||||||||||||
| — | 460,688 | 1.79 | June 25, 2016(C) | — | — | |||||||||||||||||||
| 219,629 | 439,258 | 1.24 | June 25, 2015(D) | — | — | |||||||||||||||||||
| Tadeu Nardocci | — | 289,462 | 3.13 | May 25, 2017(B) | 125,553 | (G) | 481,152 | |||||||||||||||||
| 53,563 | 460,688 | 1.79 | June 25, 2016(C) | — | — | |||||||||||||||||||
| — | 307,481 | 1.24 | June 25, 2015(D) | — | — | |||||||||||||||||||
| Erwin Mayr | — | 150,370 | 3.13 | May 25, 2017(B) | 111,642 | (H) | 411,149 | |||||||||||||||||
| 52,650 | 157,950 | 1.79 | June 25, 2016(C) | — | — | |||||||||||||||||||
| 83,459 | 166,918 | 1.24 | June 25, 2015(D) | — | — | |||||||||||||||||||
| Jean-Marc Germain | — | 289,462 | 3.13 | May 25, 2017(B) | 111,720 | (I) | 433,112 | |||||||||||||||||
| 153,563 | 460,688 | 1.79 | June 25, 2016(C) | — | — | |||||||||||||||||||
| 219,629 | 439,258 | 1.24 | June 25, 2015(D) | — | — | |||||||||||||||||||
| OPTION AWARDS | STOCK AWARDS | |||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) (A) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | ||||||||||||||||||
Philip Martens | — | 1,316,461 | 4.28 | May 20, 2018 | (B) | 177,749 | (F) | 452,099 | ||||||||||||||||
| 313,271 | 905,978 | 3.13 | May 25, 2017 | (C) | 159,517 | 405,726 | ||||||||||||||||||
| — | 1,106,823 | 1.79 | June 25, 2016 | (D) | — | — | ||||||||||||||||||
Steven Fisher | — | 259,828 | 4.28 | May 20, 2018 | (B) | 35,082 | (F) | 89,230 | ||||||||||||||||
| 72,366 | 209,281 | 3.13 | May 25, 2017 | (C) | 140,516 | (G) | 357,398 | |||||||||||||||||
| 153,563 | 290,540 | 1.79 | June 25, 2016 | (D) | — | — | ||||||||||||||||||
| — | 195,909 | 1.24 | June 25, 2015 | (E) | — | — | ||||||||||||||||||
Tadeu Nardocci | — | 207,862 | 4.28 | May 20, 2018 | (B) | 28,065 | (F) | 71,382 | ||||||||||||||||
| 72,366 | 209,281 | 3.13 | May 25, 2017 | (C) | 125,553 | (H) | 319,340 | |||||||||||||||||
| — | 290,540 | 1.79 | June 25, 2016 | (D) | — | — | ||||||||||||||||||
| — | 137,137 | 1.24 | June 25, 2015 | (E) | — | — | ||||||||||||||||||
Thomas Walpole | — | 121,252 | 4.28 | May 20, 2018 | (B) | 16,371 | (F) | 41,639 | ||||||||||||||||
| 43,858 | 126,837 | 3.13 | May 25, 2017 | (C) | 87,988 | (I) | 223,794 | |||||||||||||||||
| 204,750 | 193,695 | 1.79 | June 25, 2016 | (D) | — | — | ||||||||||||||||||
| 307,480 | 137,137 | 1.24 | June 25, 2015 | (E) | — | — | ||||||||||||||||||
Erwin Mayr | — | 121,252 | 4.28 | May 20, 2018 | (B) | 16,371 | (F) | 41,639 | ||||||||||||||||
| 37,593 | 108,717 | 3.13 | May 25, 2017 | (C) | 111,642 | (J) | 283,958 | |||||||||||||||||
| 105,300 | 99,614 | 1.79 | June 25, 2016 | (D) | — | — | ||||||||||||||||||
| 166,918 | 74,445 | 1.24 | June 25, 2015 | (E) | — | — | ||||||||||||||||||
| (A) | The exercise price is based on the market value of one Hindalco share on the date of grant, converted to US$. | |
| (B) | SARs granted under the 2012 LTIP. |
| (C) | SARs granted under the 2011 LTIP. |
| (D) | SARs granted under the 2010 LTIP. |
| (E) | SARs granted under the 2009 LTIP. |
| (F) | RSUs granted under the |
| (G) | Consists of 36,849 RSUs granted under the 2011 LTIP and 103,667 phantom restricted shares (payable in cash) under the executive’s retention agreement. |
144
| (H) | Consists of 36,849 RSUs granted under the 2011 LTIP and 88,704 phantom restricted shares (payable in cash) under the executive’s retention agreement. |
| (I) | Consists of 22,332 RSUs granted under the 2011 LTIP and 65,656 phantom restricted shares (payable in cash) under the executive’s retention agreement. |
| (J) | Consists of 19,142 RSUs granted under the 2011 LTIP and 92,500 phantom restricted shares (payable in cash) under the executive’s retention agreement. | |
Option Exercises and Stock Vested in Fiscal Year 2011
The table below sets forth the information regarding stock options that were exercised or were cancelled and paid out during fiscal 20112012 and stock awards that vested and were paid out during fiscal 2011.
| Option Awards | Stock Awards | |||||||||||||||
| Number of | Number of | |||||||||||||||
| Shares | Value | Shares | Value | |||||||||||||
| Acquired on | Realized on | Acquired on | Realized on | |||||||||||||
| Exercise or | Exercise or | Vesting or | Vesting or | |||||||||||||
Name | Cancellation | Cancellation ($) | Cancellation | Cancellation ($) | ||||||||||||
| Philip Martens | 585,001 | 910,853 | — | — | ||||||||||||
| Steven Fisher | 153,563 | 341,811 | — | — | ||||||||||||
| Tadeu Nardocci | 253,740 | 435,037 | — | — | ||||||||||||
| Erwin Mayr | — | — | — | — | ||||||||||||
| Jean-Marc Germain | — | — | — | — | ||||||||||||
| Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise or Cancellation | Value Realized on Exercise or Cancellation ($) | Number of Shares Acquired on Vesting or Cancellation | Value Realized on Vesting or Cancellation ($) | ||||||||||||
Philip Martens | 585,001 | 1,236,470 | — | — | ||||||||||||
Steven Fisher | 439,258 | 744,696 | — | — | ||||||||||||
Tadeu Nardocci | 360,866 | 598,059 | — | — | ||||||||||||
Thomas Walpole | 153,740 | 260,534 | — | — | ||||||||||||
Erwin Mayr | 83,459 | 141,004 | — | — | ||||||||||||
Pension Benefits in Fiscal 2011
The table below sets forth information regarding the present value as of March 31, 20112012 of the accumulated benefits of our named executive officers under our defined benefit pension plans (both qualified and non-qualified). U.S. executives who were hired on or after January 1, 2005 are not eligible to participate in our defined benefit pension plans.
| Number of | Present | Payments | ||||||||||||
| Years of | Value of | During | ||||||||||||
| Credited | Accumulated | Last | ||||||||||||
Name | Plan Name (A) | Service | Benefit ($)(B) | Fiscal Year | ||||||||||
| Erwin Mayr | Pensionskasse Alcan Schweiz | 9.000 | 184,321 | — | ||||||||||
| Jean-Marc Germain | Novelis Pension Plan | 4.250 | 81,190 | — | ||||||||||
| Novelis SERP | 4.250 | 95,533 | — | |||||||||||
Name | Plan Name (A) | Number of Years of Credited Service | Present Value of Accumulated Benefit ($)(B) | Payments During Last Fiscal Year | ||||||||||
Thomas Walpole | Novelis Pension Plan | 32.833 | 1,498,993 | — | ||||||||||
| Novelis SERP | 32.833 | 1,406,438 | — | |||||||||||
| (A) | See the footnotes to the Summary Compensation Table for a description of these plans. | |
| (B) | See Note 12 to our audited consolidated financial statements for the year ended March 31, |
The following table shows estimated retirement benefits, expressed as a percentage of eligible earnings, payable upon normal retirement at age 65:
| Years of Service | ||||||||||||||||||||||||
| 10 | 15 | 20 | 25 | 30 | 35 | |||||||||||||||||||
| U.S. Pension Plan | 17 | % | 25 | % | 34 | % | 42 | % | 51 | % | 59 | % | ||||||||||||
| Swiss Pension Plan | 16 | % | 24 | % | 32 | % | 40 | % | 48 | % | 56 | % | ||||||||||||
145
| Years of Service | ||||||||||||||||||||||||
| 10 | 15 | 20 | 25 | 30 | 35 | |||||||||||||||||||
U.S. Pension Plan | 17 | % | 25 | % | 34 | % | 42 | % | 51 | % | 59 | % | ||||||||||||
This table summarizes the Novelis contributions and earnings for Messrs. Martens and Fisher under our Defined Contribution Supplemental Executive Retirement Plan for fiscal year 2011. This2012. Only Messrs. Martens and Fisher are eligible for Company contributions under this plan. The plan is aan unfunded, non-qualified defined contribution plan for U.S. based executives. The plan provides eligible executives with the Company discretionary credits (and matching contributions beginning January 1, 2012) they are restricted from receiving under our tax-qualified savings plan due to limitations under the U.S. Internal Revenue Code. For fiscal 2011, we made a discretionary contribution equal to 5% of pay.
| Elective | Registrant | Aggregate | Aggregate | Aggregate | ||||||||||||||||
| Contributions in | Contributions in | Earnings in | Withdrawals/ | Balance at Last | ||||||||||||||||
| Last Fiscal Year | Last Fiscal Year | Last Fiscal Year | Distributions | Fiscal Year End | ||||||||||||||||
Name | ($) | ($) (A) | ($) (A) | ($) | ($) (B) | |||||||||||||||
| Philip Martens | — | 55,500 | 812 | — | 68,942 | |||||||||||||||
| Steven Fisher | — | 27,575 | 1,689 | — | 76,894 | |||||||||||||||
Name | Elective Contributions in Last Fiscal Year ($) | Registrant Contributions in Last Fiscal Year ($) (A) | Aggregate Earnings in Last Fiscal Year ($) (A) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last Fiscal Year End ($) (B) | |||||||||||||||
Philip Martens | — | 77,130 | 2,554 | — | 148,625 | |||||||||||||||
Steven Fisher | — | 29,500 | 4,791 | — | 111,186 | |||||||||||||||
| (A) | ||
| (B) | Of the balance at the end of the fiscal year, |
Potential Payments Upon Termination or Change in Control
This section provides an estimate of the payments and benefits that would be paid to certain of our named executive officers, at March 31, 2011,2012, upon voluntary termination or involuntary termination of employment without cause. This section, however, does not reflect any payments or benefits that would be paid to our salaried employees generally, including for example accrued salary and vacation pay; regular pension benefits under our qualified and non-qualified defined benefit plans; normal distribution of account balances under our qualified and non-qualified defined contribution plans; or normal retirement, death or disability benefits.
| Termination by | ||||||||||||||||||
| Us without | ||||||||||||||||||
| Cause or by | ||||||||||||||||||
| Executive for | ||||||||||||||||||
| Good Reason in | ||||||||||||||||||
| Termination by | Connection with | |||||||||||||||||
| Voluntary | Us without | Change in | ||||||||||||||||
| Termination by | Cause ($) | Control ($) | Death or | |||||||||||||||
Name | Type of Payment | Executive ($) | (C) (D) | (E) (F) | Disability($) | |||||||||||||
Philip Martens | Short-Term Incentive Pay (A) | 922,500 | 922,500 | 922,500 | 922,500 | |||||||||||||
| Long-Term Incentive Plan (B) | — | — | 7,358,805 | 7,358,805 | ||||||||||||||
| Severance | — | 3,485,000 | 3,485,000 | — | ||||||||||||||
| Retirement plans | — | 88,925 | 88,925 | — | ||||||||||||||
| Lump sum cash payment for continuation of health coverage (G) | — | 29,348 | 29,348 | — | ||||||||||||||
| Continued group life insurance coverage (H) | — | 7,135 | 7,135 | — | ||||||||||||||
| Tax Gross Up | — | — | — | (I) | — | |||||||||||||
| Total | 922,500 | 4,532,908 | 11,891,713 | 8,281,305 | ||||||||||||||
Steven Fisher | Short-Term Incentive Pay (A) | 351,000 | 351,000 | 351,000 | 351,000 | |||||||||||||
| Long-Term Incentive Plan (B) | 410,714 | 410,714 | 3,445,210 | 3,445,210 | ||||||||||||||
| Severance | — | 702,000 | 1,638,000 | — | ||||||||||||||
| Retirement plans | — | 51,975 | 51,975 | — | ||||||||||||||
| Lump sum cash payment for continuation of health coverage (G) | — | 29,348 | 29,348 | — | ||||||||||||||
| Continued group life insurance coverage (H) | — | 3,544 | 3,544 | — | ||||||||||||||
| Total | 761,714 | 1,548,581 | 5,519,077 | 3,796,210 | ||||||||||||||
Tadeu Nardocci | Short-Term Incentive Pay (A) | 272,750 | 272,750 | 272,750 | 272,750 | |||||||||||||
| Long-Term Incentive Plan (B) | 148,417 | 148,417 | 2,884,525 | 2,884,525 | ||||||||||||||
| Severance | — | 629,423 | 1,384,730 | — | ||||||||||||||
| Retirement plans | — | 101,590 | 101,590 | — | ||||||||||||||
| Lump sum cash payment for continuation of health coverage (G) | — | — | — | — | ||||||||||||||
| Continued group life insurance coverage (H) | — | 2,280 | 2,280 | — | ||||||||||||||
| Total | 421,167 | 1,154,460 | 4,645,875 | 3,157,275 | ||||||||||||||
146
Name | Type of Payment | Voluntary Termination by Executive ($) | Termination by Us without Cause ($) (C) (D) (J) | Termination by Us without Cause or by Executive for Good Reason in Connection with Change in Control ($) (E) (F) | Death or Disability($) | |||||||||||||
Philip Martens | Short-Term Incentive Pay (A) | 1,092,240 | 1,092,240 | 1,092,240 | 1,092,240 | |||||||||||||
| Long-Term Incentive Plan (B) | — | 2,758,590 | 1,806,584 | 1,074,343 | ||||||||||||||
| Severance | — | 4,004,880 | 4,004,880 | — | ||||||||||||||
| Retirement plans | — | 190,232 | 190,232 | — | ||||||||||||||
| Lump sum cash payment for continuation of health coverage (G) | — | 28,219 | 28,219 | — | ||||||||||||||
| Continued group life insurance coverage (H) | — | 7,910 | 7,910 | — | ||||||||||||||
| Tax Gross Up | — | — | — | (I) | — | |||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||
| Total | 1,092,240 | 8,082,071 | 7,130,065 | 2,166,583 | ||||||||||||||
Steven Fisher | Short-Term Incentive Pay (A) | 375,000 | 375,000 | 375,000 | 375,000 | |||||||||||||
| Long-Term Incentive Plan (B) | 131,633 | 1,269,295 | 1,092,626 | 934,458 | ||||||||||||||
| Severance | — | 750,000 | 1,750,001 | — | ||||||||||||||
| Retirement plans | — | 83,125 | 83,125 | — | ||||||||||||||
| Lump sum cash payment for continuation of health coverage (G) | — | 28,219 | 28,219 | — | ||||||||||||||
| Continued group life insurance coverage (H) | — | 3,749 | 3,749 | — | ||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||
| Total | 506,633 | 2,509,388 | 3,332,720 | 1,309,458 | ||||||||||||||
Tadeu Nardocci | Short-Term Incentive Pay (A) | 311,576 | 311,576 | 311,576 | 311,576 | |||||||||||||
| Long-Term Incentive Plan (B) | — | 965,027 | 825,494 | 680,216 | ||||||||||||||
| Severance | — | 719,020 | 1,581,843 | — | ||||||||||||||
| Retirement plans | — | 104,304 | 104,304 | — | ||||||||||||||
| Lump sum cash payment for continuation of health coverage (G) | — | — | — | — | ||||||||||||||
| Continued group life insurance coverage (H) | — | 2,181 | 2,181 | — | ||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||
| Total | 311,576 | 2,102,108 | 2,825,398 | 991,792 | ||||||||||||||
Thomas Walpole | Short-Term Incentive Pay (A) | 199,500 | 199,500 | 199,500 | 199,500 | |||||||||||||
| Long-Term Incentive Plan (B) | 591,926 | 1,333,449 | 1,209,116 | 1,122,244 | ||||||||||||||
| Severance | — | 525,000 | 1,099,001 | — | ||||||||||||||
| Retirement plans | — | 232,289 | 232,289 | — | ||||||||||||||
| Lump sum cash payment for continuation of health coverage (G) | — | — | — | — | ||||||||||||||
| Continued group life insurance coverage (H) | — | 5,382 | 5,382 | — | ||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||
| Total | 791,426 | 2,295,620 | 2,745,288 | 1,321,744 | ||||||||||||||
Erwin Mayr | Short-Term Incentive Pay (A) | 268,971 | 268,971 | 268,971 | 268,971 | |||||||||||||
| Long-Term Incentive Plan (B) | 316,317 | 743,841 | 828,123 | 749,364 | ||||||||||||||
| Severance | — | 537,943 | 1,210,372 | — | ||||||||||||||
| Retirement plans | — | 81,203 | 81,203 | — | ||||||||||||||
| Lump sum cash payment for continuation of health coverage (G) | — | — | — | — | ||||||||||||||
| Continued group life insurance coverage (H) | — | 1,884 | 1,884 | — | ||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||
| Total | 585,288 | 1,633,842 | 2,390,553 | 1,018,335 | ||||||||||||||
| Termination by | ||||||||||||||||||
| Us without | ||||||||||||||||||
| Cause or by | ||||||||||||||||||
| Executive for | ||||||||||||||||||
| Good Reason in | ||||||||||||||||||
| Termination by | Connection with | |||||||||||||||||
| Voluntary | Us without | Change in | ||||||||||||||||
| Termination by | Cause ($) | Control ($) | Death or | |||||||||||||||
Name | Type of Payment | Executive ($) | (C) (D) | (E) (F) | Disability($) | |||||||||||||
Erwin Mayr | Short-Term Incentive Pay (A) | 235,455 | 235,455 | 235,455 | 235,455 | |||||||||||||
| Long-Term Incentive Plan (B) | 301,959 | 301,959 | 1,672,492 | 1,672,492 | ||||||||||||||
| Severance | — | 470,910 | 1,059,548 | — | ||||||||||||||
| Retirement plans | — | 87,272 | 87,272 | — | ||||||||||||||
| Lump sum cash payment for continuation of health coverage (G) | — | — | — | — | ||||||||||||||
| Continued group life insurance coverage (H) | — | 1,556 | 1,556 | — | ||||||||||||||
| Total | 537,414 | 1,097,152 | 3,056,323 | 1,907,947 | ||||||||||||||
Jean-Marc Germain | Short-Term Incentive Pay (A) | 260,244 | 260,244 | 260,244 | 260,244 | |||||||||||||
| Long-Term Incentive Plan (B) | 836,220 | 836,220 | 3,770,717 | 3,770,717 | ||||||||||||||
| Severance | — | 600,563 | 1,321,238 | — | ||||||||||||||
| Retirement plans | — | 86,741 | 86,741 | — | ||||||||||||||
| Lump sum cash payment for continuation of health coverage (G) | — | 29,348 | 29,348 | — | ||||||||||||||
| Continued group life insurance coverage (H) | — | 2,778 | 2,778 | — | ||||||||||||||
| Total | 1,096,464 | 1,815,894 | 5,471,066 | 4,030,960 | ||||||||||||||
| (A) | These amounts represent 100% of the executive’s AIP opportunity for the fiscal year. | |
| (B) | These amounts reflect the estimated value of the SARs and RSUs granted pursuant to our | |
| (C) | These amounts would be paid pursuant to the executive’s severance compensation agreement (or employment agreement in the case of Mr. Martens). Except for the retirement and life insurance benefits, these amounts would be paid in a single lump sum following termination of employment. The retirement benefit represents one additional year of benefit accrual or contribution credit, as applicable. The life insurance benefit represents the estimate value of coverage for one additional year. | |
| (D) | Termination for “cause” means (i) the executive’s conviction of any crime (whether or not involving the Company) constituting a felony in the applicable jurisdiction; (ii) willful and material violation of the Company’s policies, including, but not limited to, those relating to sexual harassment and confidential information; (iii) willful misconduct in the performance of the executive’s duties for the Company; or (iv) willful failure or refusal to perform the executive’s material duties and responsibilities which is not remedied within ten days after written demand from the board of directors to remedy such failure or refusal. | |
| (E) | Under the executive’s change in control agreement, these amounts would be paid to the executive if his employment is terminated without cause, or he resigns for good reason, within 24 months of a change of control. Except for the retirement and life insurance benefits, these amounts would be paid in a single lump sum following termination of employment. The retirement benefit represents one additional year of benefit accrual or contribution credit, as applicable. The life insurance benefit represents the estimate value of coverage for one additional year. | |
| (F) | See footnote (D) above for definition of “cause.” Termination for “good reason” means (i) a material reduction in the executive’s position, duties, reporting relationships, responsibilities, authority, or status with the Company; (ii) a reduction in the executive’s base salary and target short term and long term incentive opportunities in effect on the date hereof or as the same may be increased from time to |
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| (G) | This amount is intended to assist the executive in paying post-employment health coverage and is equal to 12 months times the COBRA premium rate, grossed up for applicable taxes using an assumed tax rate of 40%. This amount would be paid in a single lump sum following termination of employment. | |
| (H) | This amount represents the | |
| (I) | Under Mr. Marten’s change in control agreement, the Company is required to reimburse him for any excise tax liability under Section 4999 of the U.S. Internal Revenue Code. We do not believe any such excise tax liability would have been imposed under Section 4999 had a change in control occurred on March 31, | |
| (J) | In the event of a |
Director Compensation for Fiscal 2011
The Chairman of our board of directors is entitled to receive cash compensation equal to $250,000 per year, and the Chair of our Audit Committee is entitled to receive $175,000 per year. Each of our other directors is entitled to receive compensation equal to $150,000 per year, plus an additional $5,000 if he is a member of our Audit Committee. Directors’ fees are paid in quarterly installments.
Since July 2008, two of our directors, Messrs. Birla and Stewart have declined to receive the director compensation to which they are entitled. This year Mr. Stewart has elected to begin receiving again the director compensation to which he is entitled. All directors however, continue to receive reimbursement for out-of-pocket expenses associated with attending board and Committee meetings. The table below sets forth the total compensation received by our non-employee directors for fiscal 2011.
Name | |||||
| Fees Earned or | |||||
Paid in Cash ($) | |||||
Kumar Mangalam Birla | — | ||||
D. Bhattacharya | 155,000 | ||||
Askaran K. Agarwala | 150,000 | ||||
Clarence J. Chandran | 155,000 | ||||
Donald A. Stewart | |||||
Compensation Committee Interlocks and Insider Participation
In fiscal 2011,2012, only Independent Directors served on the Committee. Clarence J. Chandran was the Chairman of the Committee. The other Committee members during all or part of the year were Mr. D. Bhattacharya and Mr. Askaran Agarwala. During fiscal 2011,2012, none of our executive officers served as:
a member of the Committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our Committee;
a director of another entity, one of whose executive officers served on our Committee; or
a member of the Committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as one of our directors.
On May 15, 2007, the Company was acquired by Hindalco through its indirect wholly-owned subsidiary AV Metals Inc. (Acquisition Sub) pursuant to a plan of arrangement (the Arrangement) entered into on February 10, 2007 and approved by the Ontario Superior Court of Justice on May 14, 2007.
Subsequent to completion of the Arrangement on May 15, 2007, all of our common shares were indirectly held by Hindalco.
| Item 13. | Certain Relationships and Related Transactions and Director Independence |
In accordance with our Audit Committee charter, we maintain various policies and procedures that govern related party transactions. Pursuant to our Code of Conduct for the Board of Directors and Senior Managers, senior managers and directors of the
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On December 11, 2009, our wholly-owned subsidiary, Novelis U.K. Limited, entered into an agreement with Hindalco to sell certain equipment previously used in the operation of our aluminum sheet mill in Rogerstone, South Wales, U.K., which ceased operations in April 2009. Under the equipment purchase agreement, Hindalco paid Novelis U.K. Limited a purchase price of $17 million, and in the transaction closed in December 2010. The purchase price foryear ended March 31, 2012, we provided ancillary technical assistance to Hindalco with respect to its use of the equipment was based on a third-party valuation, and we believe the terms of this transaction are comparable to the terms that would have been reached with a third party on an arms-length basis.
On November 5, 2010, Novelis U.K. Limited entered into an agreement with Hindalco to sell certain aluminum rolling equipment previously used in the operation of our plant located at Bridgnorth, England. Under the arrangement, Hindalco is to paypaid Novelis U.K. Limited a purchase price of $3 million, plus certain additional dismantling costs. The purchase price forIn the year ended March 31, 2012, Hindalco purchased an additional $5 million of equipment, was based on a third-party valuation, and we believeprovided ancillary technical assistance to Hindalco with respect to its use of the termsequipment.
On December 23, 2011, our subsidiary Novelis Korea Limited, entered into an agreement with Hindalco to sell aluminum coils produced by our Korean operations. In the year ended March 31, 2012, we sold $5 million of this transaction are comparablealuminum coils to Hindalco under the terms that would have been reached with a third party on an arms-length basis. We expect the transaction to be completed in the second quarter of fiscal year 2012.
Because of the relationship three of our directors have with Hindalco, we consider the Rogerstone and Bridgnorth equipmentthese sales to be related party transactions.
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| (3) | Represent fees for services related to |
| (4) | Represent fees for
|
Pre-Approval of Audit and Permissible Non-Audit Services
The charter of the Audit Committee provides that the Committee is responsible for the pre-approval of all audit and permissible non-audit services to be performed by the independent auditors. The Audit Committee has adopted a policy for the pre-approval of services provided by the independent auditors. The policy gives detailed guidance to management as to the specific services that are eligible for general pre-approval and provides specific cost limits for certain services on an annual basis. Pursuant to the policy and the Audit Committee charter, the Audit Committee has granted to its chairman the authority to address any requests for pre-approval of individual services.
Item 15. | Exhibits and Financial Statement Schedules |
1. Financial Statement Schedules
None.
2. Exhibits
Exhibit | Description | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2.1 | Arrangement Agreement by and among Hindalco Industries Limited, AV Aluminum Inc. and Novelis Inc., dated as of February 10, 2007 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on February 13, 2007 (File No. 001-32312)) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3.1 | Restated Certificate and Articles of Incorporation of Novelis Inc. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on January 7, 2005 (File No. 001-32312)) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3.2 | Restated Certificate and Articles of Amalgamation of Novelis Inc. (incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q filed on November 10, 2010 (File No. 001-32312)) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3.3 | Novelis Inc. Amended and Restated Bylaws, adopted as of July 24, 2008 (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on July 25, 2008 (File No. 001-32312)) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4.1 | Specimen Certificate of Novelis Inc. Common Shares (incorporated by reference to Exhibit 4.2 to our Registration Statement
Index to Financial Statements
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Index to Financial Statements
Index to Financial StatementsSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 24, 2012 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Index to Financial StatementsEXHIBIT INDEX
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Index to Financial Statements
Index to Financial Statements
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