Each of our named executive officers was subject to an employment or letter agreement during fiscal 2009. The terms of each such agreement is summarized below.
reimbursements for the education of his children through the end of the 2009 — 2010 school year. He is also eligible for our broad-based employee benefit and health plans.
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Agreement with Thomas Walpole
We entered into an employment agreement with Mr. Walpole effective as of February 1, 2007, pursuant to which he serves as our Senior Vice President and President of Novelis Asia with a base salary of $285,000 in fiscal 2009. Under his agreement, Mr. Walpole is entitled to an expatriate premium and relocation allowance, each in amount equal to 10% of his base salary (net after tax). Mr. Walpole is also eligible for our executive long-term and short-term incentive plans and certain executive perquisites as well as our broad-based employee benefit and health plans. During the term of his Korean assignment, Mr. Walpole is provided with a fully furnished home which is paid for by Novelis Korea Limited and is entitled to be reimbursed for one personal trip to the United States during the year for himself and his family members.
Change in Control Agreements
We entered into change in control agreements on September 26, 2006 with all of our named executive officers, except for Mr. Germain. These agreements expired on May 15, 2009. We entered into new, and similar, agreements with Messrs. Fisher, Germain and Walpole on June 25, 2009.
Long-term Incentive Plan (LTIP) — FY 2009 — FY 2012
On June 19, 2008, the board of directors approved the Novelis Long-Term Incentive Plan for Fiscal Years 2009 — 2012 (2009 LTIP). The 2009 LTIP has been designed to provide a clear line of sight for participants to company performance as measured by the increase in the price of Hindalco shares.
Awards under the 2009 LTIP will consist of stock appreciation rights (SARs), with the value of one SAR equivalent to the increase in value of one Hindalco share. The SARs will vest 25% each year for four years, subject to performance criteria being fulfilled. The performance criterion will be based on Operating EBIDTA performance for Novelis each year. The vesting threshold will be 75% performance versus target each year, at which point 75% of SARs due that year, would vest. There would be a straight line vesting up to 100% of performance. After the SARs have vested, they can be exercised anytime by the employee. The upside so realized would be dependent on the stock price of Hindalco at the time of exercise; however, the upside would be restricted to a maximum of 2.5 times the proportionate target opportunity if the SARs are exercised within one year of vesting. The maximum will be 3 times for SARs exercised more than one year after vesting.
In the event a participant resigns, unvested SARs will lapse and vested SARs must be exercised within 90 days. If an employee 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 following table presents the 2009 LTIP target amounts for our principal executive officer, principal financial officer, and our named executive officers.
| | | | |
Name | | LTIP Target | |
|
Martha Finn Brooks | | $ | 2,231,000 | |
Steven Fisher | | $ | 500,000 | |
Arnaud de Weert | | $ | 500,000 | |
Jean-Marc Germain | | $ | 500,000 | |
Thomas Walpole | | $ | 350,000 | |
Option Exercises and Stock Vested in 2009
The table below sets forth the information regarding stock options that were exercised or were cancelled and paid out during fiscal 2009 and stock awards that vested and were paid out during fiscal 2009.
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| | | | | | | | | | | | | | | | |
| | 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(A) | | | Cancellation | |
|
Martha Finn Brooks | | | — | | | $ | — | | | | 14,200 | | | $ | 638,006 | |
Steven Fisher | | | — | | | $ | — | | | | 2,850 | | | $ | 128,051 | |
Arnaud de Weert | | | — | | | $ | — | | | | 4,100 | | | $ | 184,213 | |
Jean-Marc Germain | | | — | | | $ | — | | | | 2,700 | | | $ | 121,311 | |
Thomas Walpole | | | — | | | $ | — | | | | 3,500 | | | $ | 157,255 | |
| | |
(A) | | Represents values for Recognition Awards. |
Outstanding Equity Awards as of March 31, 2009
| | | | | | | | | | | | | | | | |
| | SAR Awards | |
| | Number of
| | | Number of
| | | | | | | |
| | Securities
| | | Securities
| | | | | | | |
| | Underlying
| | | Underlying
| | | | | | | |
| | Unexercised SARs
| | | Unexercised SARs
| | | SAR Exercise
| | | SAR
| |
Name | | Exercisable | | | Unexercisable | | | Price(A) | | | Expiration Date | |
|
Martha Finn Brooks | | | — | | | | 2,939,954 | (B) | | $ | 1.16 | | | | June 19, 2015 | |
Steven Fisher | | | — | | | | 658,887 | | | $ | 1.16 | | | | June 19, 2015 | |
Arnaud de Weert | | | — | | | | 658,887 | | | $ | 1.16 | | | | June 19, 2015 | |
Jean-Marc Germain | | | — | | | | 658,887 | | | $ | 1.16 | | | | June 19, 2015 | |
Thomas Walpole | | | — | | | | 461,221 | | | $ | 1.16 | | | | June 19, 2015 | |
| | |
(A) | | SARs issued are payable in cash based on the stock performance of Hindalco Industries Limited, listed on the National Stock Exchange in Mumbai, India. Novelis is a subsidiary of Hindalco Industries Limited. The Exercise price of 60.5 Indian Rupees converted to US$ based on an exchange rate of 1US$=INR 52.17 which was the closing exchange rate on March 31, 2009. |
|
(B) | | Ms Brooks terminated her services with the Company effective May 8, 2009 and an additional 2,939,954 SARs granted to her were forfeited /cancelled. |
Pension Benefits in Fiscal 2009
The table below sets forth information regarding the present value as of March 31, 2009 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
| | Value of
| | During
|
| | | | Credited
| | Accumulated
| | Last
|
Name | | Plan Name(A) | | Service | | Benefit(B) | | Fiscal Year |
|
Martha Finn Brooks | | Novelis Pension Plan | | | 6.667 | | | $ | 125,445 | | | $ | — | |
| | Novelis SERP | | | 6.667 | | | | 744,392 | (C) | | | — | |
Steven Fisher | | Not eligible | | | — | | | $ | — | | | $ | — | |
Arnaud de Weert | | Pensionskasse Alcan Schweiz | | | 2.917 | | | $ | 55,659 | | | $ | — | |
Jean-Marc Germain | | Novelis Pension Plan | | | 2.25 | | | $ | 27,726 | | | $ | — | |
| | Novelis SERP | | | 2.25 | | | | 19,814 | | | | — | |
Thomas Walpole | | Novelis Pension Plan | | | 29.833 | | | $ | 766,967 | | | $ | — | |
| | Novelis SERP | | | 29.833 | | | | 592,814 | | | | — | |
| | |
(A) | | See Compensation Discussion and Analysis — Elements of Our Compensation, Employee Benefits for a discussion of these plans. |
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| | |
(B) | | See Note 15 to our audited consolidated financial statements for the year ended March 31, 2009, for a discussion of the assumptions used in the calculation of these amounts. |
|
(C) | | Includes an amount of $126,589 as the present value of accumulated benefit under the Cummins Minimum Pension Guarantee as outlined as part of Ms. Brooks’ employment agreement. |
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 Scheme | | | 18 | % | | | 27 | % | | | 36 | % | | | 45 | % | | | 54 | % | | | 63 | % |
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, 2009, upon voluntary or involuntary termination of employment. 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.
| | | | | | | | | | | | | | | | | | | | |
| | Martha Finn Brooks(A) | |
| | | | | | | | | | | Termination by
| | | | |
| | | | | | | | | | | us without
| | | | |
| | | | | | | | | | | Cause or by
| | | | |
| | | | | | | | | | | Executive for
| | | | |
| | | | | | | | | | | Good Reason in
| | | | |
| | Voluntary
| | | | | | Termination by
| | | Connection with
| | | | |
| | Termination by
| | | Termination by
| | | us without
| | | Change in
| | | Death or
| |
Type of Payment | | Executive | | | us for Cause | | | Cause | | | Control | | | Disability | |
|
Short-Term Incentive Pay(B) | | $ | 825,000 | | | $ | — | | | $ | 825,000 | | | $ | 825,000 | | | $ | 825,000 | |
Long-Term Incentive Plan(C) | | | — | | | | — | | | | — | | | | — | | | | — | |
Severance | | | — | | | | — | | | | 1,500,000 | (D) | | | 3,150,000 | (E) | | | — | |
Retirement plans | | | — | | | | — | | | | — | | | | 390,861 | (F) | | | — | |
Lump sum cash payment for continuation of health coverage | | | — | | | | — | | | | — | | | | 49,948 | (G) | | | — | |
Continued group life insurance coverage | | | — | | | | — | | | | — | | | | 4,997 | (H) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 825,000 | | | $ | — | | | $ | 2,325,000 | | | $ | 4,420,806 | | | $ | 825,000 | |
| | | | | | | | | | | | | | | | | | | | |
| | |
(A) | | In addition to the estimated payments set forth in this table, the executive would be eligible for payments or benefits that would be paid to our salaried employees generally upon termination of employment (including, for example, earned but unpaid base salary and accrued vacation (approximately $57,692 at March 31, 2009). Ms. Brooks was not eligible for retirement on March 31, 2009. |
|
(B) | | These amounts represent 100% of the executive’s target short-term incentive opportunity for the period April 1, 2008 through March 31, 2009. |
|
(C) | | These amounts represent the amount of Long-Term Incentive Plan (LTIP) that would have been earned as of March 31, 2009. |
|
(D) | | This amount is equal to 200% of executive’s annual base salary and would be paid pursuant to the executive’s Employment Agreement. |
|
(E) | | This amount is equal to two times the sum of executive’s base salary and target short-term incentive and would be paid pursuant to the executive’s Change in Control Agreement. |
|
(F) | | This amount is equal to the present value of two additional years of benefit accrual under our qualified and non-qualified retirement plans and is payable pursuant to the executive’s Change in Control Agreement. See the Pension Benefits table for pension benefits accrued as of March 31, 2009. |
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| | |
(G) | | Pursuant to the executive’s Change in Control Agreement, this amount is intended to assist the executive in paying post-employment health coverage and is equal to 24 months times the COBRA premium rate in effect at March 31, 2009, grossed up for applicable taxes using an assumed tax rate of 40%. |
|
(H) | | The executive’s Change in Control Agreement provides that the executive will be entitled to two additional years of coverage under our group life insurance plan. |
| | | | | | | | | | | | | | | | | | | | |
| | Steven Fisher(A) | |
| | | | | | | | | | | Termination by
| | | | |
| | | | | | | | | | | us without
| | | | |
| | | | | | | | | | | Cause or by
| | | | |
| | | | | | | | | | | Executive for
| | | | |
| | | | | | | | | | | Good Reason in
| | | | |
| | Voluntary
| | | | | | Termination by
| | | Connection with
| | | | |
| | Termination by
| | | Termination by
| | | us without
| | | Change in
| | | Death or
| |
Type of Payment | | Executive | | | us for Cause | | | Cause | | | Control | | | Disability | |
|
Short-Term Incentive Pay(B) | | $ | 337,500 | | | $ | — | | | $ | 337,500 | | | $ | 337,500 | | | $ | 337,500 | |
Long-Term Incentive Plan(C) | | | — | | | | — | | | | — | | | | — | | | | — | |
Severance | | | — | | | | — | | | | 56,250 | (D) | | | 1,575,000 | (E) | | | — | |
Retirement plans | | | — | | | | — | | | | — | | | | 100,800 | (F) | | | — | |
Lump sum cash payment for continuation of health coverage | | | — | | | | — | | | | — | | | | 49,948 | (G) | | | — | |
Continued group life insurance coverage | | | — | | | | — | | | | — | | | | 1,432 | (H) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 337,500 | | | $ | — | | | $ | 393,750 | | | $ | 2,064,680 | | | $ | 337,500 | |
| | | | | | | | | | | | | | | | | | | | |
| | |
(A) | | In addition to the estimated payments set forth in this table, the executive would be eligible for payments or benefits that would be paid to our salaried employees generally upon termination of employment (including, for example, earned but unpaid base salary and accrued vacation (approximately $34,615 at March 31, 2009). Mr. Fisher was not eligible for retirement on March 31, 2009. |
|
(B) | | These amounts represent 100% of the executive’s target short-term incentive opportunity for the period April 1, 2008 through March 31, 2009. |
|
(C) | | These amounts represent the amount of Long-Term Incentive Plan (LTIP) that would have been earned as of March 31, 2009. |
|
(D) | | This amount is equal to the benefit payable under the Novelis Severance Pay Plan. |
|
(E) | | This amount is equal to two times the sum of executive’s base salary and target short-term incentive and would be paid pursuant to the executive’s Change in Control Agreement. |
|
(F) | | This amount is equal to the present value of two additional years of benefit accrual under our qualified and non-qualified retirement plans and is payable pursuant to the executive’s Change in Control Agreement. |
|
(G) | | Pursuant to the executive’s Change in Control Agreement, this amount is intended to assist the executive in paying post-employment health coverage and is equal to 24 months times the COBRA premium rate in effect at March 31, 2009, grossed up for applicable taxes using an assumed tax rate of 40%. |
|
(H) | | The executive’s Change in Control Agreement provides that the executive will be entitled to two additional years of coverage under our group life insurance plan. |
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| | | | | | | | | | | | | | | | | | | | |
| | Arnaud de Weert(A) | |
| | | | | | | | | | | Termination by
| | | | |
| | | | | | | | | | | us without
| | | | |
| | | | | | | | | | | Cause or by
| | | | |
| | | | | | | | | | | Executive for
| | | | |
| | | | | | | | | | | Good Reason in
| | | | |
| | Voluntary
| | | | | | Termination by
| | | Connection with
| | | | |
| | Termination by
| | | Termination by
| | | us without
| | | Change in
| | | Death or
| |
Type of Payment | | Executive | | | us for Cause | | | Cause | | | Control | | | Disability | |
|
Short-Term Incentive Pay(B) | | $ | 367,031 | | | $ | — | | | $ | 367,031 | | | $ | 367,031 | | | $ | 367,031 | |
Long-Term Incentive Plan(C) | | | — | | | | — | | | | — | | | | — | | | | — | |
Severance | | | — | | | | — | | | | 685,125 | (D) | | | 1,908,563 | (E) | | | — | |
Retirement plans | | | — | | | | — | | | | — | | | | 213,793 | (F) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 367,031 | | | $ | — | | | $ | 1,052,156 | | | $ | 2,489,387 | | | $ | 367,031 | |
| | | | | | | | | | | | | | | | | | | | |
| | |
(A) | | In addition to the estimated payments set forth in this table, the executive would be eligible for payments or benefits that would be paid to our salaried employees generally upon termination of employment (including, for example, earned but unpaid base salary and accrued vacation (approximately $45,173 at March 31, 2009). Mr. de Weert was not eligible for retirement on March 31, 2009. |
|
(B) | | These amounts represent 100% of the executive’s target short-term incentive opportunity for the period April 1, 2008 through March 31, 2009. |
|
(C) | | These amounts represent the amount of Long-Term Incentive Plan (LTIP) that would have been earned as of March 31, 2009. |
|
(D) | | This amount is equal to 14 months of executive’s annual base salary and would be paid pursuant to the executive’s Employment Agreement. |
|
(E) | | This amount is equal to two times the sum of executive’s base salary and target short-term incentive and would be paid pursuant to the executive’s Change in Control Agreement. |
|
(F) | | This amount is equal to the present value of two additional years of benefit accrual under our qualified and non-qualified retirement plans and is payable pursuant to the executive’s Change in Control Agreement. See the Pension Benefits table for pension benefits accrued as of March 31, 2009. |
| | | | | | | | | | | | | | | | | | | | |
| | Jean-Marc Germain(A) | |
| | | | | | | | | | | Termination by
| | | | |
| | | | | | | | | | | us without
| | | | |
| | | | | | | | | | | Cause or by
| | | | |
| | | | | | | | | | | Executive for
| | | | |
| | | | | | | | | | | Good Reason in
| | | | |
| | Voluntary
| | | | | | Termination by
| | | Connection with
| | | | |
| | Termination by
| | | Termination by
| | | us without
| | | Change in
| | | Death or
| |
Type of Payment | | Executive | | | us for Cause | | | Cause | | | Control | | | Disability | |
|
Short-Term Incentive Pay(B) | | $ | 195,000 | | | $ | — | | | $ | 195,000 | | | $ | — | | | $ | 195,000 | |
Long-Term Incentive Plan(C) | | | — | | | | — | | | | — | | | | — | | | | — | |
Severance | | | — | | | | — | | | | 780,000 | (D) | | | — | | | | — | |
Retirement plans | | | — | | | | — | | | | — | | | | — | | | | — | |
Continued group life insurance coverage | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 195,000 | | | $ | — | | | $ | 975,000 | | | $ | — | | | $ | 195,000 | |
| | | | | | | | | | | | | | | | | | | | |
| | |
(A) | | In addition to the estimated payments set forth in this table, the executive would be eligible for payments or benefits that would be paid to our salaried employees generally upon termination of employment (including, for example, earned but unpaid base salary and accrued vacation (approximately $25,000 at March 31, 2009). Mr. Germain was not eligible for retirement on March 31, 2009. |
|
(B) | | These amounts represent 100% of the executive’s target short-term incentive opportunity for the period April 1, 2008 through March 31, 2009. |
139138
| | |
(C) | | These amounts represent the amount of Long-Term Incentive Plan (LTIP) that would have been earned as of March 31, 2009. |
|
(D) | | This amount is equal to 18 months of executive’s annual base salary and target bonus and would be paid pursuant to the executive’s Employment Agreement. |
| | | | | | | | | | | | | | | | | | | | |
| | Thomas Walpole(A) | |
| | | | | | | | | | | Termination by
| | | | |
| | | | | | | | | | | us without
| | | | |
| | | | | | | | | | | Cause or by
| | | | |
| | | | | | | | | | | Executive for
| | | | |
| | | | | | | | | | | Good Reason in
| | | | |
| | Voluntary
| | | | | | Termination by
| | | Connection with
| | | Retirement
| |
| | Termination by
| | | Termination by
| | | us without
| | | Change in
| | | Death or
| |
Type of Payment | | Executive | | | us for Cause | | | Cause | | | Control | | | Disability | |
|
Short-Term Incentive Pay(B) | | $ | 156,750 | | | $ | — | | | $ | 156,750 | | | $ | 156,750 | | | $ | 156,750 | |
Long-Term Incentive Plan(C) | | | — | | | | — | | | | — | | | | — | | | | — | |
Severance | | | — | | | | — | | | | 486,875 | (D) | | | 883,500 | (E) | | | — | |
Retirement plans | | | — | | | | — | | | | — | | | | 270,619 | (F) | | | — | |
Continued group life insurance coverage | | | — | | | | — | | | | — | | | | 2,352 | (G) | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 156,750 | | | $ | — | | | $ | 643,625 | | | $ | 1,313,221 | | | $ | 156,750 | |
| | | | | | | | | | | | | | | | | | | | |
| | |
(A) | | In addition to the estimated payments set forth in this table, the executive would be eligible for payments or benefits that would be paid to our salaried employees generally upon termination of employment (including, for example, earned but unpaid base salary and accrued vacation (approximately $21,923 at March 31, 2009). Mr. Walpole was eligible for retirement on March 31, 2009. |
|
(B) | | These amounts represent 100% of the executive’s target short-term incentive opportunity for the period April 1, 2008 through March 31, 2009. |
|
(C) | | These amounts represent the amount of Long-Term Incentive Plan (LTIP) that would have been earned as of March 31, 2009. |
|
(D) | | This amount is equal to the benefit payable under the Novelis Severance Pay Plan. |
|
(E) | | This amount is equal to two times the sum of executive’s base salary and target short-term incentive and would be paid pursuant to the executive’s Change in Control Agreement. |
|
(F) | | This amount is equal to the present value of two additional years of benefit accrual under our qualified and non-qualified retirement plans and is payable pursuant to the executive’s Change in Control Agreement. See the Pension Benefits table for pension benefits accrued as of March 31, 2009. |
|
(G) | | The executive’s Change in Control Agreement provides that the executive will be entitled to two additional years of coverage under our group life insurance plan. |
Director Compensation — for Directors for the Period April 1, 2008 through March 31, 2009
The Chair 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.
On July 8, 2008, our Chairman of the board, Mr. Birla, informed the company that due to current and foreseeable business conditions, he was foregoing the payment of his Novelis director fees until further notice. On November 5, 2008, Mr. Stewart informed the board that he was also foregoing his Novelis director fees with effective date of July 1, 2008 until further notice. All directors, however, will 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 the year ended March 31, 2009.
140139
| | | | |
| | Fees Earned or
| |
Name | | Paid in Cash | |
|
Kumar Mangalam Birla | | $ | 62,500 | |
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 2009, 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. No member of our Committee had any relationship with us requiring disclosure under Item 404 of SECRegulation S-K. During fiscal 2008, none of our executive officers served as:
| | |
| • | a member of the compensation 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 compensation 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. |
141140
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In accordance with our Audit Committee charter, our Audit Committee is responsible for reviewing the terms of our Code of Conduct for the Board of Directors and Senior Managers, which includes disclosure requirements applicable to our senior managers and our directors relating to conflicts of interest. Accordingly, the Audit Committee is responsible for reviewing and approving the terms and conditions of all transactions that involve the Company, one of our directors or executive officers or any of their immediate family members. On February 11, 2009, the Board of Directors authorized us to enter into the Unsecured Credit Facility of $100 million with a scheduled maturity date of January 15, 2015 from a company affiliated with the Aditya Birla group. Our Chairman, Kumar Mangalam Birla, also serves as Chairman of the Aditya Birla group; thus, we consider the Unsecured Credit Facility to be a related party transaction. On August 11, 2009 we repaid in full and terminated the Unsecured Credit Facility with a portion of the proceeds of the offering of the old notes. For each advance under the Unsecured Credit Facility, interest was payable quarterly at a rate of 13% per annum prior to the first anniversary of the advance and 14% per annum thereafter. We paid $1,410,728.21 in interest under the Unsecured Credit facility and the largest aggregate amount of principal outstanding under the Unsecured Credit Facility was $94,306,922.59. We have not entered into any other related party transactions since March 31, 2008 that meet the requirements for disclosure in this prospectus.
See “Directors, Executive Officers and Corporate Governance — Board of Directors and Corporate Governance Matters” for additional information regarding the independence of our Board of Directors.
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 Company (a) must avoid any action that creates or appears to create, a conflict of interest between their own interest and the interest of the Company, (b) cannot usurp corporate opportunities, and (c) must deal fairly with third parties. This policy is available on our website at www.novelis.com. In addition, we have enacted procedures to monitor related party transactions by (x) identifying possible related parties through questions in our director and officer questionnaires, (y) determining whether we receive payments from or make payments to any of the identified related parties, and (z) if we determine payments are made or received, researching the nature of the interactions between the Company and the related parties and ensuring that the related person does not have an interest in the transaction with the related party.
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DESCRIPTION OF OTHER INDEBTEDNESS
Senior Secured Credit Facilities
General. Our senior secured credit facilities consist of (1) the $1.16 billion seven-year Term Loan Facility that can be increased by up to $180 million subject to the satisfaction of certain conditions and (2) the $800 million five-year ABL Facility. Following the completion of the offering of the old notes, we used approximately $81 million of the proceeds plus additional cash on hand to repay a portion of the outstanding amount under the ABL Facility. Mandatory minimum principal amortization payments under the Term Loan Facility are $2.95 million per calendar quarter. Any unpaid principal is due in full on July 6, 2014. Substantially all of our assets are pledged as collateral under the senior secured credit facilities. The senior secured credit facilities are also guaranteed by substantially all of our restricted subsidiaries that guarantee our 7.25% senior notes and that guarantee the old notes.
Borrowings. Borrowings under the ABL Facility are generally based on 85% of eligible accounts receivable and 75% of eligible inventories.
Interest Rate and Fees. Generally, for both the Term Loan Facility and ABL Facility, interest rates reset periodically and interest is payable on a periodic basis depending on the type of loan.
Under the ABL Facility, interest charged depends on the type of loan as follows: (1) any U.S. swingline loan or any loan categorized as an alternate base rate (“ABR”) borrowing will bear interest at an annual rate equal to the alternate base rate (which is the greater of (a) the base rate in effect on a given day and (b) the federal funds effective rate in effect on a given day, plus 0.50%), plus the applicable margin; (2) Eurocurrency loans will bear interest at an annual rate equal to the adjusted LIBOR rate for the applicable interest period, plus the applicable margin; (3) loans designated as Canadian base rate borrowings will bear an annual interest rate equal to the Canadian base rate (“CAPRIME”), plus the applicable margin; (4) loans designated as bankers acceptances (BA) rate loans will bear interest at the average discount rate offered for bankers’ acceptances for the applicable BA interest period, plus 0.05%, plus the applicable margin, and (5) loans designated as Euro Interbank Offered Rate (“EURIBOR”) loans will bear interest annually at a rate equal to the adjusted EURIBOR rate for the applicable interest period, plus the applicable margin. Applicable margins under the ABL Facility depend upon excess availability levels calculated on a quarterly basis and range from (0.25%) to 1.75%.
Commitment fees ranging from 0.25% to 0.375% are based on average daily amounts outstanding under the ABL Facility during a fiscal quarter and are payable quarterly.
Under the Term Loan Facility, loans characterized as ABR borrowings bear interest annually at a rate equal to the alternate base rate (which is the greater of (a) the base rate in effect on a given day and (b) the federal funds effective rate in effect on a given day, plus 0.50%) plus a margin of 1.00%. Loans characterized as Eurocurrency borrowings bear interest at an annual rate equal to the adjusted LIBOR rate for the interest period in effect, plus a margin of 2.00%.
Interest Rate Swaps. As of JuneSeptember 30, 2009, we had entered into interest rate swaps to fix the variable interest rate on $920 million of our floating rate Term Loan Facility. We are still obligated to pay any applicable margin, as defined in senior secured credit facilities. Interest rate swaps related to $400 million at an effective weighted average interest rate of 4.0% expire March 31, 2010. In January 2009, we entered into two interest rate swaps to fix the variable interest rate on an additional $300 million of our floating Term Loan Facility at a rate of 1.49%, plus any applicable margin. These interest rate swaps are effective from March 31, 2009 through March 31, 2011. In April 2009, we entered into an additional $220 million interest rate swap at a rate of 1.97%, which is effective through April 30, 2012.
As of JuneSeptember 30, 2009, we have an interest rate swap in Korea on our $100 million bank loan through a 5.44% fixed rate KRW 92 billion ($92 million) loan. The interest rate swap expires in October 2010.
Prepayments. We may prepay borrowings under the senior secured credit facilities, in whole or in part, at any time and from time to time, if certain minimum prepayment amounts and currency requirements are
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satisfied. We are required to repay borrowings under the senior secured credit facilities in certain circumstances in the event we receive net cash proceeds from certain collateral liquidations, asset sales, the issuance of indebtedness preferred stock or common stock not otherwise permitted under the senior secured credit facilities, or damage or destruction to our property. In addition, we are required to use either 25% or 50% of our excess cash flow in any given year to repay our borrowings under the Term Loan Facility.
Covenants. The senior secured credit facilities include various customary covenants, including limitations on our ability to:
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| • | incur additional debt; |
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| • | create or permit certain liens to exist; |
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| • | enter into sale and leaseback transactions; |
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| • | make investments, loan and advances; |
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| • | engage in mergers, amalgamations or consolidations; |
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| • | make certain asset sales; |
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| • | pay dividends and distributions beyond certain amounts; |
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| • | engage in certain transactions with affiliates; |
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| • | prepay certain indebtedness; |
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| • | amend certain agreements governing our indebtedness; |
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| • | create or permit restrictions on the ability of our subsidiaries to pay dividends, make other distributions to us or incur liens on their assets; |
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| • | issue preferred shares or stock of subsidiaries; and |
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| • | change the business conducted by us and our subsidiaries. |
In addition, under the ABL Facility, if our excess availability under the ABL Facility is less than 10% of the lender commitments under the ABL Facility or less than 10% of our borrowing base, we are required to maintain a minimum fixed charge coverage ratio of at least 1 to 1. As of JuneSeptember 30, 2009, our fixed charge coverage ratio was less than 1 to 1 and our excess availability was $299$400 million, or 37%50% of the lender commitments under the ABL Facility. Following the completion of the offering of the old notes, we used approximately $81 million of the proceeds plus additional cash on hand to repay a portion of the outstanding amount under the ABL Facility.
The senior secured credit facilities also contains various affirmative covenants, including covenants with respect to our financial statements, litigation and other reporting requirements, insurance, payment of taxes, employee benefits, hedging transactions and causing new subsidiaries to pledge collateral and guaranty our obligations.
Events of Default. The senior secured credit facilities contain customary events of default, including defaults with respect to:
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| • | a default in the payment of principal when due; |
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| • | a default in the payment of interest, fees or any other amount after a specified grace period; |
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| • | a material breach of the representation or warranties; |
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| • | a default in the performance of covenants; |
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| • | the failure to make any payment when due under any indebtedness with a principal amount in excess of a specified amount; |
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| • | the failure to observe any covenant or agreement that permits or results in the acceleration of indebtedness with a principal amount in excess of a specified amount; |
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| • | certain bankruptcy events; |
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| • | certain material judgments or court orders; |
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| • | certain ERISA violations; |
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| • | the invalidity or termination of certain loan documents or the liens created in favor of the lenders; and |
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| • | a change in control. |
7.25% Senior Notes
On February 3, 2005, we issued $1.4 billion aggregate principal amount of senior notes. The senior notes were priced at par, bear interest at 7.25% and mature on February 15, 2015. The 7.25% senior notes are guaranteed by all of our Canadian and U.S. restricted subsidiaries, certain of our foreign restricted subsidiaries and our other restricted subsidiaries that guarantee our senior secured credit facilities and that guarantee the old notes. The 7.25% senior notes are unsecured. As discussed above, in March 2009, we purchased 7.25% senior notes with a principal value of $275 million with the net proceeds of an additional floating rate term loan with a face value of $220 million and estimated fair value of $165 million.
Under the indenture that governs the 7.25% senior notes, we are subject to certain restrictive covenants that are substantially similar to the covenants in the indenture governing the old notes.
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DESCRIPTION OF THE NOTES
The company issued the old notes and will issue the new notes under the indenture dated as of August 11, 2009 (the “Indenture”), among the company, the Subsidiary Guarantors and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). Unless the context otherwise requires, all references to the “Notes” in this “Description of the Notes” include the old notes and the new notes. The old notes and the new notes will be treated as a single class for all purposes of the Indenture. The Indenture complies with the Trust Indenture Act. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act.
The following description is a summary of the material provisions of the Indenture. It does not restate the Indenture in its entirety. You should read the Indenture because that document, and not this description, defines your rights as a holder of the Notes. Copies of the Indenture are available upon request to the company at the address indicated under “Where You Can Find More Information.” You can find the definitions of certain terms used in this description under the subheading “Certain Definitions.” In this description, the term “Company” refers only to Novelis Inc. and not to any of its subsidiaries.
Principal, Maturity and Interest
The Company is offering to exchange, upon the terms and subject to the conditions of this prospectus and the accompanying letter of transmittal, the new notes for all of the outstanding old notes. In addition, subject to compliance with the limitations described under “— Certain Covenants — Limitation on Debt,” the Company can issue an unlimited principal amount of additional Notes at later dates under the same Indenture (the “Additional Notes”). The Company can issue the Additional Notes as part of the same series or as an additional series. Any Additional Notes that the Company issues in the future will be identical in all respects to the Notes, except that Notes issued in the future will have different issuance dates and may have different issuance prices. The Company will issue Notes only in fully registered form without coupons, in denominations of $2,000 and integral multiples of $1,000.
The Notes will mature on February 15, 2015.
Interest on the Notes will accrue at a rate of 11.5% per annum and will be payable semi-annually in arrears on February 15 and August 15, commencing on February 15, 2010. The Company will pay interest to those persons who were holders of record on the February 1 or August 1 immediately preceding each interest payment date.
Interest on the Notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a360-day year comprised of twelve30-day months.
The interest rate on the Notes will increase if:
(1) the Company does not file within the required time period either:
(A) a registration statement to allow for an exchange offer or
(B) a resale shelf registration statement for the Notes;
(2) one of the registration statements referred to above is not declared effective within the required time period;
(3) the exchange offer referred to above is not consummated or the resale shelf registration statement referred to above is not declared effective within the required time period; or
(4) certain other conditions are not satisfied.
Any additional interest payable as a result of any such event is referred to as “Special Interest” and all references to interest in this description include any Special Interest that becomes payable.
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Ranking
The Notes are:
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| • | senior, unsecured obligations of the Company; |
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| • | effectively junior in right of payment to all existing and future secured debt of the Company (including the Senior Secured Credit Facilities) to the extent of the value of the assets securing that debt; |
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| • | equal in right of payment (pari passu) with all existing and future unsecured senior debt of the Company; |
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| • | senior in right of payment to all future subordinated debt of the Company; and |
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| • | guaranteed on a senior, unsecured basis by the Subsidiary Guarantors. |
As of JuneSeptember 30, 2009, the Company and its subsidiaries on a consolidated basis, had $2.8 billion of senior debt outstanding, none of which would have been subordinated to the Notes or the Subsidiary Guaranties.
Most of the operations of the Company will be conducted through its subsidiaries. Therefore, the Company’s ability to service its debt, including the Notes, will depend substantially upon the cash flows of its subsidiaries and their ability to distribute those cash flows to the Company as dividends, loans or other payments. Certain laws restrict the ability of the Company’s subsidiaries to pay dividends or to make loans and advances to it. The Company’s ability to use the cash flows of those subsidiaries to make payments on the Notes will be limited to the extent of any such restrictions. Furthermore, in certain circumstances, bankruptcy, “fraudulent conveyance” laws or other similar laws could invalidate or limit the efficacy of the Subsidiary Guaranties. Any of the situations described above could make it more difficult for the Company to service its debt, including the Notes.
Except to the extent of any intercompany loans or other advances, the Company only has a stockholder’s claim in the assets of its subsidiaries. Its rights as a stockholder are junior in right of payment to the valid claims of creditors of the Company’s subsidiaries against those subsidiaries. Holders of the Notes will only be creditors of the Company and those subsidiaries of the Company that are Subsidiary Guarantors. In the case of subsidiaries of the Company that are not Subsidiary Guarantors, all the existing and future liabilities of those subsidiaries, including any claims of trade creditors and preferred stockholders, will effectively rank senior to the Notes.
As of JuneSeptember 30, 2009, the Company had $5.8$5.7 billion in total consolidated debt and other liabilities (excluding inter-company balances), of which $6.8$6.9 billion (including inter-company balances) was debt and other liabilities of the Company and the Subsidiary Guarantors, $1.0 billion (including inter-company balances) of which was debt and other liabilities of the Company’s other subsidiaries and $2.0$2.1 billion was inter-company balances. The Subsidiary Guarantors and the Company’s other subsidiaries have other liabilities, including contingent liabilities, that may be significant. The Indenture limits the amount of additional Debt that the Company and the Restricted Subsidiaries may Incur. Notwithstanding these limitations, the Company and its Subsidiaries may Incur substantial additional Debt. Debt may be Incurred either by Subsidiary Guarantors or by the Company’s other subsidiaries.
The Notes and the Subsidiary Guaranties are unsecured obligations of the Company and the Subsidiary Guarantors, respectively. Secured Debt of the Company and the Subsidiary Guarantors, including their obligations under the Senior Secured Credit Facilities, is effectively senior to the Notes and the Subsidiary Guaranties to the extent of the value of the assets securing such Debt.
As of JuneSeptember 30, 2009, the outstanding secured Debt of the Company and the Subsidiary Guarantors on a consolidated basis was $1.4$1.3 billion.
See “Risk Factors — We are a holding company and depend on our subsidiaries to generate sufficient cash flow to meet our debt service obligations, including payments on the notes,” “— Fraudulent conveyance laws and other legal restrictions may permit courts to void or subordinate our subsidiaries’ guarantees of the
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notes in specific circumstances, which would prevent or limit payment under the guarantees. Certain
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limitations contained in the guarantees, which are designed to avoid this result, may render the guarantees worthless”
Subsidiary Guaranties
The obligations of the Company under the Indenture, including the repurchase obligation resulting from a Change of Control, are guaranteed, fully and unconditionally and jointly and severally, on a senior unsecured basis, by: (a) all the existing and all future Canadian Restricted Subsidiaries and U.S. Restricted Subsidiaries of the Company; (b) Novelis do Brasil Ltda., Novelis UK Ltd., Novelis Europe Holdings Limited, Novelis Aluminium Holding Company, Novelis Deutschland GmbH, Novelis Switzerland SA, Novelis Technology AG, Novelis AG, Novelis PAE S.A.S., Novelis Luxembourg S.A., Novelis Madeira, Unipessoal, Lda and Novelis Services Limited; and (c) any other Restricted Subsidiaries of the Company that Guarantee Debt in the future under Credit Facilities,providedthat the borrower of such Debt is the Company or a Canadian Restricted Subsidiary or a U.S. Restricted Subsidiary. See ‘‘— Certain Covenants — Future Subsidiary Guarantors.” Each Subsidiary Guarantor is “100% owned” by the Company within the meaning of Rule 3-10(h)(i) of Regulation S-X. Each Subsidiary Guarantor’s liability under its Subsidiary Guaranty is limited to the lesser of (i) the aggregate amount of the Company’s obligations under the Notes and the Indenture or (ii) the amount, if any, which would not have (1) rendered the Subsidiary Guarantor “insolvent” (as such term is defined in the Federal Bankruptcy Code and in the Debtor and Creditor Law of the State of New York) or (2) left it with unreasonably small capital at the time its Subsidiary Guaranty with respect to the Notes was entered into, after giving effect to the incurrence of existing Debt immediately before such time. The liability of each Subsidiary Guarantor under its Subsidiary Guaranty will also be subject to the limitations applicable under local law, including limitations related to insolvency, minimum capital requirements and fraudulent conveyances. For example, with respect to Novelis Deutschland GmbH, its liability under its Subsidiary Guaranty is limited to the extent that its net assets (Eigenkapital) may not fall below the amount of its stated share capital (Stammkapital) as a result of the enforcement of the Subsidiary Guaranty and that such an enforcement must not result in a breach of the prohibition of insolvency causing intervention (Verbot des existenzvernichtenden Eingriffs) by depriving Novelis Deutschland GmbH of the liquidity necessary to fulfill its financial liabilities to its creditors. With respect to the Subsidiary Guarantors organized under Swiss law, namely, Novelis AG, Novelis Switzerland S.A. and Novelis Technology AG, the liability of each such Subsidiary Guarantor under its Subsidiary Guaranty is limited to the maximum amount of its profits and reserves available for distribution.
The Subsidiary Guarantors currently generate most of the Company’s consolidated net sales and own most of its consolidated assets. The subsidiaries of the Company that are not Subsidiary Guarantors represented the following approximate percentages of (a) net sales, (b) EBITDA and (c) total assets of the Company, on an historical consolidated basis:
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25% | | of the Company’s consolidated net sales are represented by net sales to third parties by subsidiaries that arenotSubsidiary Guarantors (for the threesix months ended JuneSeptember 30, 2009) |
22%20% | | of the Company’s consolidated EBITDA is represented by the subsidiaries that arenotSubsidiary Guarantors (for the threesix months ended JuneSeptember 30, 2009) |
18%15% | | of the Company’s consolidated assets are owned by subsidiaries that arenotSubsidiary Guarantors (as of JuneSeptember 30, 2009) |
If the Company or a Subsidiary Guarantor, sells or otherwise disposes of either:
(1) its ownership interest in a Subsidiary Guarantor, or
(2) all or substantially all the assets of a Subsidiary Guarantor,
then the Subsidiary Guarantor so sold or disposed of will be released from all of its obligations under its Subsidiary Guaranty. In addition, if, consistent with the requirements of the Indenture, the Company redesignates a Subsidiary Guarantor as an Unrestricted Subsidiary, the redesignated Subsidiary Guarantor will be released from all its obligations under its Subsidiary Guaranty. See ‘‘— Certain Covenants —
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Designation of Restricted and Unrestricted Subsidiaries” and “— Merger, Consolidation and Sale of
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Property.” A Subsidiary Guarantor will also be released from all its obligations under its Subsidiary Guaranty in connection with any legal defeasance of the Notes or upon satisfaction and discharge of the Indenture.
Optional Redemption
Commencing August 15, 2012, the Company may, from time to time, redeem all or any portion of the Notes after giving the required notice under the Indenture at the redemption prices set forth below, plus accrued and unpaid interest, if any, to but excluding the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). The following prices are for Notes redeemed during the periods set forth below, and are expressed as percentages of principal amount:
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Period | | Redemption Price | |
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August 15, 2012 through February 14, 2013 | | | 108.625 | % |
February 15, 2013 through February 14, 2014 | | | 105.750 | % |
February 15, 2014 and thereafter | | | 100.000 | % |
At any time prior to August 15, 2012, the Company may, from time to time, redeem all or any portion of the Notes after giving the required notice under the Indenture at a redemption price equal to the greater of:
(a) 100% of the principal amount of the Notes to be redeemed, and
(b) the sum of the present values of (1) the redemption price of the Notes at August 15, 2012 (as set forth in the preceding paragraph) and (2) the remaining scheduled payments of interest from the redemption date through August 15, 2012, but excluding accrued and unpaid interest through the redemption date, discounted to the redemption date (assuming a 360 day year consisting of twelve 30 day months), at the Treasury Rate plus 50 basis points,
plus, in either case, accrued and unpaid interest, if any, to but excluding the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
Any notice to holders of Notes of such a redemption shall include the appropriate calculation of the redemption price, but need not include the redemption price itself. The actual redemption price, calculated as described above, shall be set forth in an Officers’ Certificate delivered to the Trustee no later than two business days prior to the redemption date unless clause (b) of the definition of “Comparable Treasury Price” is applicable, in which such Officer’s Certificate should be delivered on the redemption date.
In addition, at any time and from time to time prior to August 15, 2012, the Company may redeem up to a maximum of 35% of the original aggregate principal amount of the Notes (including any Additional Notes) with the proceeds of one or more Public Equity Offerings at a redemption price equal to 111.500% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date);provided,however, that after giving effect to any such redemption, at least 65% of the original aggregate principal amount of the Notes (including any Additional Notes) remains outstanding. Notice of any such redemption shall be made within 90 days of such Public Equity Offering and such redemption shall be effected upon not less than 30 nor more than 60 days’ prior notice.
Tax Redemption
The Company may, at its option, at any time redeem in whole but not in part the outstanding Notes at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on
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the relevant interest payment date) if it has become obligated to pay any Additional Amounts (as defined herein) in respect of the Notes as a result of:
(a) any change in or amendment to the laws (or regulations promulgated thereunder) of any Taxing Jurisdiction, or
(b) any change in or amendment to any official position regarding the application or interpretation of such laws or regulations, which change or amendment is announced or is effective on or after the Issue Date.
See “— Additional Amounts.”
Additional Amounts
The Indenture provides that payments made by or on behalf of the Company under or with respect to the Notes will be made free and clear of and without withholding or deduction for or on account of any Taxes imposed or levied by or on behalf of a Taxing Jurisdiction, unless the Company or any Subsidiary Guarantor is required by law to withhold or deduct Taxes from any payment made under or with respect to the Notes or by the interpretation or administration thereof. If, after the Issue Date, the Company or any Subsidiary Guarantor is so required to withhold or deduct any amount for or on account of Taxes from any payment made under or with respect to the Notes, the Company or such Subsidiary Guarantor will pay to each holder of Notes that are outstanding on the date of the required payment, such additional amounts (the “Additional Amounts”) as may be necessary so that the net amount received by such holder (including the Additional Amounts) after such withholding or deduction will not be less than the amount such holder would have received if such Taxes had not been withheld or deducted; provided that no Additional Amounts will be payable with respect to a payment made to a holder of the Notes (an “Excluded holder”):
(a) with which the Company or such Subsidiary Guarantor does not deal at arm’s length (within the meaning of the Income Tax Act (Canada)) at the time of making such payment, or
(b) which is subject to such Taxes by reason of its being connected with the relevant Taxing Jurisdiction otherwise than by the mere acquisition, holding or disposition of the Notes or the Subsidiary Guaranty or the receipt of payments thereunder.
The Company and the Subsidiary Guarantors will also:
(a) make such withholding or deduction, and
(b) remit the full amount deducted or withheld to the relevant authority in accordance with applicable law.
The Company and the Subsidiary Guarantors will furnish to the Trustee, or cause to be furnished to the Trustee, within 30 days after the date the payment of any Taxes is due pursuant to applicable law, certified copies of tax receipts evidencing that such payment has been made by the Company or any such Subsidiary Guarantor or other evidence of such payment satisfactory to the Trustee. The Trustee shall make such evidence available upon the written request of any holder of the Notes that are outstanding on the date of any such withholding or deduction.
The Company and the Subsidiary Guarantors will indemnify and hold harmless each holder of Notes that are outstanding on the date of the required payment (other than an Excluded holder) and upon written request reimburse each such holder for the amount of:
(a) any Taxes so levied or imposed by or on behalf of a Taxing Jurisdiction and paid by such holder as a result of payments made under or with respect to the Notes and any liability (including penalties, interest and expense) arising therefrom or with respect thereto, and
(b) any Taxes (other than Taxes on such holder’s profits or net income) imposed with respect to any reimbursement under clause (a) above so that the net amount received by such holder after such
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reimbursement will not be less than the net amount such holder would have received if such reimbursement had not been imposed.
At least 30 days prior to each date on which any payment under or with respect to the Notes is due and payable, if the Company or any such Subsidiary Guarantor becomes obligated to pay Additional Amounts with respect to such payment, the Company or such Subsidiary Guarantor will deliver to the Trustee an Officers’ Certificate stating the fact that such Additional Amounts will be payable, and the amounts so payable and will set forth such other information as is necessary to enable the Trustee to pay such Additional Amounts to the holders of the Notes on the payment date. Whenever in the Indenture there is mentioned, in any context:
(a) the payment of principal (and premium, if any),
(b) purchase prices in connection with a repurchase of Notes,
(c) interest, or
(d) any other amount payable on or with respect to any of the Notes,
such mention shall be deemed to include mention of the payment of Additional Amounts provided for in this section to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof.
Sinking Fund
There will be no mandatory sinking fund payments for the Notes.
Change of Control Offer
Upon the occurrence of a Change of Control, the Company will be required to make an offer to each holder of Notes to repurchase all or any part (of $2,000 or any integral multiple of $1,000 in excess thereof) of such holder’s Notes pursuant to the offer described below (the “Change of Control Offer”) at a purchase price (the “Change of Control Purchase Price”) equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
Within 30 days following any Change of Control, the Company shall:
(a) cause a notice of the Change of Control Offer to be sent at least once to the Dow Jones News Service or similar business news service in the United States; and
(b) send, by first-class mail, with a copy to the Trustee, to each holder of Notes, at such holder’s address appearing in the Security Register, a notice stating:
(1) that a Change of Control has occurred and a Change of Control Offer is being made pursuant to the covenant entitled “Change of Control Offer” and that all Notes timely tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the repurchase date, which shall be, subject to any contrary requirements of applicable law, a business day no earlier than 30 days nor later than 60 days from the date such notice is mailed;
(3) the circumstances and relevant facts regarding the Change of Control (including, if applicable, information with respect topro formahistorical income, cash flow and capitalization after giving effect to the Change of Control); and
(4) the procedures that holders of Notes must follow in order to tender their Notes (or portions thereof) for payment, and the procedures that holders of Notes must follow in order to withdraw an election to tender Notes (or portions thereof) for payment.
The Company will not be required to make a Change of Control Offer following a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with
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the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue of such compliance.
Subject to compliance with the other covenants described in this prospectus, the Company could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of debt outstanding at such time or otherwise affect the Company’s liquidity, capital structure or credit ratings.
Holders of Notes may not be entitled to require us to purchase their notes in certain circumstances involving a significant change in the composition of our board of directors, including in connection with a proxy contest where our board of directors does not approve a dissident slate of directors but approves them as continuing directors, even if our board of directors initially opposed the directors.
The definition of Change of Control includes a phrase relating to the sale, transfer, assignment, lease, conveyance or other disposition of “all or substantially all” the Property of the Company and the Restricted Subsidiaries, considered as a whole. Although there is a body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, if the Company and the Restricted Subsidiaries, considered as a whole, dispose of less than all this Property by any of the means described above, the ability of a holder of Notes to require the Company to repurchase its Notes may be uncertain. In such a case, holders of the Notes may not be able to resolve this uncertainty without resorting to legal action.
The Senior Secured Credit Facilities provide that certain of the events that would constitute a Change of Control would also constitute a default under the Senior Secured Credit Facilities and entitle the lenders under those facilities to require that such debt be repaid. Other future debt of the Company may prohibit certain events that would constitute a Change of Control or require such debt to be repurchased or repaid upon a Change of Control. Moreover, if holders of Notes exercise their right to require the Company to repurchase such Notes, the Company could be in breach of obligations under existing and future debt of the Company. Finally, the Company’s ability to pay cash to holders of Notes upon a repurchase may be limited by the Company’s then existing financial resources. The Company cannot assure you that sufficient funds will be available when necessary to make any required repurchases. The Company’s failure to repurchase Notes, as required following a Change of Control Offer, would result in a default under the Indenture. Such a default would, in turn, constitute a default under the Senior Secured Credit Facilities and other existing debt of the Company and may constitute a default under future debt as well. The Company’s obligation to make an offer to repurchase the Notes as a result of a Change of Control may be waived or modified at any time prior to the occurrence of such Change of Control with the written consent of the holders of at least a majority in aggregate principal amount of the Notes. See “— Amendments and Waivers.”
Certain Covenants
Covenant Termination and Suspension. The Indenture provides that the covenants set forth in this section will be applicable to the Company and its Restricted Subsidiaries unless the Company reaches Investment Grade Status. After the Company has reached Investment Grade Status, and notwithstanding that the Company may later cease to have an Investment Grade Rating from either or both of the Rating Agencies, the Company and the Restricted Subsidiaries will be under no obligation to comply with the covenants set forth in this section, except for the covenants described under the following headings:
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| • | the second paragraph under “— Limitation on Liens,” |
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| • | the second paragraph under “— Limitation on Sale and Leaseback Transactions,” |
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| • | “— Designation of Restricted and Unrestricted Subsidiaries” (other than clause (x) of the third paragraph (and such clause (x) as referred to in the first paragraph thereunder)),” and |
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| • | “— Future Subsidiary Guarantors.” |
The Company and the Subsidiary Guarantors will also, upon reaching Investment Grade Status, remain obligated to comply with the provisions described under “— Merger, Consolidation and Sale of Property” (other than clause (e) of the first and second paragraphs thereunder).
If, prior to the Company reaching Investment Grade Status, the Notes receive an Investment Grade Rating from one of the Rating Agencies and no Default or Event of Default has occurred and is continuing then, beginning on that day and continuing until the Investment Grade Rating assigned by that Rating Agency to the Notes subsequently decline as a result of which the Notes do not carry an Investment Grade Rating from at least one Rating Agency (such period being referred to as a “Suspension Period”), the covenants set forth in the Indenture, except for those specifically listed above, will be suspended and will not be applicable during that Suspension Period.
In the event that the Company and the Restricted Subsidiaries are not subject to the suspended covenants for any period of time as a result of the preceding paragraph and, subsequently, the Rating Agency withdraws its ratings or downgrades the ratings assigned to the Notes below the required Investment Grade Ratings or a Default or Event of Default occurs and is continuing, then the Company and the Restricted Subsidiaries will from such time and thereafter again be subject to the suspended covenants, and compliance with the suspended covenants with respect to Restricted Payments made after the time of such withdrawal, downgrade, Default or Event of Default will be calculated in accordance with the terms of the covenant described below under “— Limitation on Restricted Payments” as though such covenant had been in effect during the entire period of time from the Issue Date.
There can be no assurance that the Notes will ever achieve an Investment Grade Rating from one or both Ratings Agencies.
Limitation on Debt. The Company shall not, and shall not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Debt unless, after giving effect to the application of the proceeds thereof, no Default or Event of Default would occur as a consequence of such Incurrence or be continuing following such Incurrence and either:
(1) such Debt is Debt of the Company or a Subsidiary Guarantor and, after giving effect to the Incurrence of such Debt and the application of the proceeds thereof, the Consolidated Interest Coverage Ratio would be greater than 2.00:1.00, or
(2) such Debt is Permitted Debt.
The term “Permitted Debt” is defined to include the following:
(a) (i) Debt of the Company evidenced by the old notes and the new notes issued in exchange for such old notes and in exchange for any Additional Notes and (ii) Debt of the Subsidiary Guarantors evidenced by Subsidiary Guaranties relating to the old notes and the new notes issued in exchange for such old notes and in exchange for any Additional Notes;
(b) Debt of the Company or a Restricted Subsidiary under Credit Facilities, provided that the aggregate principal amount of all such Debt under Credit Facilities at any one time outstanding shall not exceed $2.1 billion, which amount shall be permanently reduced by the amount of Net Available Cash used to Repay Debt under Credit Facilities and not subsequently reinvested in Additional Assets or used to purchase Notes or Repay other Debt, pursuant to the covenant described under “— Limitation on Asset Sales;”
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(c) Debt of the Company or a Restricted Subsidiary in respect of Capital Lease Obligations and Purchase Money Debt, provided that:
(1) the aggregate principal amount of such Debt does not exceed the cost of construction, acquisition or improvement of the Property acquired, constructed or leased together with the reasonable costs of acquisition, and
(2) the aggregate principal amount of all Debt Incurred and then outstanding pursuant to this clause (c) (together with all Permitted Refinancing Debt Incurred and then outstanding in respect of Debt previously Incurred pursuant to this clause (c)) does not exceed 5% of Consolidated Net Tangible Assets;
(d) Debt of the Company owing to and held by any Wholly Owned Restricted Subsidiary and Debt of a Restricted Subsidiary owing to and held by the Company or any Wholly Owned Restricted Subsidiary;provided,however, that any subsequent issue or transfer of Capital Stock or other event that results in any such Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary or any subsequent transfer of any such Debt (except to the Company or a Wholly Owned Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Debt by the issuer thereof;
(e) Debt of a Restricted Subsidiary outstanding on the date on which such Restricted Subsidiary is acquired by the Company or otherwise becomes a Restricted Subsidiary (other than Debt Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of transactions pursuant to which such Restricted Subsidiary became a Subsidiary of the Company or was otherwise acquired by the Company), provided that at the time such Restricted Subsidiary is acquired by the Company or otherwise becomes a Restricted Subsidiary and after giving effect to the Incurrence of such Debt, the Company would have been able to Incur $1.00 of additional Debt pursuant to clause (1) of the first paragraph of this covenant;
(f) Debt under Interest Rate Agreements entered into by the Company or a Restricted Subsidiary for the purpose of limiting interest rate risk in the ordinary course of the financial management of the Company or such Restricted Subsidiary and not for speculative purposes, provided that the obligations under such agreements are directly related to payment obligations on Debt otherwise permitted by the terms of this covenant;
(g) Debt under Currency Exchange Protection Agreements entered into by the Company or a Restricted Subsidiary for the purpose of limiting currency exchange rate risks directly related to transactions entered into by the Company or such Restricted Subsidiary in the ordinary course of business and not for speculative purposes;
(h) Debt under Commodity Price Protection Agreements entered into by the Company or a Restricted Subsidiary in the ordinary course of the financial management of the Company or such Restricted Subsidiary and not for speculative purposes;
(i) Debt in connection with one or more standby letters of credit or performance bonds issued by the Company or a Restricted Subsidiary in the ordinary course of business or pursuant to self-insurance obligations and not in connection with the borrowing of money or the obtaining of advances or credit;
(j) Debt Incurred by a Securitization Entity in a Qualified Securitization Transaction that is not recourse to the Company or any Restricted Subsidiary (except for Standard Securitization Undertakings);
(k) Debt of the Company or a Restricted Subsidiary outstanding on the Issue Date not otherwise described in clauses (a) through (j) above (including in such clauses (a) through (j), but not limited to, any Debt Incurred under Credit Facilities prior to the Issue Date), other than Debt Incurred after February 3, 2005 pursuant to Section 4.09(2)(l) of the Existing Indenture;
(l) Debt of the Company or a Restricted Subsidiary in an aggregate principal amount outstanding at any one time not to exceed $150.0 million; and
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(m) Permitted Refinancing Debt Incurred in respect of Debt Incurred pursuant to clause (1) of the first paragraph of this covenant and clauses (a), (c) and (k) above.
Notwithstanding anything to the contrary contained in this covenant, accrual of interest, accretion or amortization of original issue discount and the payment of interest or dividends in the form of additional Debt, will be deemed not to be an Incurrence of Debt for purposes of this covenant.
For purposes of determining compliance with this covenant, in the event that an item of Debt meets the criteria of more than one of the categories of Permitted Debt described in clauses (a) through (m) above or is entitled to be incurred pursuant to clause (l) of the first paragraph of this covenant, the Company shall, in its sole discretion, classify (and may later reclassify in whole or in part, in its sole discretion) such item of Debt in any manner that complies with this covenant; provided, however, that any incurrence of Debt under Credit Facilities prior to the Issue Date shall be treated as having been incurred under clause (b) above.
Limitation on Restricted Payments. The Company shall not make, and shall not permit any Restricted Subsidiary to make, directly or indirectly, any Restricted Payment if at the time of, and after giving effect to, such proposed Restricted Payment,
(a) a Default or Event of Default shall have occurred and be continuing,
(b) the Company could not Incur at least $1.00 of additional Debt pursuant to clause (1) of the first paragraph of the covenant described under “— Limitation on Debt,” or
(c) the sum of the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made since February 3, 2005 (the amount of any Restricted Payment, if made other than in cash, to be based upon Fair Market Value at the time of such Restricted Payment) would exceed an amount equal to the sum of:
(1) 50% of the aggregate amount of Consolidated Net Income accrued during the period (treated as one accounting period) from January 1, 2005 to the end of the most recent fiscal quarter for which financial statements have been provided (or if the aggregate amount of Consolidated Net Income for such period shall be a deficit, minus 100% of such deficit), plus
(2) 100% of the Capital Stock Sale Proceeds, plus
(3) the sum of:
(A) the aggregate net cash proceeds received by the Company or any Restricted Subsidiary from the issuance or sale after February 3, 2005 of convertible or exchangeable Debt that has been converted into or exchanged for Capital Stock (other than Disqualified Stock) of the Company, and
(B) the aggregate amount by which Debt (other than Subordinated Debt) of the Company or any Restricted Subsidiary is reduced on the Company’s consolidated balance sheet on or after February 3, 2005 upon the conversion or exchange of any Debt issued or sold on or prior to February 3, 2005 that is convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company,
excluding, in the case of clause (A) or (B):
(x) any such Debt issued or sold to the Company or a Subsidiary of the Company or an employee stock ownership plan or trust established by the Company or any such Subsidiary for the benefit of their employees, and
(y) the aggregate amount of any cash or other Property distributed by the Company or any Restricted Subsidiary upon any such conversion or exchange, plus
(4) an amount equal to the sum of:
(A) the net reduction in Investments in any Person other than the Company or a Restricted Subsidiary resulting from dividends, repayments of loans or advances or other transfers of Property, in each case to the Company or any Restricted Subsidiary from such Person, and
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(B) the portion (proportionate to the Company’s equity interest in such Unrestricted Subsidiary) of the Fair Market Value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided,however, that the foregoing sum shall not exceed, in the case of any Person, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person.
Notwithstanding the foregoing limitation, the Company may:
(a) pay dividends on its Capital Stock within 60 days of the declaration thereof if, on the declaration date, such dividends could have been paid in compliance with the Indenture;provided,however, that at the time of such payment of such dividend, no other Default or Event of Default shall have occurred and be continuing (or result therefrom); provided further, however, that such dividend shall be included in the calculation of the amount of Restricted Payments;
(b) purchase, repurchase, redeem, legally defease, acquire or retire for value Capital Stock of the Company or Subordinated Debt in exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or trust established by the Company or any such Subsidiary for the benefit of their employees);provided,however, that
(1) such purchase, repurchase, redemption, legal defeasance, acquisition or retirement shall be excluded in the calculation of the amount of Restricted Payments, and
(2) the Capital Stock Sale Proceeds from such exchange or sale shall be excluded from the calculation pursuant to clause (c)(2) above; and
(c) purchase, repurchase, redeem, legally defease, acquire or retire for value any Subordinated Debt in exchange for, or out of the proceeds of the substantially concurrent sale of, Permitted Refinancing Debt;provided,however, that such purchase, repurchase, redemption, legal defeasance, acquisition or retirement shall be excluded in the calculation of the amount of Restricted Payments;
(d) repurchase shares of, or options to purchase shares of, common stock of the Company or any of its Subsidiaries from current or former officers, directors or employees of the Company or any of its Subsidiaries (or permitted transferees of such current or former officers, directors or employees);provided,however, that the aggregate amount of such repurchases shall not exceed $10.0 million in any calendar year and such repurchases shall be included in the calculation of the amount of Restricted Payments; and
(e) make other Restricted Payments in an aggregate amount after February 3, 2005 not to exceed $75.0 million.
Limitation on Liens. Prior to the Notes achieving Investment Grade Status and during any period other than a Suspension Period (and during any period that this paragraph shall apply when there is no election by the Company pursuant to the following paragraph), the Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist, any Lien (other than Permitted Liens) upon any of its Property (including Capital Stock of a Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired, or any interest therein or any income or profits therefrom, unless it has made or will make effective provision whereby the Notes or the applicable Subsidiary Guaranty will be secured by such Lien equally and ratably with (or, if such other Debt constitutes Subordinated Debt, prior to) all other Debt of the Company or any Restricted Subsidiary secured by such Lien for so long as such other Debt is secured by such Lien.
After the Notes achieve Investment Grade Status and during any Suspension Period, the Company may elect by written notice to the Trustee and the holders of the Notes to be subject to an alternative covenant with respect to “Limitation on Liens,” in lieu of the preceding paragraph. Under this alternative covenant, the Company will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien securing Debt (other than Permitted Liens pursuant to clauses (c) through (j) and (l) (but disregarding
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the reference to clause (b) therein) through (s) (each inclusive) of the definition of “Permitted Liens”) upon (1) any Principal Property of the Company or any Restricted Subsidiary, (2) any Capital Stock of a Restricted Subsidiary or (3) any Indebtedness of a Restricted Subsidiary owed to the Company or another Restricted Subsidiary, unless all payments due under the Indenture and the Notes are secured on an equal and ratable basis with (or prior to) the obligations so secured until such time as such other obligations are no longer secured by such lien. Notwithstanding the foregoing, after the Notes achieve Investment Grade Status and during a Suspension Period, the Company and its Restricted Subsidiaries will be permitted to create, incur, assume or suffer to exist Liens, and renew, extend or replace such Liens, in each case without complying with the foregoing; provided that the aggregate amount of all Debt of the Company and its Restricted Subsidiaries outstanding at such time that is secured by these Liens (other than (1) Debt secured solely by Permitted Liens pursuant to clauses (c) through (j) and (l) (but disregarding the reference to clause (b) therein) through (s) (each inclusive) of the definition of “Permitted Liens,” (2) Debt that is secured equally and ratably with (or on a basis subordinated to) the Notes and (3) the Notes) plus the aggregate amount of all Attributable Debt of the Company and our Restricted Subsidiaries with respect to all Sale and Leaseback Transactions outstanding at such time (other than Sale and Leaseback Transactions permitted by the second paragraph under “— Limitation on Sale and Leaseback Transactions”), would not exceed the greater of 10% of Consolidated Net Tangible Assets, determined based on the consolidated balance sheet of the Company as of the end of the most recent fiscal quarter for which financial statements have been filed or furnished, and $400,000,000.
Limitation on Asset Sales. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale unless:
(a) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the Property subject to such Asset Sale;
(b) at least 75% of the consideration paid to the Company or such Restricted Subsidiary in connection with such Asset Sale is in the form of any one or a combination of the following: (i) cash, Cash Equivalents or Additional Assets, (ii) the assumption by the purchasers of liabilities of the Company or any Restricted Subsidiary (other than contingent liabilities or liabilities that are by their terms subordinated to the Notes or the applicable Subsidiary Guaranty) as a result of which the Company and the Restricted Subsidiaries are no longer obligated with respect to such liabilities, or (iii) securities, notes or other obligations received by the Company or such Restricted Subsidiary to the extent such securities, notes or other obligations are converted by the Company or such Restricted Subsidiary into cash, Cash Equivalents or Additional Assets within 90 days of such Asset Sale;
(c) no Default or Event of Default would occur as a result of such Asset Sale; and
(d) the Company delivers an Officers’ Certificate to the Trustee certifying that such Asset Sale complies with the foregoing clauses (a) and (c).
The Net Available Cash (or any portion thereof, if any) from Asset Sales may be applied by the Company or a Restricted Subsidiary, to the extent the Company or such Restricted Subsidiary elects (or is required by the terms of any Debt):
(a) to Repay Senior Debt of the Company or any Subsidiary Guarantor or Debt of any Restricted Subsidiary that is not a Subsidiary Guarantor (excluding, in any such case, any Debt owed to the Company or an Affiliate of the Company); or
(b) to reinvest in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by the Company or another Restricted Subsidiary).
Any Net Available Cash from an Asset Sale not applied in accordance with the preceding paragraph within 365 days from the date of the receipt of such Net Available Cash or that is not segregated from the general funds of the Company for investment in identified Additional Assets in respect of a project that shall have been commenced and for which binding contractual commitments have been entered into prior to the end of such365-day period and that shall not have been completed or abandoned, shall constitute “Excess
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Proceeds”;provided,however, that the amount of any Net Available Cash that ceases to be so segregated as contemplated above and any Net Available Cash that is segregated in respect of a project that is abandoned or completed shall also constitute “Excess Proceeds” at the time any such Net Available Cash ceases to be so segregated or at the time the relevant project is so abandoned or completed, as applicable;provided further,however, that the amount of any Net Available Cash that continues to be segregated for investment and that is not actually reinvested within twenty-four months from the date of the receipt of such Net Available Cash shall also constitute “Excess Proceeds.”
When the aggregate amount of Excess Proceeds exceeds $25.0 million, the Company will be required to make an offer to repurchase (the “Prepayment Offer”) the Notes, which offer shall be in the amount of the Allocable Excess Proceeds (rounded to the nearest $1,000), on apro ratabasis according to principal amount (of a minimum $2,000 or any integral multiple of $1,000 in excess thereof) at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. To the extent that any portion of the amount of Net Available Cash remains after compliance with the preceding sentence andprovidedthat all holders of Notes have been given the opportunity to tender their Notes for repurchase in accordance with the Indenture, the Company or such Restricted Subsidiary may use such remaining amount for any purpose permitted by the Indenture, and the amount of Excess Proceeds will be reset to zero.
The term “Allocable Excess Proceeds” shall mean the product of:
(a) the Excess Proceeds; and
(b) a fraction,
(1) the numerator of which is the aggregate principal amount of the Notes outstanding on the date of the Prepayment Offer, and
(2) the denominator of which is the sum of the aggregate principal amount of the Notes outstanding on the date of the Prepayment Offer and the aggregate principal amount of other Debt of the Company outstanding on the date of the Prepayment Offer that is pari passu in right of payment with the Notes and subject to terms and conditions in respect of Asset Sales similar in all material respects to this covenant and requiring the Company to make an offer to repurchase such Debt at substantially the same time as the Prepayment Offer.
Within five business days after the Company is obligated to make a Prepayment Offer as described in the preceding paragraph, the Company shall send a written notice, by first-class mail, to the holders of Notes, accompanied by such information regarding the Company and its Subsidiaries as the Company in good faith believes will enable such holders to make an informed decision with respect to such Prepayment Offer. Such notice shall state, among other things, the purchase price and the repurchase date, which shall be, subject to any contrary requirements of applicable law, a business day no earlier than 30 days nor later than 60 days from the date such notice is mailed.
The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof.
Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist any consensual restriction on the right of any Restricted Subsidiary to:
(a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock, or pay any Debt or other obligation owed, to the Company or any other Restricted Subsidiary;
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(b) make any loans or advances to the Company or any other Restricted Subsidiary; or
(c) transfer any of its Property to the Company or any other Restricted Subsidiary.
The foregoing limitations will not apply:
(1) to restrictions or encumbrances existing under or by reason of:
(A) agreements in effect on the Issue Date (including, without limitation, restrictions pursuant to the Notes, the Indenture, the Subsidiary Guaranties and the Senior Secured Credit Facilities), and any amendments, modifications, restatements, renewals, replacements, refundings, refinancings, increases or supplements of those agreements, provided that the encumbrances or restrictions contained in any such amendments, modifications, restatements, renewals, replacements, refundings, refinancings, increases or supplements taken as a whole, are not materially more restrictive than the encumbrances or restrictions contained in agreements to which they relate as in place on the date of the Indenture,
(B) Debt or Capital Stock of a Restricted Subsidiary existing at the time it became a Restricted Subsidiary or at the time it merges with or into the Company or a Restricted Subsidiary if such restriction was not created in connection with or in anticipation of the transaction or series of transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company, and any amendments, modifications, restatements, renewals, replacements, refundings, refinancings, increases or supplements of those instruments, provided that the encumbrances or restrictions contained in any such amendments, modifications, restatements, renewals, replacements, refundings, refinancings, increases or supplements, taken as a whole, are not materially more restrictive than the encumbrances or restrictions contained in instruments in effect on the date of acquisition,
(C) the Refinancing of Debt Incurred pursuant to an agreement referred to in clause (1)(A) or (B) above or in clause (2)(A) or (B) below, provided such restrictions are not materially less favorable, taken as a whole to the holders of Notes than those under the agreement evidencing the Debt so Refinanced,
(D) any applicable law, rule, regulation or order,
(E) Permitted Refinancing Debt, provided that the restrictions contained in the agreements governing such Permitted Refinancing Debt, taken as a whole, are not materially more restrictive than those contained in the agreements governing the Debt being refinanced,
(F) Liens securing obligations otherwise permitted to be incurred under the provisions of the covenant described above under the caption “— Limitation on Liens” or below under the caption “— Limitation on Sale and Leaseback Transactions” that limit the right of the debtor to dispose of the assets subject to such Liens,
(G) customary provisions limiting or prohibiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, Sale and Leaseback Transactions, stock sale agreements and other similar agreements entered into in the ordinary course of business, which limitation or prohibition is applicable only to the assets that are the subject of such agreements,
(H) restrictions on cash or other deposits or net worth imposed by customers or lessors under contracts or leases entered into in the ordinary course of business, or
(I) arising under Debt or other contractual requirements of a Securitization Entity in connection with a Qualified Securitization Transaction; provided that such restrictions apply only to such Securitization Entity, and
(2) with respect to clause (c) only, to restrictions or encumbrances:
(A) relating to Debt that is permitted to be Incurred and secured without also securing the Notes or the applicable Subsidiary Guaranty pursuant to the covenants described under
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“— Limitation on Debt” and “— Limitation on Liens” that limit the right of the debtor to dispose of the Property securing such Debt,
(B) encumbering Property at the time such Property was acquired by the Company or any Restricted Subsidiary, so long as such restrictions relate solely to the Property so acquired and were not created in connection with or in anticipation of such acquisition,
(C) resulting from customary provisions restricting subletting or assignment of leases or customary provisions in other agreements that restrict assignment of such agreements or rights thereunder,
(D) customary restrictions contained in any asset purchase, stock purchase, merger or other similar agreement, pending the closing of the transaction contemplated thereby, or
(E) customary restrictions contained in joint venture agreements entered into in the ordinary course of business in good faith.
Limitation on Transactions with Affiliates. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, conduct any business or enter into or suffer to exist any transaction or series of transactions (including the purchase, sale, transfer, assignment, lease, conveyance or exchange of any Property or the rendering of any service) with, or for the benefit of, any Affiliate of the Company (an “Affiliate Transaction”), unless:
(a) the terms of such Affiliate Transaction are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained in a comparable arm’s length transaction with a Person that is not an Affiliate of the Company;
(b) if such Affiliate Transaction involves aggregate payments or value in excess of $20.0 million, the Board of Directors approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clause (a) of this paragraph as evidenced by a Board Resolution promptly delivered to the Trustee; and
(c) if such Affiliate Transaction involves aggregate payments or value in excess of $50.0 million (1) the Board of Directors (including at least a majority of the disinterested members of the Board of Directors) approves such Affiliate Transaction and, in its good faith judgment, believes that such Affiliate Transaction complies with clause (a) of this paragraph as evidenced by a Board Resolution promptly delivered to the Trustee, or (2) the Company obtains a written opinion from an Independent Financial Advisor to the effect that the consideration to be paid or received in connection with such Affiliate Transaction is fair, from a financial point of view, to the Company and the Restricted Subsidiaries.
Notwithstanding the foregoing limitation, the Company or any Restricted Subsidiary may enter into or suffer to exist the following, which shall not be deemed to be Affiliate Transactions and therefore will not be subject to the provisions of clauses (a), (b) and (c) above of this covenant:
(a) any transaction or series of transactions between the Company and one or more Restricted Subsidiaries or between two or more Restricted Subsidiaries in the ordinary course of business,providedthat no more than 10% of the total voting power of the Voting Stock (on a fully diluted basis) of any such Restricted Subsidiary is owned by an Affiliate of the Company (other than a Restricted Subsidiary);
(b) any Restricted Payment permitted to be made pursuant to the covenant described under “— Limitation on Restricted Payments” or any Permitted Investment;
(c) any employment, compensation, benefit or indemnification agreement or arrangement (and any payments or other transactions pursuant thereto) entered into by the Company or any Restricted Subsidiary in the ordinary course of business (or that is otherwise reasonable as determined in good faith by the board of directors of the Company or the Restricted Subsidiary, as the case may be) with an officer, employee, consultant or director and any transactions pursuant to stock option plans, stock ownership plans and employee benefit plans or arrangements;
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(d) loans and advances to employees made in the ordinary course of business other than any loans or advances that would be in violation of Section 402 of the Sarbanes-Oxley Act;provided that the Dollar Equivalent of the aggregate principal amount of such loans and advances do not exceed $15.0 million in the aggregate at any time outstanding;
(e) any transactions between or among any of the Company, any Restricted Subsidiary and any Securitization Entity in connection with a Qualified Securitization Transaction, in each caseprovidedthat such transactions are not otherwise prohibited by terms of the Indenture;
(f) agreements in effect on the Issue Date and any amendments, modifications, extensions or renewals thereto that are no less favorable to the Company or any Restricted Subsidiary than such agreements as in effect on the Issue Date;
(g) transactions with a Person that is an Affiliate of the Company solely because the Company or a Restricted Subsidiary owns Capital Stock ofand/or controls, such Person;
(h) payment of fees and expenses to directors who are not otherwise employees of the Company or a Restricted Subsidiary, for services provided in such capacity, so long as the Board of Directors or a duly authorized committee thereof shall have approved the terms thereof;
(i) the granting and performance of registration rights for shares of Capital Stock of the Company under a written registration rights agreement approved by the Company’s Board of Directors as a duly authorized committee thereof; and
(j) transactions with Affiliates solely in their capacity as holders of Debt or Capital Stock of the Company or any of its Subsidiaries, provided that a significant amount of the Debt or Capital Stock of the same class is also held by persons that are not Affiliates of the Company and those Affiliates are treated no more favorably than holders of the Debt or Capital Stock generally.
Limitation on Sale and Leaseback Transactions. Prior to the Notes achieving Investment Grade Status and during any period other than a Suspension Period, the Company shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction with respect to any Property unless:
(a) the Company or such Restricted Subsidiary would be entitled to:
(1) Incur Debt in an amount equal to the Attributable Debt with respect to such Sale and Leaseback Transaction pursuant to the covenant described under “— Limitation on Debt,” and
(2) create a Lien on such Property securing such Attributable Debt without also securing the Notes or the applicable Subsidiary Guaranty pursuant to the covenant described under “— Limitation on Liens,” and
(b) such Sale and Leaseback Transaction is effected in compliance with the covenant described under “— Limitation on Asset Sales.”
After the Notes achieve Investment Grade Status or during any Suspension Period, the Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction involving any Principal Property, except for any Sale and Leaseback Transaction involving a lease not exceeding three years unless:
(1) the Company or that Restricted Subsidiary, as applicable, would at the time of entering into the transaction be entitled to incur Debt secured by a Lien on that Principal Property in an amount equal to the Attributable Debt with respect to such Sale and Leaseback Transaction without equally and ratably securing the Notes; or
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(2) an amount equal to the net cash proceeds of the Sale and Leaseback Transaction is applied within 180 days to:
(a) the voluntary retirement or prepayment of any Debt of the Company or any Restricted Subsidiary maturing more than one year after the date incurred, and which is senior to orpari passuin right of payment with the Notes, or
(b) the purchase of other property that will constitute Principal Property having a value (as determined in good faith by the Board of Directors) in an amount at least equal to the net cash proceeds of the Sale and Leaseback Transaction; or
(3) within the180-day period specified in clause (2) above, the Company or that Restricted Subsidiary, as applicable, deliver to the trustee for cancellation Notes in an aggregate principal amount at least equal to the net proceeds of the Sale and Leaseback Transaction.
Notwithstanding the foregoing, after the Notes achieve Investment Grade Status or during any Suspension Period, the Company and any Restricted Subsidiary may enter into Sale and Leaseback Transactions that would not otherwise be permitted under the limitations described in the preceding paragraph, provided that the sum of the aggregate amount of all Debt of the Company and its Restricted Subsidiaries that is secured by Liens (other than (1) Debt secured solely by Permitted Liens pursuant to clauses (c) through (j) and (l) (but disregarding the reference to clause (b) therein) through (s) of the definition of “Permitted Liens,” (2) Debt that is secured equally and ratably with (or on a basis subordinated to) the Notes and (3) the Notes) and the aggregate amount of all Attributable Debt of the Company and its Restricted Subsidiaries with respect to all Sale and Leaseback Transactions outstanding at such time (other than Sale and Leaseback Transactions permitted by the preceding paragraph) would not exceed 10% of the Consolidated Net Tangible Assets of the Company and its Restricted Subsidiaries.
Designation of Restricted and Unrestricted Subsidiaries. The Board of Directors may designate any Subsidiary of the Company to be an Unrestricted Subsidiary if:
(a) the Subsidiary to be so designated does not own any Capital Stock or Debt of, or own or hold any Lien on any Property of, the Company or any other Restricted Subsidiary; and
(b) either:
(1) the Subsidiary to be so designated has total assets of $1,000 or less, or
(2) such designation is effective immediately upon such entity becoming a Subsidiary of the Company, or
(3) the Investment by the Company or another Restricted Subsidiary in such Subsidiary is treated as a Restricted Payment under the covenant described under “— Limitation on Restricted Payments” and such Restricted Payment is permitted under such covenant at the time such Investment is made.
Unless so designated as an Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company will be classified as a Restricted Subsidiary;provided,however, that such Subsidiary shall not be designated a Restricted Subsidiary and shall be automatically classified as an Unrestricted Subsidiary if either of the requirements set forth in clauses (x) and (y) of the second immediately following paragraph will not be satisfied after givingpro formaeffect to such classification or if such Person is a Subsidiary of an Unrestricted Subsidiary.
Except as provided in the preceding paragraph, no Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary, and neither the Company nor any Restricted Subsidiary shall at any time be directly or indirectly liable for any Debt that provides that the holder thereof may (with the passage of time or notice or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its Stated Maturity upon the occurrence of a default with respect to any Debt, Lien or other obligation of any Unrestricted Subsidiary (including any right to take enforcement action against such Unrestricted Subsidiary). Upon designation of a Restricted Subsidiary as an Unrestricted Subsidiary in compliance with this covenant,
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such Restricted Subsidiary shall, by execution and delivery of a supplemental indenture in form satisfactory to the Trustee, be released from any Subsidiary Guaranty previously made by such Restricted Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary if, immediately after givingpro formaeffect to such designation,
(x) the Company could Incur at least $1.00 of additional Debt pursuant to clause (1) of the first paragraph of the covenant described under “— Limitation on Debt,” and
(y) no Default or Event of Default shall have occurred and be continuing or would result therefrom.
Any such designation or redesignation by the Board of Directors will be evidenced to the Trustee by filing with the Trustee a Board Resolution giving effect to such designation or redesignation and an Officers’ Certificate that:
(a) certifies that such designation or redesignation complies with the foregoing provisions, and
(b) gives the effective date of such designation or redesignation,
such filing with the Trustee to occur within 45 days after the end of the fiscal quarter of the Company in which such designation or redesignation is made (or, in the case of a designation or redesignation made during the last fiscal quarter of the Company’s fiscal year, within 90 days after the end of such fiscal year).
Future Subsidiary Guarantors. The Company shall cause each Person that becomes (a) a Canadian Restricted Subsidiary or U.S. Restricted Subsidiary or (b) a Restricted Subsidiary that Guarantees Debt in the future under Credit Facilities, provided that the borrower of such Debt is the Company or a Canadian Restricted Subsidiary or U.S. Restricted Subsidiary, in each case following the Issue Date, to execute and deliver to the Trustee a Subsidiary Guaranty at the time such Person becomes a Canadian Restricted Subsidiary or U.S. Restricted Subsidiary or otherwise becomes obligated to become a Subsidiary Guarantor under the Indenture.
Merger, Consolidation and Sale of Property
The Company shall not merge, consolidate or amalgamate with or into any other Person (other than a merger of a Wholly Owned Restricted Subsidiary into the Company) or sell, transfer, assign, lease, convey or otherwise dispose of all or substantially all its Property in any one transaction or series of transactions unless:
(a) the Company shall be the Surviving Person in such merger, consolidation or amalgamation, or the Surviving Person (if other than the Company) formed by such merger, consolidation or amalgamation or to which such sale, transfer, assignment, lease, conveyance or disposition is made shall be a corporation organized and existing under the laws of the United States, any State thereof, the District of Columbia, Canada or any province or territory of Canada;
(b) the Surviving Person (if other than the Company) expressly assumes, by supplemental indenture in form satisfactory to the Trustee, executed and delivered to the Trustee by such Surviving Person, the due and punctual payment of the principal of, and premium, if any, and interest on, all the Notes, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of the Indenture to be performed by the Company;
(c) in the case of a sale, transfer, assignment, lease, conveyance or other disposition of all or substantially all the Property of the Company, such Property shall have been transferred as an entirety or virtually as an entirety to one Person;
(d) immediately before and after giving effect to such transaction or series of transactions on apro formabasis (and treating, for purposes of this clause (d) and clause (e) below, any Debt that becomes, or is anticipated to become, an obligation of the Surviving Person or any Restricted Subsidiary as a result of such transaction or series of transactions as having been Incurred by the Surviving Person or such Restricted Subsidiary at the time of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing;
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(e) except in the case of a transaction constituting a Permitted Holdings Amalgamation under the Senior Secured Credit Facilities, immediately after giving effect to such transaction or series of transactions on a pro forma basis, the Company or the Surviving Person, as the case may be, would be able to Incur at least $1.00 of additional Debt under clause (1) of the first paragraph of the covenant described under “— Certain Covenants — Limitation on Debt;”
(f) the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers’ Certificate and an Opinion of Counsel, each stating that such transaction or series of transactions and the supplemental indenture, if any, in respect thereto comply with this covenant and that all conditions precedent herein provided for relating to such transaction or series of transactions have been satisfied;
(g) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the holders of the Notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such transaction or series of transactions and will be subject to U.S. Federal income tax on the same amounts, in the same manner and at the same times as would be the case if the transaction or series of transactions had not occurred; and
(h) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for Canadian federal, provincial or territorial income tax purposes as a result of such transaction or series of transactions and will be subject to Canadian federal, provincial or territorial income taxes (including withholding taxes) on the same amounts, in the same manner and at the same times as would be the case if such transaction or series of transactions had not occurred.
The Company shall not permit any Subsidiary Guarantor to merge, consolidate or amalgamate with or into any other Person (other than a merger of a Wholly Owned Restricted Subsidiary into the Company or such Subsidiary Guarantor) or sell, transfer, assign, lease, convey or otherwise dispose of all or substantially all its Property in any one transaction or series of transactions unless:
(a) the Surviving Person (if other than such Subsidiary Guarantor) formed by such merger, consolidation or amalgamation or to which such sale, transfer, assignment, lease, conveyance or disposition is made shall be a corporation, company (including a limited liability company) or partnership organized and existing under the laws of the United States, any State thereof, the District of Columbia or Canada or any province or territory of Canada;
(b) the Surviving Person (if other than such Subsidiary Guarantor) expressly assumes, by supplemental indenture in form satisfactory to the Trustee, executed and delivered to the Trustee by such Surviving Person, the due and punctual performance and observance of all the obligations of such Subsidiary Guarantor under its Subsidiary Guaranty;
(c) in the case of a sale, transfer, assignment, lease, conveyance or other disposition of all or substantially all the Property of such Subsidiary Guarantor, such Property shall have been transferred as an entirety or virtually as an entirety to one Person;
(d) immediately before and after giving effect to such transaction or series of transactions on a pro forma basis (and treating, for purposes of this clause (d) and clause (e) below, any Debt that becomes, or is anticipated to become, an obligation of the Surviving Person, the Company or any Restricted Subsidiary as a result of such transaction or series of transactions as having been Incurred by the Surviving Person, the Company or such Restricted Subsidiary at the time of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing;
(e) immediately after giving effect to such transaction or series of transactions on a pro forma basis, the Company would be able to Incur at least $1.00 of additional Debt under clause (1) of the first paragraph of the covenant described under “— Certain Covenants — Limitation on Debt;”
(f) the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers’ Certificate and an Opinion of Counsel, each stating
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that such transaction or series of transactions and such Subsidiary Guaranty, if any, in respect thereto comply with this covenant and that all conditions precedent herein provided for relating to such transaction or series of transactions have been satisfied;
(g) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the holders of the Notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such transaction or series of transactions and will be subject to U.S. Federal income tax on the same amounts, in the same manner and at the same times as would be the case if such transaction or series of transactions had not occurred; and
(h) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for Canadian federal, provincial or territorial income tax purposes as a result of such transaction or series of transactions and will be subject to Canadian federal, provincial or territorial income taxes (including withholding taxes) on the same amounts, in the same manner and at the same times as would be the case if such transaction or series of transactions had not occurred.
The foregoing provisions of this paragraph (other than clause (d)) shall not apply to any transaction or series of transactions which constitute an Asset Sale if the Company has complied with the covenant described under “— Certain Covenants — Limitation on Asset Sales.”
The Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of the Company under the Indenture (or of the Subsidiary Guarantor under the Subsidiary Guaranty, as the case may be), but the predecessor Company in the case of:
(a) a sale, transfer, assignment, conveyance or other disposition (unless such sale, transfer, assignment, conveyance or other disposition is of all the assets of the Company as an entirety or virtually as an entirety), or
(b) a lease,
shall not be released from any of the obligations or covenants under the Indenture, including with respect to the payment of the Notes.
Payments for Consents
The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or is paid to all holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
SEC Reports
The Company shall provide the Trustee and holders of Notes, within 15 days after it files with, or furnishes to, the SEC, copies of its annual report and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act or is required to furnish to the SEC pursuant to the Indenture. Regardless of whether the Company is required to report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the SEC, the Indenture requires the Company to continue to file with, or furnish to, the SEC and provide the Trustee and holders of Notes:
(a) within 90 days after the end of each fiscal year (or such shorter period as the SEC may in the future prescribe), an annual report containing substantially the same information required to be contained inForm 10-K orForm 20-F (or any successor form) that would be required if the Company were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; and
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(b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year (or such shorter period as the SEC may in the future prescribe), a quarterly report containing substantially the same information required to be contained inForm 10-Q (or any successor form) that would be required if the Company were organized in the United States and subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act,
provided,however, that the Company shall not be so obligated to file any of the foregoing reports with the SEC if the SEC does not permit such filings.
Events of Default
Events of Default in respect of the Notes include:
(1) failure to make the payment of any interest (including Additional Amounts) or Special Interest, if any, on the Notes when the same becomes due and payable, and such failure continues for a period of 30 days;
(2) failure to make the payment of any principal of, or premium, if any, on, any of the Notes when the same becomes due and payable at its Stated Maturity, upon acceleration, redemption, optional redemption, required repurchase or otherwise;
(3) failure to comply with the covenant described under “— Merger, Consolidation and Sale of Property;”
(4) failure to comply with any other covenant or agreement in the Notes or in the Indenture (other than a failure that is the subject of the foregoing clause (1), (2) or (3)), and such failure continues for 60 days after written notice is given to the Company as provided below;
(5) a default under any Debt by the Company or any Restricted Subsidiary that results in acceleration of the maturity of such Debt, or failure to pay any such Debt at maturity, in an aggregate amount greater than $50.0 million (the “cross acceleration provisions”);
(6) any judgment or judgments for the payment of money in an aggregate amount in excess of $50.0 million that shall be rendered against the Company or any Restricted Subsidiary and that shall not be waived, satisfied or discharged for any period of 60 consecutive days during which a stay of enforcement shall not be in effect (the “judgment default provisions”);
(7) certain events involving bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary (the “bankruptcy provisions”);
(8) any Subsidiary Guaranty ceases to be in full force and effect (other than in accordance with the terms of such Subsidiary Guaranty) or any Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary Guaranty (the “guaranty provisions”); and
(9) any security interest securing the Notes or any Subsidiary Guaranty that may be granted after the Issue Date pursuant to the terms of the Indenture shall, at any time, (A) cease to be in full force and effect for any reason other than in accordance with its terms or the satisfaction in full of all obligations under the Indenture and discharge of the Indenture or (B) be declared invalid or unenforceable or the Company or any Subsidiary Guarantor shall assert, in any pleading in any court of competent jurisdiction, that any such security interest is invalid or unenforceable (the security default provisions).
A Default under clause (4) is not an Event of Default until the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding notify the Company of the Default and the Company does not cure such Default within the time specified after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a “Notice of Default.”
The Company shall deliver to the Trustee annually a statement regarding compliance with the Indenture. Upon an Officer becoming aware of any Default or Event of Default, the Company shall deliver to the Trustee,
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within 10 days of becoming so aware, written notice in the form of an Officers’ Certificate specifying such Default or Event of Default, its status, and the action the Company proposes to take with respect thereto.
If an Event of Default with respect to the Notes (other than an Event of Default resulting from certain events involving bankruptcy, insolvency or reorganization with respect to the Company) shall have occurred and be continuing, the Trustee or the registered holders of not less than 25% in aggregate principal amount of the Notes then outstanding may declare to be immediately due and payable the principal amount of all the Notes then outstanding, plus accrued and unpaid interest, including Special Interest, if any to the date of acceleration. In case an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization with respect to the Company shall occur, such amount with respect to all the Notes shall be due and payable immediately without any declaration or other act on the part of the Trustee or the holders of the Notes. After any such acceleration, but before a judgment or decree based on acceleration is obtained by the Trustee, the registered holders of at least a majority in aggregate principal amount of the Notes then outstanding may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the nonpayment of accelerated principal, premium or interest, have been cured or waived as provided in the Indenture.
Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the holders of the Notes, unless such holders shall have offered to the Trustee reasonable indemnity. Subject to such provisions for the indemnification of the Trustee, the holders of at least a majority in aggregate principal amount of the Notes then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Notes. The holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default: (a) in the payment of the principal or, premium, if any, or interest, including Special Interest, if any, and (b) in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each Note affected thereby.
No holder of Notes will have any right to institute any proceeding with respect to the Indenture, or for the appointment of a receiver or trustee, or for any remedy thereunder, unless:
(a) such holder has previously given to the Trustee written notice of a continuing Event of Default;
(b) the registered holders of at least 25% in aggregate principal amount of the Notes then outstanding have made a written request and offered reasonable indemnity to the Trustee to institute such proceeding as trustee; and
(c) the Trustee shall not have received from the registered holders of at least a majority in aggregate principal amount of the Notes then outstanding a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a holder of any Note for enforcement of payment of the principal of, and premium, if any, or interest, including Special Interest, if any, on, such Note on or after the respective due dates expressed in such Note.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator, stockholder or member of the Company or any Subsidiary or Affiliate of the Company, as such, will have any liability for any obligations under the Notes, the Indenture, the Subsidiary Guaranties, the registration rights agreement, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
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Amendments and Waivers
Subject to certain exceptions, the Company and the Trustee with the consent of the registered holders of at least a majority in aggregate principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes) may amend the Indenture and the Notes, and the registered holders of at least a majority in aggregate principal amount of the Notes outstanding may waive any past default or compliance with any provisions of the Indenture and the Notes (except a default in the payment of principal, premium, interest, including Special Interest, if any, and certain covenants and provisions of the Indenture which cannot be amended without the consent of each holder of an outstanding Note). However, without the consent of each holder of an outstanding Note, no amendment may, among other things,
(1) reduce the principal amount of Notes whose holders must consent to an amendment, supplement or waiver;
(2) reduce the rate of, or extend the time for payment of, interest, including Special Interest, if any, on, any Note;
(3) reduce the principal of, or extend the Stated Maturity of, any Note, or alter the provisions with respect to the redemption of the Notes;
(4) make any Note payable in money other than that stated in the Note;
(5) impair the right of any holder of the Notes to receive payment of principal of, premium, if any, and interest, including Special Interest, if any, on, such holder’s Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder’s Notes or any Subsidiary Guaranty;
(6) waive a Default or Event of Default in the payment of principal of, premium, if any, and interest, including Special Interest, if any, on such Notes (except a rescission of acceleration of such Notes by the holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration);
(7) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of holders of such Notes to receive payments of principal of, or interest or premium or Special Interest, if any, on such Notes;
(8) subordinate the Notes or any Subsidiary Guaranty to any other obligation of the Company or the applicable Subsidiary Guarantor;
(9) release any security interest that may have been granted in favor of the holders of the Notes other than pursuant to the terms of such security interest;
(10) reduce the premium payable upon the redemption of any Note or change the time at which any Note may be redeemed, as described under “— Optional Redemption” and “— Additional Amounts;”
(11) reduce the premium payable upon a Change of Control or, at any time after a Change of Control has occurred, change the time at which the Change of Control Offer relating thereto must be made or at which the Notes must be repurchased pursuant to such Change of Control Offer;
(12) at any time after the Company is obligated to make a Prepayment Offer with the Excess Proceeds from Asset Sales, change the time at which such Prepayment Offer must be made or at which the Notes must be repurchased pursuant thereto;
(13) amend or modify the provisions described under “— Additional Amounts;”
(14) make any change in any Subsidiary Guaranty, that would adversely affect the holders of the Notes; or
(15) make any change in the preceding amendment and waiver provisions.
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The Indenture and the Notes may be amended by the Company and the Trustee without the consent of any holder of the Notes to:
(1) cure any ambiguity, omission, defect or inconsistency;
(2) provide for the assumption by a Surviving Person of the obligations of the Company under the Indenture, provided, that the Company delivers to the Trustee:
(A) an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such assumption by a successor corporation and will be subject to U.S. Federal income tax on the same amounts, in the same manner and at the same times as would be the case if such assumption had not occurred, and
(B) an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for Canadian federal, provincial or territorial income tax purposes as a result of such assumption by a successor corporation and will be subject to Canadian federal, provincial or territorial income taxes (including withholding taxes) on the same amounts, in the same manner and at the same times as would be the case if such assumption had not occurred;
(3) provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code);
(4) add additional Guarantees with respect to the Notes or release Subsidiary Guarantors from Subsidiary Guaranties as provided or permitted by the terms of the Indenture;
(5) secure the Notes, add to the covenants of the Company for the benefit of the holders of the Notes or surrender any right or power conferred upon the Company;
(6) make any change that does not adversely affect the rights of any holder of the Notes;
(7) comply with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act;
(8) evidence or provide for a successor Trustee; or
(9) provide for the issuance of Additional Notes in accordance with the Indenture.
The consent of the holders of the Notes is not necessary to approve the particular form of any proposed amendment, supplement or waiver. It is sufficient if such consent approves the substance of the proposed amendment, supplement or waiver. After an amendment, supplement or waiver becomes effective, the Company is required to mail to each registered holder of the Notes at such holder’s address appearing in the Security Register a notice briefly describing such amendment, supplement or waiver. However, the failure to give such notice to all holders of the Notes, or any defect therein, will not impair or affect the validity of the amendment, supplement or waiver.
Defeasance
The Company may, at its option and at any time, terminate all its obligations under the Notes and the Indenture (“legal defeasance”), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes and to pay Additional Amounts, if any. The Company at any time also may terminate:
(1) its obligations under the covenants described under “— Change of Control Offer” and “— Certain Covenants,”
(2) the operation of the cross acceleration provisions, the judgment default provisions, the bankruptcy provisions with respect to Significant Subsidiaries and the guaranty provisions, in each case described under “— Events of Default” above, and
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(3) the limitations contained in clause (e) under the first paragraph of, and in the second paragraph of, “— Merger, Consolidation and Sale of Property” above (“covenant defeasance”).
The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (4) (with respect to the covenants described under “— Certain Covenants”), (5), (6), (7) (with respect only to Significant Subsidiaries), (8) or (9) under “— Events of Default” above or because of the failure of the Company to comply with clause (e) under the first paragraph of, or with the second paragraph of, “— Merger, Consolidation and Sale of Property” above. If the Company exercises its legal defeasance option or its covenant defeasance option, any collateral then securing the Notes will be released and each Subsidiary Guarantor will be released from all its obligations under its Subsidiary Guaranty.
The legal defeasance option or the covenant defeasance option may be exercised only if:
(a) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal of, premium, if any, and interest, including Special Interest, if any, on the Notes to maturity or redemption, as the case may be;
(b) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent certified public accountants expressing their opinion that the payments of principal, premium, if any, and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal, premium, if any, and interest when due on all the Notes to be defeased to maturity or redemption, as the case may be;
(c) 90 days pass after the deposit is made, and during the90-day period, no Default described in clause (7) under “— Events of Default” occurs with respect to the Company or any other Person making such deposit which is continuing at the end of the period;
(d) no Default or Event of Default has occurred and is continuing on the date of such deposit and after giving effect thereto;
(e) such deposit does not constitute a default under any other agreement or instrument binding on the Company;
(f) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940;
(g) in the case of the legal defeasance option, the Company delivers to the Trustee an Opinion of Counsel stating that:
(1) the Company has received from the Internal Revenue Service a ruling, or
(2) since the date of the Indenture there has been a change in the applicable Federal income tax law, to the effect, in either case, that, and based thereon such Opinion of Counsel shall confirm that, the holders of the Notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such defeasance and will be subject to U.S. Federal income tax on the same amounts, in the same manner and at the same time as would be the case if such defeasance has not occurred;
(h) in the case of the covenant defeasance option, the Company delivers to the Trustee an Opinion of Counsel to the effect that the holders of the Notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such covenant defeasance and will be subject to
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U.S. Federal income tax on the same amounts, in the same manner and at the same times as would be the case if such covenant defeasance had not occurred;
(i) the Company delivers to the Trustee an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for Canadian federal, provincial or territorial tax purposes as a result of such deposit and defeasance and will be subject to Canadian federal, provincial or territorial taxes (including withholding taxes) on the same amounts, in the same manner and at the same times as would be the case if such deposit and defeasance had not occurred; and
(j) the Company delivers to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Notes have been complied with as required by the Indenture.
Satisfaction and Discharge
The Company may discharge the Indenture such that it will cease to be of further effect, except as to surviving rights of registration of transfer or exchange of the Notes, as to all outstanding Notes when:
(1) either
(a) all the Notes previously authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has previously been deposited in trust or segregated and held in trust by the Company and is thereafter repaid to the Company or discharged from the trust) have been delivered to the Trustee for cancellation; or
(b) all Notes not previously delivered to the Trustee for cancellation
(A) have become due and payable, or
(B) will become due and payable at their maturity within one year, or
(C) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of a redemption by the Trustee, and
in the case of (A), (B) or (C), the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the holders, cash in U.S. dollars, U.S. Government Obligations, or a combination of such cash and U.S. Government Obligations, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire Debt on the Notes not previously delivered to the Trustee for cancellation or redemption, for principal, premium, if any, and interest and Special Interest, if any, on the Notes to the date of deposit, in the case of Notes that have become due and payable, or to the Stated Maturity or redemption date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable by it under the Indenture; and
(3) if required by the Trustee, the Company delivers to the Trustee an Officers’ Certificate and Opinion of Counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been satisfied.
Foreign Currency Equivalents
For purposes of determining compliance with any U.S. dollar-denominated restriction or amount, the U.S. dollar equivalent principal amount of any amount denominated in a foreign currency will be the Dollar Equivalent calculated on the date the Debt was incurred or other transaction was entered into, or first committed, in the case of revolving credit debt, provided that if any Permitted Refinancing Debt is incurred to refinance Debt denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated on the date of such refinancing, such U.S. dollar-denominated restriction will be deemed not have been exceeded so long as the principal amount of such Permitted Refinancing Debt does not exceed the principal amount of such Debt being refinanced.
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Notwithstanding any other provision in the Indenture, no restriction or amount will be exceeded solely as a result of fluctuations in the exchange rate of currencies.
Consent to Jurisdiction and Service of Process
The Company will irrevocably appoint Corporation Service Company as its agent for service of process in any suit, action or proceeding with respect to the Indenture or the Notes brought in any Federal or state court located in New York City and that each of the parties submits to the jurisdiction thereof.
Enforceability of Judgments
Since most of the Company’s assets are located outside the United States, any judgment obtained in the United States against it, including judgments with respect to the payment of any principal, premium, interest, including Special Interest, and Additional Amounts may not be collectible within United States.
The laws of the Province of Ontario and the federal laws of Canada applicable therein permit an action to be brought in a court of competent jurisdiction in the Province of Ontario (an “Ontario Court”) for the enforcement of the Indenture or the Notes. An Ontario Court would give a judgment based upon a final and conclusive in personam judgment of any federal or state court located in the City of New York (a “New York Court”) for a sum certain, obtained against the Company with respect to a claim arising out of the Indenture or the Notes (a “New York Judgment”), without reconsideration of the merits, (A) provided that, (i) an action to enforce the New York Judgment must be commenced in the Ontario Court within any applicable limitation period; (ii) the Ontario Court has discretion to stay or decline to hear an action on the New York Judgment if the New York Judgment is under appeal or there is another subsisting judgment in any jurisdiction relating to the same cause of action as the New York Judgment; (iii) the Ontario Court will render judgment only in Canadian dollars; and (iv) an action in the Ontario Court on the New York Judgment may be affected by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors’ rights generally; and (B) subject to the following defenses, (w) the New York Judgment was obtained by fraud or in a manner contrary to the principles of natural justice; (x) the New York Judgment is for a claim which under Ontario Law would be characterized as based on a foreign revenue, expropriatory, penal law; (y) the New York Judgment is contrary to Ontario public policy; and (z) the New York Judgment has been satisfied or is void or voidable under the internal laws of that foreign jurisdiction.
In addition, under the Currency Act (Canada), a Canadian Court may only render judgment for a sum of money in Canadian currency, and in enforcing a foreign judgment for a sum of money in a foreign currency, a Canadian court will render its decisions in the Canadian currency equivalent of such foreign currency, calculated at the rate of exchange prevailing on the date the judgment became enforceable at the place where it was rendered.
Governing Law
The Indenture and the Notes are governed by the laws of the State of New York.
The Trustee
The Bank of New York Mellon Trust Company, N.A. is the Trustee under the Indenture.
Except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such of the rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person’s own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of the Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.
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Certain Definitions
Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms as well as any other capitalized terms used herein for which no definition is provided. Unless the context otherwise requires, an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP.
“Additional Assets” means:
(a) any Property (other than cash, Cash Equivalents and securities) to be owned by the Company or any Restricted Subsidiary and used in a Related Business; or
(b) Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary from any Person other than the Company or an Affiliate of the Company; provided, however, that, in the case of clause (b), such Restricted Subsidiary is primarily engaged in a Related Business.
“Affiliate” of any specified Person means:
(a) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person, or
(b) any other Person who is a director or officer of:
(1) such specified Person,
(2) any Subsidiary of such specified Person, or
(3) any Person described in clause (a) above.
For the purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing. For purposes of the covenants described under “— Certain Covenants — Limitation on Transactions with Affiliates” and “— Limitation on Asset Sales” and the definition of “Additional Assets” only, “Affiliate” shall also mean any beneficial owner of shares representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
“Alternative Currency” means any lawful currency other than U.S. dollars that is freely transferable into U.S. dollars.
“Approved Member States” means Belgium, France, Germany, Italy, Luxembourg, The Netherlands, Spain, Sweden and the United Kingdom.
“Asset Sale” means any sale, lease, transfer, issuance or other disposition (or series of related sales, leases, transfers, issuances or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a “disposition”), of the following:
(a) any shares of Capital Stock of a Restricted Subsidiary (other than directors’ qualifying shares), or
(b) any other Property of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary,
other than, in the case of clause (a) or (b) above:
(1) any disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Restricted Subsidiary,
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(2) any disposition that constitutes a Permitted Investment or Restricted Payment permitted by the covenant described under “— Certain Covenants — Limitation on Restricted Payments,”
(3) any disposition effected in compliance with the first or second paragraph of the covenant described under “— Merger, Consolidation and Sale of Property”),
(4) any sale of accounts receivable and related assets (including contract rights) of the type specified in the definition of “Qualified Securitization Transaction” to or by a Securitization Entity for the fair market value thereof,
(5) any sale of assets pursuant to a Sale and Leaseback Transaction, provided that neither the Company nor any Restricted Subsidiary shall, nor shall they permit any of their respective Subsidiaries to, become or remain liable as lessee or guarantor or other surety with respect to any operating lease, unless the aggregate amount of all rents paid or accrued under all such operating leases does not exceed $25.0 million in any fiscal year;
(6) any sale or disposition of cash or Cash Equivalents;
(7) the granting of Liens not prohibited by the Indenture; and
(8) any disposition in a single transaction or a series of related transactions of assets for aggregate consideration of less than $10.0 million.
“Attributable Debt” in respect of a Sale and Leaseback Transaction means, at any date of determination,
(a) if such Sale and Leaseback Transaction is a Capital Lease Obligation, the amount of Debt represented thereby according to the definition of “Capital Lease Obligations,” and
(b) in all other instances, the greater of:
(1) the Fair Market Value of the Property subject to such Sale and Leaseback Transaction, and
(2) the present value (discounted at the interest rate borne by the Senior Notes, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction (including any period for which such lease has been extended).
“Average Life” means, as of any date of determination, with respect to any Debt or Preferred Stock, the quotient obtained by dividing:
(a) the sum of the product of the numbers of years (rounded to the nearest one-twelfth of one year) from the date of determination to the dates of each successive scheduled principal payment of such Debt or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (b) the sum of all such payments.
“Board of Directors” means the board of directors of the Company.
“Board Resolution” of a Person means a copy of a resolution certified by the secretary or an assistant secretary (or individual performing comparable duties) of the applicable Person to have been duly adopted by the board of directors of such Person and to be in full force and effect on the date of such certification.
“Canadian Restricted Subsidiary” means any Restricted Subsidiary that is organized under the laws of Canada or any province thereof.
“Capital Lease Obligations” means any obligation under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP; and the amount of Debt represented by such obligation shall be the capitalized amount of such obligations determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. For purposes of “— Certain Covenants — Limitation on Liens,” a Capital Lease Obligation shall be deemed secured by a Lien on the Property being leased.
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“Capital Stock” means, with respect to any Person, any shares or other equivalents (however designated) of any class of corporate stock or partnership interests or any other participations, rights, warrants, options or other interests in the nature of an equity interest in such Person, including Preferred Stock, but excluding any debt security convertible or exchangeable into such equity interest.
“Capital Stock Equivalents” means all securities convertible into or exchangeable for Capital Stock and all warrants, options or other rights to purchase or subscribe for any Capital Stock, whether or not presently convertible, exchangeable or exercisable.
“Capital Stock Sale Proceeds” means the aggregate cash proceeds received by the Company from the issuance or sale (other than to a Subsidiary of the Company or an employee stock ownership plan or trust established by the Company or any such Subsidiary for the benefit of their employees) by the Company of its Capital Stock (other than Disqualified Stock) after February 3, 2005, net of attorneys’ fees, accountants’ fees, underwriters’ or placement agents’ fees, discounts or commissions and brokerage, consultant and other fees and expenses actually incurred in connection with such issuance or sale and net of Taxes paid or payable as a result thereof.
“Cash Equivalents” means any of the following:
(a) securities issued or fully guaranteed or insured by the federal government of the United States, Canada, Switzerland, any Approved Member State or any agency of the foregoing maturing within 365 days of the date of acquisition thereof;
(b) time deposit accounts, certificates of deposit, eurocurrency time deposits, overnight bank deposits, money market deposits and bankers’ acceptances maturing within 365 days of the date of acquisition thereof and issued by a bank or trust company organized under the laws of Canada or any province thereof, the United States, any state thereof, the District of Columbia, anynon-U.S. bank, or its branches or agencies (fully protected against currency fluctuations) that, at the time of acquisition, is rated at least“A-1” by S&P or“P-1” by Moody’s (or such similar equivalent rating by at least one “nationally recognized statistical rating organization” (as defined in Rule 436 under the Securities Act)) or the “R-1” category by the Dominion Bond Rating Service Limited and has capital, surplus and undivided profits aggregating in excess of $500 million;
(c) shares of any money market fund that (i) has at least 95% of its assets invested continuously in the types of investments referred to in clauses (a) and (b) above, (ii) has net assets that exceed $500 million and (iii) is rated at least“A-1” by S&P or“P-1” by Moody’s;
(d) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (a) entered into with:
(1) a bank meeting the qualifications described in clause (b) above, or
(2) any primary government securities dealer reporting to the Market Reports Division of the Federal Reserve Bank of New York;
(e) commercial paper issued by a corporation (other than an Affiliate of the Company) with a rating at the time as of which any Investment therein is made of“P-1” (or higher) according to Moody’s or“A-1” (or higher) according to S&P (or such similar equivalent rating by at least one “nationally recognized statistical rating organization” (as defined in Rule 436 under the Securities Act)) or in the “R-1” category by the Dominion Bond Rating Service Limited; and
(f) direct obligations (or certificates representing an ownership interest in such obligations) of any state of the United States or the District of Columbia or any political subdivision or instrumentality thereof (including any agency or instrumentality thereof) or any province of Canada (including any agency or instrumentality thereof) for the payment of which the full faith and credit of such state or province is pledged and maturing within 365 days of the date of acquisition thereof,providedthat the long-term debt of such state, province or political subdivision is rated, in the case of a state of the United States, one of the two highest ratings from Moody’s or S&P (or such similar equivalent rating by at least
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one “nationally recognized statistical rating organization” (as defined in Rule 436 under the Securities Act)), or the “R-1” category by the Dominion Bond Rating Service Limited;
provided,however, that, to the extent any cash is generated through operations in a jurisdiction outside of the United States, Canada, Switzerland or an Approved Member State, such cash may be retained and invested in obligations of the type described in clauses (a), (b) and (e) of this definition to the extent that such obligations have a credit rating equal to the sovereign rating of such jurisdiction.
“Change of Control” means the occurrence of any of the following events:
(a) any “person” or “group” (as such terms are used in Section 13(d) and 14(d) of the Exchange Act or any successor of the foregoing), including any group acting for the purpose of acquiring, holding, voting or disposing of securities within the meaning ofRule 13d-5(b)(1) under the Exchange Act, other than a Permitted Holder, becomes the “beneficial owner” (as defined inRule 13d-3 under the Exchange Act, except that a person will be deemed to have “beneficial ownership” of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 50% or more of the total voting power of the Voting Stock of the Company (for purposes of this clause (a), such person or group shall be deemed to beneficially own any Voting Stock of a corporation held by any other corporation (the “parent corporation”) so long as such person or group beneficially owns, directly or indirectly, in the aggregate at least a majority of the total voting power of the Voting Stock of such parent corporation); or
(b) the sale, transfer, assignment, lease, conveyance or other disposition, directly or indirectly, of all or substantially all the Property of the Company and the Restricted Subsidiaries, considered as a whole (other than a disposition of such Property as an entirety or virtually as an entirety to a Wholly Owned Restricted Subsidiary), shall have occurred, or the Company merges, consolidates or amalgamates with or into any other Person or any other Person merges, consolidates or amalgamates with or into the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is reclassified into or exchanged for cash, securities or other Property, other than any such transaction where:
(1) the outstanding Voting Stock of the Company is reclassified into or exchanged for other Voting Stock of the Company or for Voting Stock of the Surviving Person, and
(2) the holders of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, not less than a majority of the Voting Stock of the Company or the Surviving Person immediately after such transaction; or
(c) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election or appointment by such Board or whose nomination for election by the shareholders of the Company was approved by a vote of not less than three-fourths of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute at least a majority of the Board of Directors then in office; or
(d) the shareholders of the Company shall have approved any plan of liquidation or dissolution of the Company.
“Code” means the Internal Revenue Code of 1986, as amended.
“Commodity Price Protection Agreement” means, in respect of a Person, any forward contract, commodity swap agreement, commodity option agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in commodity prices.
“Comparable Treasury Issue” means the U.S. treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Notes that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt
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securities of comparable maturity to the remaining term of such Notes. “Independent Investment Banker” means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company.
“Comparable Treasury Price” means, with respect to any redemption date:
(a) the average of the bid and ask prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the most recently published statistical release designated “H.15(519)” (or any successor release) published by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded U.S. treasury securities adjusted to constant maturity under the caption “Treasury Constant Maturities,” or
(b) if such release (or any successor release) is not published or does not contain such prices on such business day, the average of the Reference Treasury Dealer Quotations for such redemption date.
“Consolidated Current Liabilities” means, as of any date of determination, the aggregate amount of liabilities of the Company and its consolidated Restricted Subsidiaries which may properly be classified as current liabilities (including taxes accrued as estimated), after eliminating:
(a) all intercompany items between the Company and any Restricted Subsidiary or between Restricted Subsidiaries, and
(b) all current maturities of long-term Debt.
“Consolidated Interest Coverage Ratio” means, as of any date of determination, the ratio of:
(a) the aggregate amount of EBITDA for the most recent four consecutive fiscal quarters ending at least 45 days prior to such determination date to
(b) Consolidated Interest Expense for such four fiscal quarters;
provided,however, that:
(1) if
(A) since the beginning of such period the Company or any Restricted Subsidiary has Incurred any Debt that remains outstanding or Repaid any Debt, or
(B) the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio is an Incurrence or Repayment of Debt,
Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Incurrence or Repayment as if such Debt was Incurred or Repaid on the first day of such period,providedthat, in the event of any such Repayment of Debt, EBITDA for such period shall be calculated as if the Company or such Restricted Subsidiary had not earned any interest income actually earned during such period in respect of the funds used to Repay such Debt, and
(2) if
(A) since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Sale or an Investment (by merger or otherwise) in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of Property which constitutes all or substantially all of an operating unit of a business,
(B) the transaction giving rise to the need to calculate the Consolidated Interest Coverage Ratio is such an Asset Sale, Investment or acquisition, or
(C) since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made such an Asset Sale, Investment or acquisition,
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then EBITDA for such period shall be calculated after giving pro forma effect to such Asset Sale, Investment or acquisition as if such Asset Sale, Investment or acquisition had occurred on the first day of such period.
If any Debt bears a floating rate of interest and is being given pro forma effect, the interest expense on such Debt shall be calculated as if the base interest rate in effect for such floating rate of interest on the date of determination had been the applicable base interest rate for the entire period (taking into account any Interest Rate Agreement applicable to such Debt if such Interest Rate Agreement has a remaining term in excess of 12 months). In the event the Capital Stock of any Restricted Subsidiary is sold during the period, the Company shall be deemed, for purposes of clause (1) above, to have Repaid during such period the Debt of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Debt after such sale.
“Consolidated Interest Expense” means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such total interest expense, and to the extent Incurred by the Company or its Restricted Subsidiaries,
(a) interest expense attributable to leases constituting part of a Sale and Leaseback Transaction and to Capital Lease Obligations,
(b) amortization of debt discount and debt issuance cost, including commitment fees,
(c) capitalized interest,
(d) non-cash interest expense,
(e) commissions, discounts and other fees and charges owed with respect to letters of credit and banker’s acceptance financing,
(f) net costs associated with Hedging Obligations (including amortization of fees),
(g) Disqualified Stock Dividends,
(h) Preferred Stock Dividends,
(i) interest Incurred in connection with Investments in discontinued operations,
(j) interest accruing on any Debt of any other Person to the extent such Debt is Guaranteed by the Company or any Restricted Subsidiary, and
(k) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Debt Incurred by such plan or trust.
“Consolidated Net Income” means, for any period, the net income (loss) of the Company and its consolidated Restricted Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income:
(a) any net income (loss) of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that:
(1) subject to the exclusion contained in clause (c) below, equity of the Company and its consolidated Restricted Subsidiaries in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (b) below), and
(2) the equity of the Company and its consolidated Restricted Subsidiaries in a net loss of any such Person other than an Unrestricted Subsidiary for such period shall be included in determining such Consolidated Net Income,
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(b) any net income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions, directly or indirectly, to the Company, except that:
(1) subject to the exclusion contained in clause (c) below, the equity of the Company and its consolidated Restricted Subsidiaries in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to another Restricted Subsidiary, to the limitation contained in this clause), and
(2) the equity of the Company and its consolidated Restricted Subsidiaries in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income,
(c) any gain or loss realized upon the sale or other disposition of any Property of the Company or any of its consolidated Subsidiaries (including pursuant to any Sale and Leaseback Transaction) that is not sold or otherwise disposed of in the ordinary course of business (provided that sales or other dispositions of assets in connection with any Qualified Securitization Transaction shall be deemed to be in the ordinary course),
(d) any extraordinary gain or loss,
(e) the cumulative effect of a change in accounting principles, and
(f) any non-cash compensation expense realized for grants of performance shares, stock options or other rights to officers, directors and employees of the Company or any Restricted Subsidiary,providedthat such shares, options or other rights can be redeemed at the option of the holder only for Capital Stock of the Company (other than Disqualified Stock).
Notwithstanding the foregoing, for purposes of the covenant described under “— Certain Covenants — Limitation on Restricted Payments” only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of Property from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clause (c)(4) thereof.
“Consolidated Net Tangible Assets” means, as of any date of determination, the sum of the amounts that would appear on a consolidated balance sheet of the Company and its consolidated Restricted Subsidiaries as the total assets (less accumulated depreciation and amortization, allowances for doubtful receivables, other applicable reserves and other properly deductible items) of the Company and its Restricted Subsidiaries, after giving effect to purchase accounting and after deducting therefrom Consolidated Current Liabilities and, to the extent otherwise included, the amounts of (without duplication):
(a) the excess of cost over fair market value of assets or businesses acquired;
(b) any revaluation or otherwrite-up in book value of assets subsequent to December 31, 2004 as a result of a change in the method of valuation in accordance with GAAP;
(c) unamortized debt discount and expenses and other unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, licenses, organization or developmental expenses and other intangible items;
(d) minority interests in consolidated Subsidiaries held by Persons other than the Company or any Restricted Subsidiary;
(e) treasury stock;
(f) cash or securities set aside and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of Capital Stock to the extent such obligation is not reflected in Consolidated Current Liabilities; and
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(g) Investments in and assets of Unrestricted Subsidiaries.
“Credit Facilities” means, with respect to the Company or any Restricted Subsidiary, one or more debt or commercial paper facilities with banks or other institutional lenders (including the Senior Secured Credit Facilities) or indentures, in each case, providing for revolving credit loans, term loans, receivables or inventory financing (including through the sale of receivables or inventory to such lenders or to special purpose, bankruptcy remote entities formed to borrow from such lenders against such receivables or inventory) or trade letters of credit, in each case together with any Refinancings thereof.
“Currency Exchange Protection Agreement” means, in respect of a Person, any foreign exchange contract, currency swap agreement, currency option or other similar agreement or arrangement designed to protect such Person against fluctuations in currency exchange rates.
“Debt” means, with respect to any Person on any date of determination (without duplication):
(a) the principal of and premium (if any) in respect of:
(1) debt of such Person for money borrowed, and
(2) debt evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable;
(b) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale and Leaseback Transactions entered into by such Person;
(c) all obligations of such Person representing the deferred purchase price of Property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business);
(d) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (a) through (c) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third business day following receipt by such Person of a demand for reimbursement following payment on the letter of credit);
(e) the amount of all obligations of such Person with respect to the Repayment of any Disqualified Stock or, with respect to any Subsidiary of such Person, any Preferred Stock (but excluding, in each case, any accrued dividends);
(f) all obligations of the type referred to in clauses (a) through (e) above of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee;
(g) all obligations of the type referred to in clauses (a) through (f) above of other Persons secured by any Lien on any Property of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the Fair Market Value of such Property and the amount of the obligation so secured; and
(h) to the extent not otherwise included in this definition, Hedging Obligations of such Person.
The amount of Debt of any Person at any date shall be the outstanding balance, or the accreted value of such Debt in the case of Debt issued with original issue discount, at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. The amount of Debt represented by a Hedging Obligation shall be equal to:
(1) zero if such Hedging Obligation has been Incurred pursuant to clause (f), (g) or (h) of the second paragraph of the covenant described under “— Certain Covenants — Limitation on Debt,” or
(2) the notional amount of such Hedging Obligation if not Incurred pursuant to such clauses.
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“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.
“Disqualified Stock” means any Capital Stock of the Company or any of its Restricted Subsidiaries that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable, in either case at the option of the holder thereof) or otherwise:
(a) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(b) is or may become redeemable or repurchaseable at the option of the holder thereof, in whole or in part, or
(c) is convertible or exchangeable at the option of the holder thereof for Debt or Disqualified Stock, on or prior to, in the case of clause (a), (b) or (c), the first anniversary of the Stated Maturity of the Notes.
“Disqualified Stock Dividends” means all dividends with respect to Disqualified Stock of the Company held by Persons other than a Wholly Owned Restricted Subsidiary. The amount of any such dividend shall be equal to the quotient of such dividend divided by the difference between one and the maximum statutory federal income tax rate (expressed as a decimal number between 1 and 0) then applicable to the Company.
“Dollar Equivalent” of any amount means, at the time of determination thereof, (a) if such amount is expressed in U.S. dollars, such amount, (b) if such amount is expressed in an Alternative Currency, the equivalent of such amount in U.S. dollars determined by using the rate of exchange quoted by Credit Suisse Securities (USA) LLC in New York, New York at 11:00 a.m. (New York time) on the date of determination (or, if such date is not a Business Day, the last Business Day prior thereto) to prime banks in New York for the spot purchase in the New York currency exchange market of such amount of U.S. dollars with such Alternative Currency and (c) if such amount is denominated in any other currency, the equivalent of such amount in U.S. dollars as determined by the Trustee using any method of determination it deems appropriate.
“EBITDA” means, for any period, an amount equal to, for the Company and its consolidated Restricted Subsidiaries:
(a) the sum of Consolidated Net Income for such period, plus
(1) any provision for taxes based on income or profits,
(2) Consolidated Interest Expense,
(3) loss from extraordinary items,
(4) depreciation, depletion and amortization expenses,
(5) all other non-cash expenses, charges and losses that are not payable in cash in any subsequent period, and
(6) non-recurring cash restructuring expenses, charges and losses, minus
(b) the sum of, in each case to the extent included in the calculation of such Consolidated Net Income for such period, but without duplication, (i) any credit for income tax, (ii) interest income, (iii) gains from extraordinary items, (iv) any aggregate net gain (but not any aggregate net loss) from the sale, exchange or other disposition of capital assets and (v) any other non-cash gains or other items which have been added in determining Consolidated Net Income, including any reversal of a change referred to in clause (5) above by reason of a decrease in the value of any Capital Stock or Capital Stock Equivalent.
Notwithstanding the foregoing clause (a), the provision for taxes and the depreciation, amortization and non-cash items of a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees,
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orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its shareholders.
“Event of Default” has the meaning set forth under “— Events of Default.”
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Existing Indenture” means the Indenture relating to the Senior Notes, dated as of February 3, 2005, between the Company, the guarantors parties thereto and The Bank of New York Mellon Trust Company, N.A., as trustee, as amended from time to time.
“Fair Market Value” means, with respect to any Property, the price that could be negotiated in an arm’s-length free market transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value shall be determined, except as otherwise provided,
(a) if such Property has a Fair Market Value equal to or less than $50.0 million, by any Officer of the Company, or
(b) if such Property has a Fair Market Value in excess of $50.0 million, by at least a majority of the Board of Directors and evidenced by a Board Resolution, dated within 45 days of the relevant transaction, delivered to the Trustee.
“GAAP” means U.S. generally accepted accounting principles as in effect on February 3, 2005, including those set forth in:
(a) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants,
(b) the statements and pronouncements of the Financial Accounting Standards Board,
(c) such other statements by such other entity as approved by a significant segment of the accounting profession, and
(d) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC.
“Guarantee” means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Debt of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person:
(a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, totake-or-pay or to maintain financial statement conditions or otherwise), or
(b) entered into for the purpose of assuring in any other manner the obligee against loss in respect thereof (in whole or in part);
provided,however, that the term “Guarantee” shall not include:
(1) endorsements for collection or deposit in the ordinary course of business, or
(2) a contractual commitment by one Person to invest in another Person for so long as such Investment is reasonably expected to constitute a Permitted Investment under clause (a), (b) or (c) of the definition of “Permitted Investment.”
The term “Guarantee” used as a verb has a corresponding meaning. The term “Guarantor” shall mean any Person Guaranteeing any obligation.
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“Hedging Obligation” of any Person means any obligation of such Person pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement, Commodity Price Protection Agreement or any other similar agreement or arrangement.
“holder” means a Person in whose name a Note is registered in the Security Register.
“Incur” means, with respect to any Debt or other obligation of any Person, to create, issue, incur (by merger, conversion, exchange or otherwise), extend, assume, Guarantee or become liable in respect of such Debt or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Debt or obligation on the balance sheet of such Person (and “Incurrence” and “Incurred” shall have meanings correlative to the foregoing); provided, however, that a change in GAAP that results in an obligation of such Person that exists at such time, and is not theretofore classified as Debt, becoming Debt shall not be deemed an Incurrence of such Debt; provided further, however, that any Debt or other obligations of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary; and provided further, however, that solely for purposes of determining compliance with “— Certain Covenants — Limitation on Debt,” amortization of debt discount shall not be deemed to be the Incurrence of Debt, provided that in the case of Debt sold at a discount, the amount of such Debt Incurred shall at all times be the aggregate principal amount at Stated Maturity.
“Independent Financial Advisor” means an investment banking firm of national standing or any third party appraiser of national standing, provided that such firm or appraiser is not an Affiliate of the Company.
“Interest Rate Agreement” means, for any Person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement designed to protect against fluctuations in interest rates.
“Investment” by any Person means any direct or indirect loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person), advance or other extension of credit or capital contribution (by means of transfers of cash or other Property to others or payments for Property or services for the account or use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities or evidence of Debt issued by, any other Person. For purposes of the covenants described under “— Certain Covenants — Limitation on Restricted Payments” and “— Designation of Restricted and Unrestricted Subsidiaries” and the definition of “Restricted Payment,” the term “Investment” shall include the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary of an amount (if positive) equal to:
(a) the Company’s “Investment” in such Subsidiary at the time of such redesignation, less
(b) the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation.
In determining the amount of any Investment made by transfer of any Property other than cash, such Property shall be valued at its Fair Market Value at the time of such Investment.
“Investment Grade Rating” means a rating equal to or higher than Baa3 (or the equivalent) by Moody’s and BBB- (or the equivalent) by S&P.
“Investment Grade Status” shall be deemed to have been reached on the date that the Notes have an Investment Grade Rating from both Rating Agencies.
“Issue Date” means the date on which the old notes were issued pursuant to the Indenture.
“Lien” means, with respect to any Property of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement (other than any
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easement not materially impairing usefulness or marketability), encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such Property (including any Capital Lease Obligation, conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing or any Sale and Leaseback Transaction).
“Moody’s” means Moody’s Investors Service, Inc. or any successor to the rating agency business thereof.
“Net Available Cash” from any Asset Sale means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Debt or other obligations relating to the Property that is the subject of such Asset Sale or received in any other non-cash form), in each case net of:
(a) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Sale,
(b) all payments made on or in respect of any Debt that is secured by any Property subject to such Asset Sale, in accordance with the terms of any Lien upon such Property, or which must by its terms, or in order to obtain a necessary consent to such Asset Sale, or by applicable law, be repaid out of the proceeds from such Asset Sale,
(c) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale, and
(d) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the Property disposed of in such Asset Sale and retained by the Company or any Restricted Subsidiary after such Asset Sale.
“Obligations” means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Debt.
“Officer” means the Chief Executive Officer, the President, the Chief Financial Officer or any other executive officer of the Company.
“Officers’ Certificate” means a certificate, in form and substance reasonably satisfactory to the Trustee, signed by two Officers of the Company, at least one of whom shall be the principal executive officer or principal financial officer of the Company, and delivered to the Trustee.
“Opinion of Counsel” means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee.
“Permitted Holder” means Hindalco Industries Ltd. and any Affiliate and Related Person thereof. Any person or group whose acquisition of beneficial ownership constitutes a Change of Control in respect of which a Change of Control Offer is made in accordance with the requirements of the Indenture (or would result in a Change of Control Offer in the absence of the waiver of such requirement by holders in accordance with the Indenture) will thereafter, together with any of its Affiliates and Related Persons, constitute additional Permitted Holders.
“Permitted Investment” means any Investment by the Company or a Restricted Subsidiary in:
(a) the Company or any Restricted Subsidiary;
(b) any Person that will, upon the making of such Investment, become a Restricted Subsidiary;
(c) any Person if as a result of such Investment such Person is merged or consolidated with or into, or transfers or conveys all or substantially all its Property to, the Company or a Restricted Subsidiary;
(d) Cash Equivalents;
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(e) receivables owing to the Company or a Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms;provided,however, that such trade terms may include such concessionary trade terms as the Company or such Restricted Subsidiary deems reasonable under the circumstances;
(f) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business;
(g) loans and advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary, as the case may be, provided that such loans and advances do not exceed $15.0 million in the aggregate at any one time outstanding;
(h) stock, obligations or other securities received in settlement of debts created in the ordinary course of business and owing to the Company or a Restricted Subsidiary or in satisfaction of judgments;
(i) any Person to the extent such Investment represents the non-cash portion of the consideration received in connection with (A) an Asset Sale consummated in compliance with the covenant described under “— Certain Covenants — Limitation on Asset Sales,” or (B) any disposition of Property not constituting an Asset Sale;
(j) any Persons made for Fair Market Value that do not exceed 5% of Consolidated Net Tangible Assets in the aggregate outstanding at any one time;
(k) a Securitization Entity or any Investment by a Securitization Entity in any other Person in connection with a Qualified Securitization Transaction provided that any Investment in a Securitization Entity is in the form of a Purchase Money Note, contribution of additional receivables and related assets or any equity interests; and
(l) other Investments made for Fair Market Value that do not exceed $20.0 million in the aggregate outstanding at any one time.
“Permitted Liens” means:
(a) Liens to secure Debt permitted to be Incurred under clause (b) of the second paragraph of the covenant described under “— Certain Covenants — Limitation on Debt”;
(b) Liens to secure Debt permitted to be Incurred under clause (c) of the second paragraph of the covenant described under “— Certain Covenants — Limitation on Debt,” provided that any such Lien may not extend to any Property of the Company or any Restricted Subsidiary, other than the Property acquired, constructed or leased with the proceeds of such Debt and any improvements or accessions to such Property;
(c) Liens for taxes, assessments or governmental charges or levies on the Property of the Company or any Restricted Subsidiary if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings timely instituted and diligently pursued, provided that any reserve or other appropriate provision that shall be required in accordance with GAAP shall have been established with respect thereto;
(d) Deposit account banks’ rights of set-off, Liens of landlords arising by statute, Liens imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens and other similar Liens, on the Property of the Company or any Restricted Subsidiary arising in the ordinary course of business and securing payment of obligations that are not more than 60 days past due or are being contested in good faith and by appropriate proceedings;
(e) Liens on the Property of the Company or any Restricted Subsidiary Incurred in the ordinary course of business to secure performance of obligations with respect to statutory or regulatory requirements, performance orreturn-of-money bonds, surety bonds or other obligations of a like nature and Incurred in a manner consistent with industry practice, in each case which are not Incurred in
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connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of Property and which do not in the aggregate impair in any material respect the use of Property in the operation of the business of the Company and the Restricted Subsidiaries taken as a whole;
(f) Liens on Property at the time the Company or any Restricted Subsidiary acquired such Property, including any acquisition by means of a merger or consolidation with or into the Company or any Restricted Subsidiary; provided, however, that any such Lien may not extend to any other Property of the Company or any Restricted Subsidiary; provided further, however, that such Liens shall not have been Incurred in anticipation of or in connection with the transaction or series of transactions pursuant to which such Property was acquired by the Company or any Restricted Subsidiary;
(g) Liens on the Property of a Person at the time such Person becomes a Restricted Subsidiary;provided,however, that any such Lien may not extend to any other Property of the Company or any other Restricted Subsidiary that is not a direct Subsidiary of such Person; provided further, however, that any such Lien was not Incurred in anticipation of or in connection with the transaction or series of transactions pursuant to which such Person became a Restricted Subsidiary;
(h) pledges or deposits by the Company or any Restricted Subsidiary under workers’ compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Debt) or leases to which the Company or any Restricted Subsidiary is party, or deposits to secure public or statutory obligations of the Company, or deposits for the payment of rent, in each case Incurred in the ordinary course of business;
(i) utility easements, building restrictions and such other encumbrances or charges against real Property as are of a nature generally existing with respect to properties of a similar character;
(j) Liens existing on the Issue Date not otherwise described in clauses (a) through (i) above, other than Liens created after February 3, 2005 that were permitted liens pursuant to clause (t) of the definition of “Permitted Liens” set forth in the Existing Indenture;
(k) Liens not otherwise described in clauses (a) through (j) above on the Property of any Restricted Subsidiary that is not a Subsidiary Guarantor to secure any Debt permitted to be Incurred by such Restricted Subsidiary pursuant to the covenant described under “— Certain Covenants — Limitation on Debt”;
(l) Liens on the Property of the Company or any Restricted Subsidiary to secure any Refinancing, in whole or in part, of any Debt secured by Liens referred to in clause (b), (f), (g), or (j) above; provided, however, that any such Lien shall be limited to all or part of the same Property that secured the original Lien (together with improvements and accessions to such Property), and the aggregate principal amount of Debt that is secured by such Lien shall not be increased to an amount greater than the sum of:
(1) the outstanding principal amount, or, if greater, the committed amount, of the Debt secured by Liens described under clause (b), (f), (g) or (j) above, as the case may be, at the time the original Lien became a Permitted Lien under the Indenture, and
(2) an amount necessary to pay any fees and expenses, including premiums and defeasance costs, incurred by the Company or such Restricted Subsidiary in connection with such Refinancing;
(m) Liens on accounts receivable and related assets (including contract rights) of the type specified in the definition of “Qualified Securitization Transaction” transferred to a Securitization Entity in a Qualified Securitization Transaction;
(n) encumbrances arising by reason of zoning restrictions, easements, licenses, reservations, covenants,rights-of-way, utility easements, building restrictions and other similar encumbrances on the use of real property not materially detracting from the value of such real property or not materially interfering with the ordinary conduct of the business conducted and proposed to be conducted at such real property;
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(o) encumbrances arising under leases or subleases of real property that do not, in the aggregate, materially detract from the value of such real property or interfere with the ordinary conduct of the business conducted and proposed to be conducted at such real property;
(p) financing statements with respect to a lessor’s rights in and to personal property leased to such Person in the ordinary course of such Person’s business other than through a Capital Lease;
(q) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business;
(r) licenses of patents, trademarks and other intellectual property rights granted in the ordinary course of business and not interfering in any respect with the ordinary conduct of such Person’s business;
(s) Liens arising out of conditional sale, retention, consignment or similar arrangement, incurred in the ordinary course of business, for the sale of goods; and
(t) Liens not otherwise permitted by clauses (a) through (s) above encumbering Property having an aggregate Fair Market Value not in excess of 5% of Consolidated Net Tangible Assets, as determined based on the consolidated balance sheet of the Company as of the end of the most recent fiscal quarter for which financial statements have been filed or furnished.
“Permitted Refinancing Debt” means any Debt that Refinances any other Debt, including any successive Refinancings, so long as:
(a) such Debt is in an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) not in excess of the sum of:
(1) the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding of the Debt being Refinanced, and
(2) an amount necessary to pay any fees and expenses, including premiums and defeasance costs, related to such Refinancing,
(b) the Average Life of such Debt is equal to or greater than the Average Life of the Debt being Refinanced,
(c) the Stated Maturity of such Debt is no earlier than the Stated Maturity of the Debt being Refinanced, and
(d) the new Debt shall not be senior in right of payment to the Debt that is being Refinanced;
provided,however, that Permitted Refinancing Debt shall not include:
(x) Debt of a Subsidiary that is not a Subsidiary Guarantor that Refinances Debt of the Company or a Subsidiary Guarantor, or
(y) Debt of the Company or a Restricted Subsidiary that Refinances Debt of an Unrestricted Subsidiary.
“Person” means any individual, corporation, company (including any limited liability company), association, partnership, joint venture, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.
“Preferred Stock” means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of any other class of Capital Stock issued by such Person.
“Preferred Stock Dividends” means all dividends with respect to Preferred Stock of Restricted Subsidiaries held by Persons other than the Company or a Wholly Owned Restricted Subsidiary. The amount of any such dividend shall be equal to the quotient of such dividend divided by the difference between one and the
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maximum statutory federal income rate (expressed as a decimal number between 1 and 0) then applicable to the issuer of such Preferred Stock.
“Principal Property” means any manufacturing plant or facility owned by the Companyand/or one or more Restricted Subsidiaries having a gross book value in excess of 1.5% of the Consolidated Net Tangible Assets of the Company and its Restricted Subsidiaries.
“pro forma” means, with respect to any calculation made or required to be made pursuant to the terms hereof, a calculation performed in accordance with Article 11 ofRegulation S-X promulgated under the Securities Act, as interpreted in good faith by the Board of Directors after consultation with the independent certified public accountants of the Company, or otherwise a calculation made in good faith by the Board of Directors after consultation with the independent certified public accountants of the Company, as the case may be.
“Property” means, with respect to any Person, any interest of such Person in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including Capital Stock in, and other securities of, any other Person. For purposes of any calculation required pursuant to the Indenture, the value of any Property shall be its Fair Market Value.
“Public Equity Offering” means an underwritten public offering of common stock of the Company pursuant to an effective registration statement under the Securities Act.
“Purchase Money Debt” means Debt:
(a) consisting of the deferred purchase price of Property, conditional sale obligations, obligations under any title retention agreement, other purchase money obligations and obligations in respect of industrial revenue bonds, in each case where the maturity of such Debt does not exceed the anticipated useful life of the Property being financed, and
(b) Incurred to finance the acquisition, construction or lease by the Company or a Restricted Subsidiary of such Property, including additions and improvements thereto;
provided,however, that such Debt is Incurred within 180 days after the acquisition, construction or lease of such Property by the Company or such Restricted Subsidiary.
“Purchase Money Note” means a promissory note evidencing a line of credit, or evidencing other Debt owed to the Company or any Restricted Subsidiary in connection with a Qualified Securitization Transaction, which note shall be repaid from cash available to the maker of such note, other than amounts required to be established as reserves, amounts paid to investors in respect of interest, principal and other amounts owing to such investors and amounts paid in connection with the purchase of newly generated accounts receivable.
“Qualified Securitization Transaction” means any transaction or series of transactions that may be entered into by the Company or any Restricted Subsidiary pursuant to which the Company or any Restricted Subsidiary may sell, convey or otherwise transfer pursuant to customary terms to (a) a Securitization Entity (in the case of a transfer by the Company or any Restricted Subsidiary) and (b) any other Person (in the case of transfer by a Securitization Entity), or may grant a security interest in any accounts receivable (whether now existing or arising or acquired in the future) of the Company or any Restricted Subsidiary, and any assets related thereto including all collateral securing such accounts receivable, all contracts and contract rights and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets (including contract rights) which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable.
“Rating Agencies” means Moody’s and S&P.
“Reference Treasury Dealer” means Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. Incorporated, RBS Securities Inc. and their successors and any other primary U.S. Government securities dealer or dealers in New York City (a “Primary Treasury Dealer”) selected by the Company;provided,
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however, that if any of the foregoing cease to be a Primary Treasury Dealer, the Company shall substitute therefor another Primary Treasury Dealer.
“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and ask prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such redemption date.
“Refinance” means, in respect of any Debt, to refinance, extend, renew, refund or Repay, or to issue other Debt, in exchange or replacement for, such Debt. “Refinanced” and “Refinancing” shall have correlative meanings.
“Related Business” means any business that is related, ancillary or complementary to the businesses of the Company and the Restricted Subsidiaries on the Issue Date.
“Related Person” with respect to any Permitted Holder means:
(a) any controlling stockholder or a majority (or more) owned Subsidiary of such Permitted Holder or, in the case of an individual, any spouse or immediate family member of such Permitted Holder, any trust created for the benefit of such individual or such individual’s estate, executor, administrator, committee or beneficiaries; or
(b) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding a majority (or more) controlling interest of which consist of such Permitted Holderand/or such other Persons referred to in the immediately preceding clause (a).
“Repay” means, in respect of any Debt, to repay, prepay, repurchase, redeem, legally defease or otherwise retire such Debt. “Repayment” and “Repaid” shall have correlative meanings. For purposes of the covenant described under “— Certain Covenants — Limitation on Asset Sales” and the definition of “Consolidated Interest Coverage Ratio,” Debt shall be considered to have been Repaid only to the extent the related loan commitment, if any, shall have been permanently reduced in connection therewith.
“Restricted Payment” means:
(a) any dividend or distribution (whether made in cash, securities or other Property) declared or paid on or with respect to any shares of Capital Stock of the Company or any Restricted Subsidiary (including any payment in connection with any merger or consolidation with or into the Company or any Restricted Subsidiary), except for (i) any dividend or distribution that is made solely to the Company or a Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, to the other shareholders of such Restricted Subsidiary on a pro rata basis or on a basis that results in the receipt by the Company or a Restricted Subsidiary of dividends or distributions of greater value than it would receive on a pro rata basis), or (ii) any dividend or distribution payable solely in shares of Capital Stock (other than Disqualified Stock) of the Company;
(b) the purchase, repurchase, redemption, acquisition or retirement for value of any Capital Stock of the Company or any Restricted Subsidiary (other than from the Company or a Restricted Subsidiary) or any securities exchangeable for or convertible into any such Capital Stock, including the exercise of any option to exchange any Capital Stock (other than for or into Capital Stock of the Company that is not Disqualified Stock);
(c) the purchase, repurchase, redemption, acquisition or retirement for value, prior to the date for any scheduled maturity, sinking fund or amortization or other installment payment, of any Subordinated Obligation (other than the purchase, repurchase or other acquisition of any Subordinated Obligation purchased in anticipation of satisfying a scheduled maturity, sinking fund or amortization or other installment obligation, in each case due within one year of the date of acquisition); or
(d) any Investment (other than Permitted Investments) in any Person.
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“Restricted Subsidiary” means any Subsidiary of the Company other than an Unrestricted Subsidiary.
“S&P” means Standard & Poor’s Ratings Group, Inc., a division of the McGraw-Hill Companies, Inc., or any successor to the rating agency business thereof.
“Sale and Leaseback Transaction” means any direct or indirect arrangement relating to Property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such Property to another Person and the Company or a Restricted Subsidiary leases it from such Person.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.
“Securitization Entity” means any wholly owned Subsidiary of the Company or any Restricted Subsidiary (or another Person in which the Company or any Restricted Subsidiary make an Investment and to which the Company or any Restricted Subsidiary transfers accounts receivable and related assets) (a) which engages in no activities other than in connection with the financing of accounts receivable or related assets, (b) which is designated by the Board of Directors (as provided below) as a Securitization Entity, (c) no portion of the Debt or any other Obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any Restricted Subsidiary (excluding guarantees of Obligations (other than the principal of, and interest on, Debt) pursuant to Standard Securitization Undertakings and guarantees by the Securitization Entity), (ii) is recourse to or obligates the Company or any Restricted Subsidiary (other than the Securitization Entity) in any way other than pursuant to Standard Securitization Undertakings or (iii) subjects any property or asset of the Company or any Restricted Subsidiary (other than the Securitization Entity), directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings and other than any interest in the accounts receivable and related assets being financed (whether in the form of any equity interest in such assets or subordinated indebtedness payable primarily from such financed assets) retained or acquired by the Company or any Restricted Subsidiary, (d) with which none of the Company nor any Restricted Subsidiary has any material contract, agreement, arrangement or understanding other than those customary for a Qualified Securitization Transaction and, in any event, on terms no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Company or such Restricted Subsidiary, and (e) to which none of the Company nor any Restricted Subsidiary has any obligation to maintain or preserve such entity’s financial condition or cause such entity to achieve certain levels of operating results. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the foregoing conditions.
“Senior Debt” of the Company means:
(a) all obligations consisting of the principal, premium, if any, and accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company to the extent post-filing interest is allowed in such proceeding) in respect of:
(1) Debt of the Company for borrowed money, and
(2) Debt of the Company evidenced by notes, debentures, bonds or other similar instruments permitted under the Indenture for the payment of which the Company is responsible or liable;
(b) all Capital Lease Obligations of the Company and all Attributable Debt in respect of Sale and Leaseback Transactions entered into by the Company;
(c) all obligations of the Company
(1) for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction,
(2) under Hedging Obligations, or
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(3) issued or assumed as the deferred purchase price of Property and all conditional sale obligations of the Company and all obligations under any title retention agreement permitted under the Indenture; and
(d) all obligations of other Persons of the type referred to in clauses (a), (b) and (c) for the payment of which the Company is responsible or liable as Guarantor;
provided,however, that Senior Debt shall not include:
(A) Debt of the Company that is by its terms subordinate in right of payment to the Notes, including any Subordinated Debt;
(B) any Debt Incurred in violation of the provisions of the Indenture;
(C) accounts payable or any other obligations of the Company to trade creditors created or assumed by the Company in the ordinary course of business in connection with the obtaining of materials or services (including Guarantees thereof or instruments evidencing such liabilities);
(D) any liability for Federal, state, local or other taxes owed or owing by the Company;
(E) any obligation of the Company to any Subsidiary; or
(F) any obligations with respect to any Capital Stock of the Company.
To the extent that any payment of Senior Debt (whether by or on behalf of the Company as proceeds of security or enforcement or any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to a trustee, receiver or other similar party under any bankruptcy, insolvency, receivership or similar law, then if such payment is recovered by, or paid over to, such trustee, receiver or other similar party, the Senior Debt or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred.
“Senior Debt” of any Subsidiary Guarantor has a correlative meaning to Senior Debt of the Company.
“Senior Notes” means the Company’s 7.25% Senior Notes due 2015.
“Senior Secured Credit Facilities” means (a) the asset-based lending facility dated as of July 6, 2007 by and among the Company, ABN AMRO Bank N.V. as administrative agent, and the several banks and other financial institutions or entities from time to time parties thereto, including any notes, collateral documents, and documentation and guarantees and any appendices, exhibits or schedules to any of the preceding, and (b) the term loan facility dated as of July 6, 2007 by and among the Company, UBS AG, Stamford Branch, as administrative agent and as collateral agent, and the several banks and other financial institutions or entities from time to time parties thereto, including any notes, collateral documents, letters of credit and documentation and guarantees and any appendices, exhibits or schedules to any of the preceding, as such agreements may be in effect from time to time, in each case, as any or all of such agreements (or any other agreement that Refinances any or all of such agreements) may be amended, restated, modified or supplemented from time to time, or renewed, refunded, refinanced, restructured, replaced, repaid or extended from time to time, whether with the original agents and lenders or other agents and lenders or otherwise, and whether provided under the original credit agreement or one or more other credit agreements, indentures or otherwise.
“Significant Subsidiary” means any Subsidiary that would be a “significant subsidiary” of the Company within the meaning ofRule 1-02 underRegulation S-X promulgated pursuant to the Exchange Act.
“Special Interest” means the additional interest, if any, to be paid on the Notes.
“Standard Securitization Undertakings” means representations, warranties, covenants and indemnities entered into by the Company or any Restricted Subsidiary that are reasonably customary in an accounts receivable securitization transaction so long as none of the same constitute Debt, a Guarantee or otherwise require the provision of credit support.
“Stated Maturity” means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any
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mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred).
“Subordinated Debt” means any Debt of the Company or any Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) that is subordinate or junior in right of payment to the Notes or the applicable Subsidiary Guaranty pursuant to a written agreement to that effect.
“Subsidiary” means, in respect of any Person, any corporation, company (including any limited liability company), association, partnership, joint venture or other business entity of which an aggregate of 50% or more of the total voting power of the Voting Stock is at the time owned or controlled, directly or indirectly, by:
(a) such Person,
(b) such Person and one or more Subsidiaries of such Person, or
(c) one or more Subsidiaries of such Person.
“Subsidiary Guarantor” means (a) each Canadian Restricted Subsidiary and U.S. Restricted Subsidiary; (b) Novelis do Brasil Ltda, Novelis UK Ltd., Novelis Europe Holdings Limited, Novelis Aluminium Holding Company, Novelis Deutschland GmbH, Novelis Switzerland SA, Novelis Technology AG, Novelis AG, Novelis PAE S.A.S., Novelis Luxembourg S.A., Novelis Madeira, Unipessoal, Lda and Novelis Services Limited; and (c) any other Person that becomes a Subsidiary Guarantor pursuant to the covenant described under “— Certain Covenants — Future Subsidiary Guarantors” or who otherwise executes and delivers a supplemental indenture to the Trustee providing for a Subsidiary Guaranty.
“Subsidiary Guaranty” means a Guarantee on the terms set forth in the Indenture by a Subsidiary Guarantor of the Company’s obligations with respect to the Notes.
“Surviving Person” means the surviving Person formed by a merger, consolidation or amalgamation and, for purposes of the covenant described under “— Merger, Consolidation and Sale of Property,” a Person to whom all or substantially all of the Property of the Company or a Subsidiary Guarantor is sold, transferred, assigned, leased, conveyed or otherwise disposed.
“Taxes” means any present or future tax, duty, levy, interest, assessment or other governmental charge imposed or levied by or on behalf of any government or any political subdivision or territory or possession of any government or any authority or agency therein or thereof having power to tax.
“Taxing Jurisdiction” means (i) with respect to any payment made under the Notes, any jurisdiction (or any political subdivision thereof or therein) in which the Company, or any of its successors, are organized or resident for tax purposes or conduct of business, or from or through which payment is made and (ii) with respect to any payment made by a Subsidiary Guarantor, any jurisdiction (or any political subdivision thereof or therein) in which such Subsidiary Guarantor is organized or resident for tax purposes or conduct of business, or from or through which payment is made.
“Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the yield to maturity of the Comparable Treasury Issue, compounded semi-annually, assuming a price for such Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date.
“Unrestricted Subsidiary” means:
(a) any Subsidiary of the Company that is designated after the Issue Date as an Unrestricted Subsidiary as permitted or required pursuant to the covenant described under “— Certain Covenants — Designation of Restricted and Unrestricted Subsidiaries” and is not thereafter redesignated as a Restricted Subsidiary as permitted pursuant thereto; and
(b) any Subsidiary of an Unrestricted Subsidiary.
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“U.S. Government Obligations” means direct obligations (or certificates representing an ownership interest in such obligations) of the United States (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States is pledged and which are not callable or redeemable at the issuer’s option.
“U.S. Restricted Subsidiary” means any Restricted Subsidiary that is organized under the laws of the United States of America or any State thereof or the District of Columbia.
“Voting Stock” of any Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof.
“Wholly Owned Restricted Subsidiary” means, at any time, a Restricted Subsidiary all the Voting Stock of which (other than directors’ qualifying shares) is at such time owned, directly or indirectly, by the Company and its other Wholly Owned Subsidiaries.
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BOOK-ENTRY SETTLEMENT AND CLEARANCE
Except as set forth below, new notes will be issued in registered, global form, without interest coupons (the “Global Notes”) in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $1,000. Upon issuance, each of the global notes will be deposited with the trustee as custodian for DTC and registered in the name of Cede & Co., as nominee of DTC.
Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for notes in certificated form except in the limited circumstances described below. See “— Exchange of Global Notes for Certificated Notes.” Except in the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to receive physical delivery of notes in certificated form. In addition, transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants, which may change from time to time.
Depositary Procedures
The following description of the operations and procedures of DTC is provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. We take no responsibility for these operations and procedures and urge investors to contact the system or their participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company organized under the laws of the State of New York, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participating organizations (collectively, the “participants”) and to facilitate the clearance and settlement of transactions in those securities between participants through electronic book-entry changes in accounts of its participants. The participants include securities brokers and dealers (including the initial purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC’s system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly (collectively, the “indirect participants”). Persons who are not participants may beneficially own securities held by or on behalf of DTC only through the participants or the indirect participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the participants and indirect participants.
DTC has also advised us that, pursuant to procedures established by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of participants designated by the initial purchasers with portions of the principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the participants) or by the participants and the indirect participants (with respect to other owners of beneficial interests in the Global Notes).
Investors in the Global Notes who are participants in DTC’s system may hold their interests therein directly through DTC. Investors in the Global Notes who are not participants may hold their interests therein indirectly through organizations which are participants in such system. All interests in a Global Note may be subject to the procedures and requirements of DTC. The laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such Persons will be limited to that extent. Because DTC can act only on behalf of participants, which in turn act on behalf of indirect participants, the ability of a Person having beneficial interests in a Global Note to pledge such interests to Persons that do not participate in the DTC system, or
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otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests.
Except as described below, owners of an interest in the Global Notes will not have notes registered in their names, will not receive physical delivery of notes in certificated form and will not be considered the registered owners or “holders” thereof under the Indenture for any purpose.
Payments in respect of the principal of, and interest and premium and additional interest, if any, on a Global Note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, the company and the Trustee will treat the Persons in whose names the notes, including the Global Notes, are registered as the owners of the notes for the purpose of receiving payments and for all other purposes. Consequently, neither the company, the Trustee nor any agent of the company or the Trustee has or will have any responsibility or liability for:
(1) any aspect of DTC’s records or any participant’s or indirect participant’s records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any of DTC’s records or any participant’s or indirect participant’s records relating to the beneficial ownership interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any of its participants or indirect participants.
DTC has advised us that its current practice, upon receipt of any payment in respect of securities such as the notes (including principal and interest), is to credit the accounts of the relevant participants with the payment on the payment date unless DTC has reason to believe it will not receive payment on such payment date. Each relevant participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the participants and the indirect participants to the beneficial owners of notes will be governed by standing instructions and customary practices and will be the responsibility of the participants or the indirect participants and will not be the responsibility of DTC, the Trustee or the company. Neither the company nor the Trustee will be liable for any delay by DTC or any of its participants in identifying the beneficial owners of the notes, and the company and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.
Transfers between participants in DTC will be effected in accordance with DTC’s procedures, and will be settled insame-day funds.
DTC has advised the company that it will take any action permitted to be taken by a holder of notes only at the direction of one or more participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under the notes, DTC reserves the right to exchange the Global Notes for legended notes in certificated form, and to distribute such notes to its participants.
Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants, it is under no obligation to perform such procedures, and such procedures may be discontinued or changed at any time. Neither the company nor the Trustee nor any of their respective agents will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations.
Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for Certificated Notes if:
(1) DTC (a) notifies the company that it is unwilling or unable to continue as depositary for the Global Notes or (b) has ceased to be a clearing agency registered under the Exchange Act and, in each case, a successor depositary is not appointed;
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(2) the company, at their option, notify the Trustee in writing that they elect to cause the issuance of the Certificated Notes; or
(3) there has occurred and is continuing a Default with respect to the notes.
In addition, beneficial interests in a Global Note may be exchanged for Certificated Notes upon prior written notice given to the Trustee by or on behalf of DTC in accordance with the Indenture. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures) and will bear the applicable restrictive legend unless that legend is not required by applicable law.
Exchange of Certificated Notes for Global Notes
Certificated Notes may not be exchanged for beneficial interests in any Global Note unless the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that such transfer will comply with the appropriate transfer restrictions applicable to such notes.
Same Day Settlement and Payment
The company will make payments in respect of the notes represented by the Global Notes (including principal, premium, if any, interest and additional interest, if any) by wire transfer of immediately available funds to the accounts specified by the Global Note holder. The company will make all payments of principal, interest and premium and additional interest, if any, with respect to Certificated Notes by wire transfer of immediately available funds to the accounts specified by the holders of the Certificated Notes or, if no such account is specified, by mailing a check to each such holder’s registered address. The notes represented by the Global Notes are expected to be made eligible to trade in DTC’sSame-Day Funds Settlement System, and any permitted secondary market trading activity in such notes will, therefore, be required by DTC to be settled in immediately available funds. The company expect that secondary trading in any Certificated Notes will also be settled in immediately available funds.
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PRINCIPAL CANADIAN AND U.S. FEDERAL INCOME TAX CONSEQUENCES OF
THE EXCHANGE OFFER
Canadian Federal Income Taxation
Exchange of Old Notes
A Non-Resident Holder (as defined below) will not be subject to Canadian federal income tax as a result of the exchange of old notes for new notes in the exchange offer.
Ownership of New Notes
Amounts paid or credited, or deemed to be paid or credited, as, on account or in lieu of payment of, or in satisfaction of the principal of the new notes or premium, discount or interest on the new notes by us to a Non-Resident Holder, including in respect of a required offer to purchase the new notes, will be exempt from Canadian withholding tax. However, a Non-Resident Holder who transfers a new note to a holder resident deemed to be resident in Canada for purposes of theIncome Tax Act (Canada) (the “Tax Act”) with whom the Non-Resident Holder does not deal at arm’s length should consult its own tax advisor.
No other taxes on income (including taxable capital gains) will be payable under the Tax Act by Non-Resident Holders of the new notes in respect of the acquisition, ownership or disposition of the new notes.
For purposes of this section, “Non-Resident Holder” means a holder who exchanges old notes for new notes in the exchange offer and who, at all relevant times, (i) is not and is not deemed to be a resident of Canada for purposes of the Tax Act and any applicable income tax convention, (ii) deals at arm’s length with us for purposes of the Tax Act and (iii) holds the old notes and new notes as capital property.
Material U.S. Federal Income Tax Consequences of the Exchange Offer
The following discussion is a summary of material U.S. federal income tax consequences of the exchange offer to holders of old notes, but is not a complete analysis of all potential tax effects. The summary below is based upon the Internal Revenue Code of 1986, as amended (the “Code”), regulations of the Treasury Department, administrative rulings and pronouncements of the Internal Revenue Service and judicial decisions, all of which are subject to change, possibly with retroactive effect. This summary does not address all of the U.S. federal income tax consequences that may be applicable to particular holders, including dealers in securities, financial institutions, insurance companies and tax-exempt organizations. In addition, this summary does not consider the effect of any foreign, state, local, gift, estate or other tax laws that may be applicable to a particular holder. This summary applies only to a holder that acquired old notes at original issue for cash and holds such old notes as a capital asset within the meaning of Section 1221 of the Code.
The exchange of old notes for new notes in the exchange offer will not constitute a taxable event to holders for U.S. federal income tax purposes. Consequently, no gain or loss will be recognized by a holder upon receipt of a new note, the holder’s holding period for the new note will include the holder’s holding period for the old note exchanged therefor, and the holder’s basis in the new note will be the same as the holder’s basis in the old note immediately before the exchange. Likewise, because the old notes were issued with original issue discount (which U.S. holders must accrue and include in income prior to the receipt of cash attributable to such income), such discount will carry over to the new notes.
Persons considering the exchange of old notes for new notes should consult their own tax advisors concerning the Canadian and U.S. federal income tax consequences to them in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction.
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PLAN OF DISTRIBUTION
For a period of 180 days from the date on which the exchange offer is consummated, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents. We have agreed to pay all expenses incident to the exchange offer, other than commissions or concessions of any broker-dealers and will indemnify the holders of the notes, including any broker-dealers, against certain liabilities, including liabilities under the Securities Act.
Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes where such old notes were acquired as a result of market-making activities or other trading activities. We have agreed that, for a period of 180 days after the date on which the exchange offer is consummated, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 2009, all dealers effecting transactions in the new notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of new notes by broker-dealers. New notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in theover-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such new notes. Any broker-dealer that resells new notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such new notes may be deemed to be an “underwriter” within the meaning of the Securities Act and any profit on any such resale of new notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.
For a period of 180 days after the date on which the exchange offer is consummated we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer (including the expenses of one counsel for the holders of the notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.
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LEGAL MATTERS
The validity of the new notes and the related guarantees will be passed upon for us by King & Spalding LLP, Atlanta, Georgia. In rendering its opinion, King & Spalding LLP will rely upon the opinions ofnon-U.S. local counsel as to all matters ofnon-U.S. law.
EXPERTS
The consolidated financial statements as of and for the year ended March 31, 2009; as of March 31, 2008; for the periods May 16, 2007 through March 31, 2008 and April 1, 2007 through May 15, 2007; the three months ended March 31, 2007; and for the year ended December 31, 2006 included in this Prospectus and management’s assessment of the effectiveness of internal control over financial reporting (which is included in Management’s Report on Internal Control over Financial Reporting as of March 31, 2009 included in the Annual Report onForm 10-K for the year ended March 31, 2009) have been so included in reliance on the reports (which contain an explanatory paragraph relating to the Company’s retrospective application of SFAS No. 160 and an adverse opinion on the effectiveness of internal control over financial reporting) of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with the SEC. Our SEC filings are available to the public on the SEC’s website athttp://www.sec.gov. You may also read and copy any documents we file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents by writing to the SEC and paying a fee for the copying cost. Please call the SEC at1-800-SEC-0330 for more information about the operation of the public reference rooms.
While any notes remain outstanding, we will make available without charge, upon written or oral request, to any beneficial owner and any prospective purchaser of notes the information required pursuant to Rule 144A(d)(4) under the Securities Act during any period in which we are not subject to Section 13 or 15(d) of the Exchange Act. Also, we will provide without charge, upon written or oral request, to each person, including any beneficial owner, to whom this prospectus is delivered, a copy of all documents referred to below which have been or may be incorporated by reference into this prospectus excluding exhibits to those documents unless they are specifically incorporated by reference into those documents. Any such request should be directed to us at:
Corporate Secretary
Novelis Inc.
3399 Peachtree Road, NE
Suite 1500
Atlanta, Georgia 30326
(404) 814-4200
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | |
| | | F-2 | |
| | | | |
Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended March 31, 2009 (Successor), the period from May 16, 2007 to March 31, 2008 (Successor), the period from April 1, 2007 to May 15, 2007 (Predecessor), the three months ended March 31, 2007 (Predecessor) and the year ended December 31, 2006 (Predecessor) | | | F-5 | |
| | | | |
| | | F-6 | |
| | | | |
Consolidated Statements of Cash Flows for the year ended March 31, 2009 (Successor), the period from May 16, 2007 to March 31, 2008 (Successor), the period from April 1, 2007 to May 15, 2007 (Predecessor), the three months ended March 31, 2007 (Predecessor) and the year ended December 31, 2006 (Predecessor) | | | F-7 | |
| | | | |
Consolidated Statements of Shareholders’ Equity for the year ended March 31, 2009 (Successor), the period from May 16, 2007 to March 31, 2008 (Successor), the period from April 1, 2007 to May 15, 2007 (Predecessor), the three months ended March 31, 2007 (Predecessor) and the year ended December 31, 2006 (Predecessor) | | | F-9 | |
| | | | |
Consolidated Statements of Comprehensive Income (Loss) for the year ended March 31, 2009 (Successor), the period from May 16, 2007 to March 31, 2008 (Successor), the period from April 1, 2007 to May 15, 2007 (Predecessor), the three months ended March 31, 2007 (Predecessor) and the year ended December 31, 2006 (Predecessor) | | | F-11 | |
| | | | |
| | | F-12 | |
| | | | |
| | | F-97 | |
| | | | |
| | | F-98 | |
| | | | |
| | | F-99 | |
| | | | |
| | | F-100 | |
| | | | |
| | | F-101 | |
| | | | |
| | | F-102 | |
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of Novelis Inc.:
In our opinion, the accompanying consolidated balance sheets as of March 31, 2009 and March 31, 2008 and the related consolidated statements of operations, shareholder’s equity, cash flows, and comprehensive income (loss) for the year ended March 31, 2009 and the period from May 16, 2007 to March 31, 2008 present fairly, in all material respects, the financial position of Novelis Inc. and its subsidiaries (Successor) at March 31, 2009 and March 31, 2008, and the results of their operations and their cash flows for the year ended March 31, 2009 and the period from May 16, 2007 to March 31, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of March 31, 2009, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness in internal control over financial reporting with respect to the application of purchase accounting for an equity method investee including related income tax accounts existed as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Report on Internal Control over Financial Reporting (not presented herein) appearing under Item 9A of Novelis Inc.’s 2009 Annual Report onForm 10-K. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2009 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. 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 management’s report referred to above. 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
F-2
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for minority interests (now termed noncontrolling interests) to conform to SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS No. 160”), effective April 1, 2009 and retrospectively adjusted the financial statements as of March 31, 2009 and 2008 and for the year ended March 31, 2009 and the period from May 16, 2007 to March 31, 2008.
/s/ PricewaterhouseCoopers LLP
Atlanta, GA
June 29, 2009 (except with respect to our opinion on the consolidated financial statements insofar as it relates to the retrospective application of SFAS No. 160, as to which the date is August 5, 2009).
F-3
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of Novelis Inc.:
In our opinion, the accompanying consolidated statements of operations, shareholder’s/invested equity, cash flows, and comprehensive income (loss) for the periods from April 1, 2007 to May 15, 2007, and January 1, 2007 to March 31, 2007, and the year ended December 31, 2006 present fairly, in all material respects, the results of operations and cash flows of Novelis Inc. and its subsidiaries (Predecessor) for the periods from April 1, 2007 to May 15, 2007, and January 1, 2007 to March 31, 2007, and for the year ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for defined benefit pension and other postretirement plans effective December 31, 2006.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for minority interests (now termed noncontrolling interests) to conform to SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS No. 160”), effective April 1, 2009 and retrospectively adjusted the financial statements for the periods from April 1, 2007 to May 15, 2007, and January 1, 2007 to March 31, 2007, and the year ended December 31, 2006.
/s/ PricewaterhouseCoopers LLP
Atlanta, GA
June 29, 2009 (except with respect to our opinion on the consolidated financial statements insofar as it relates to the retrospective application of SFAS No. 160, as to which the date is August 5, 2009).
F-4
Novelis Inc.
(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,
| |
| | 2009 | | | 2008 | | | | 2007 | | | 2007 | | | 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Net sales | | $ | 10,177 | | | $ | 9,965 | | | | $ | 1,281 | | | $ | 2,630 | | | $ | 9,849 | |
| | | | | | | | | | | | | | | | | | | | | |
Cost of goods sold (exclusive of depreciation and amortization shown below) | | | 9,251 | | | | 9,042 | | | | | 1,205 | | | | 2,447 | | | | 9,317 | |
Selling, general and administrative expenses | | | 319 | | | | 319 | | | | | 95 | | | | 99 | | | | 410 | |
Depreciation and amortization | | | 439 | | | | 375 | | | | | 28 | | | | 58 | | | | 233 | |
Research and development expenses | | | 41 | | | | 46 | | | | | 6 | | | | 8 | | | | 40 | |
Interest expense and amortization of debt issuance costs | | | 182 | | | | 191 | | | | | 27 | | | | 54 | | | | 221 | |
Interest income | | | (14 | ) | | | (18 | ) | | | | (1 | ) | | | (4 | ) | | | (15 | ) |
(Gain) loss on change in fair value of derivative instruments, net | | | 556 | | | | (22 | ) | | | | (20 | ) | | | (30 | ) | | | (63 | ) |
Impairment of goodwill | | | 1,340 | | | | — | | | | | — | | | | — | | | | — | |
Gain on extinguishment of debt | | | (122 | ) | | | — | | | | | — | | | | — | | | | — | |
Restructuring charges, net | | | 95 | | | | 6 | | | | | 1 | | | | 9 | | | | 19 | |
Equity in net (income) loss of non-consolidated affiliates | | | 172 | | | | (25 | ) | | | | (1 | ) | | | (3 | ) | | | (16 | ) |
Other (income) expenses, net | | | 86 | | | | (6 | ) | | | | 35 | | | | 47 | | | | (19 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | 12,345 | | | | 9,908 | | | | | 1,375 | | | | 2,685 | | | | 10,127 | |
| | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (2,168 | ) | | | 57 | | | | | (94 | ) | | | (55 | ) | | | (278 | ) |
Income tax provision (benefit) | | | (246 | ) | | | 73 | | | | | 4 | | | | 7 | | | | (4 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Net loss | | | (1,922 | ) | | | (16 | ) | | | | (98 | ) | | | (62 | ) | | | (274 | ) |
Net income (loss) attributable to noncontrolling interests | | | (12 | ) | | | 4 | | | | | (1 | ) | | | 2 | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | |
Net loss attributable to our common shareholder | | | (1,910 | ) | | | (20 | ) | | | | (97 | ) | | | (64 | ) | | | (275 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Dividends per common share | | $ | 0.00 | | | $ | 0.00 | | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.20 | |
| | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the consolidated financial statements.
F-5
Novelis Inc.
(In millions, except number of shares)
| | | | | | | | |
| | March 31, | |
| | 2009 | | | 2008 | |
| | Successor | | | Successor | |
|
ASSETS |
Current assets | | | | | | | | |
Cash and cash equivalents | | $ | 248 | | | $ | 326 | |
Accounts receivable (net of allowances of $2 and $1 as of March 31, 2009 and 2008, respectively) | | | | | | | | |
— third parties | | | 1,049 | | | | 1,248 | |
— related parties | | | 25 | | | | 31 | |
Inventories | | | 793 | | | | 1,455 | |
Prepaid expenses and other current assets | | | 51 | | | | 58 | |
Fair value of derivative instruments | | | 119 | | | | 203 | |
Deferred income tax assets | | | 216 | | | | 125 | |
| | | | | | | | |
Total current assets | | | 2,501 | | | | 3,446 | |
Property, plant and equipment, net | | | 2,799 | | | | 3,357 | |
Goodwill | | | 582 | | | | 1,930 | |
Intangible assets, net | | | 787 | | | | 888 | |
Investment in and advances to non-consolidated affiliates | | | 719 | | | | 946 | |
Fair value of derivative instruments, net of current portion | | | 72 | | | | 21 | |
Deferred income tax assets | | | 4 | | | | 6 | |
Other long-term assets | | | | | | | | |
— third parties | | | 80 | | | | 102 | |
— related parties | | | 23 | | | | 41 | |
| | | | | | | | |
Total assets | | $ | 7,567 | | | $ | 10,737 | |
| | | | | | | | |
|
LIABILITIES AND SHAREHOLDER’S EQUITY |
Current liabilities | | | | | | | | |
Current portion of long-term debt | | $ | 51 | | | $ | 15 | |
Short-term borrowings | | | 264 | | | | 115 | |
Accounts payable | | | | | | | | |
— third parties | | | 725 | | | | 1,582 | |
— related parties | | | 48 | | | | 55 | |
Fair value of derivative instruments | | | 640 | | | | 148 | |
Accrued expenses and other current liabilities | | | 516 | | | | 704 | |
Deferred income tax liabilities | | | — | | | | 39 | |
| | | | | | | | |
Total current liabilities | | | 2,244 | | | | 2,658 | |
Long-term debt, net of current portion | | | | | | | | |
— third parties | | | 2,417 | | | | 2,560 | |
— related party | | | 91 | | | | — | |
Deferred income tax liabilities | | | 469 | | | | 754 | |
Accrued postretirement benefits | | | 495 | | | | 421 | |
Other long-term liabilities | | | 342 | | | | 672 | |
| | | | | | | | |
| | | 6,058 | | | | 7,065 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
Shareholder’s equity | | | | | | | | |
Common stock, no par value; unlimited number of shares authorized; 77,459,658 shares issued and outstanding as of March 31, 2009 and 2008, respectively | | | — | | | | — | |
Additional paid-in capital | | | 3,497 | | | | 3,497 | |
Accumulated deficit | | | (1,930 | ) | | | (20 | ) |
Accumulated other comprehensive income (loss) | | | (148 | ) | | | 46 | |
| | | | | | | | |
Total equity of our common shareholder | | | 1,419 | | | | 3,523 | |
Noncontrolling interests | | | 90 | | | | 149 | |
| | | | | | | | |
Total equity | | | 1,509 | | | | 3,672 | |
| | | | | | | | |
Total liabilities and equity | | $ | 7,567 | | | $ | 10,737 | |
| | | | | | | | |
See accompanying notes to the consolidated financial statements.
F-6
Novelis Inc.
(In millions)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | 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,
| |
| | 2009 | | | 2008 | | | | 2007 | | | 2007 | | | 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (1,922 | ) | | $ | (16 | ) | | | $ | (98 | ) | | $ | (62 | ) | | $ | (274 | ) |
Adjustments to determine net cash provided by (used in) operating activities: | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 439 | | | | 375 | | | | | 28 | | | | 58 | | | | 233 | |
(Gain) loss on change in fair value of derivative instruments, net | | | 556 | | | | (22 | ) | | | | (20 | ) | | | (30 | ) | | | (63 | ) |
Non-cash Restructuring charges, net | | | 22 | | | | — | | | | | — | | | | 8 | | | | — | |
Gain on extinguishment of debt | | | (122 | ) | | | — | | | | | — | | | | — | | | | — | |
Deferred income taxes | | | (331 | ) | | | (5 | ) | | | | (18 | ) | | | (9 | ) | | | (77 | ) |
Write-off and amortization of fair value adjustments, net | | | (233 | ) | | | (221 | ) | | | | — | | | | — | | | | — | |
Impairment of goodwill | | | 1,340 | | | | — | | | | | — | | | | — | | | | — | |
Equity in net (income) loss of non-consolidated affiliates | | | 172 | | | | (25 | ) | | | | (1 | ) | | | (3 | ) | | | (16 | ) |
Foreign exchange remeasurement on debt | | | 26 | | | | — | | | | | — | | | | — | | | | — | |
Gain on reversal of accrued legal claim | | | (26 | ) | | | — | | | | | — | | | | — | | | | — | |
Amortization of debt issuance costs | | | 5 | | | | 10 | | | | | 1 | | | | 2 | | | | 13 | |
Other, net | | | 3 | | | | 2 | | | | | 4 | | | | 2 | | | | 12 | |
Changes in assets and liabilities (net of effects from acquisitions and divestitures): | | | | | | | | | | | | | | | | | | | | | |
Accounts receivable | | | 69 | | | | 181 | | | | | (21 | ) | | | (25 | ) | | | (141 | ) |
Inventories | | | 466 | | | | 208 | | | | | (76 | ) | | | (95 | ) | | | (206 | ) |
Accounts payable | | | (655 | ) | | | (18 | ) | | | | (62 | ) | | | 78 | | | | 523 | |
Other current assets | | | (6 | ) | | | (8 | ) | | | | (7 | ) | | | 3 | | | | 25 | |
Other current liabilities | | | (63 | ) | | | (68 | ) | | | | 42 | | | | (22 | ) | | | (64 | ) |
Other noncurrent assets | | | 17 | | | | (30 | ) | | | | (1 | ) | | | (5 | ) | | | 6 | |
Other noncurrent liabilities | | | 7 | | | | 42 | | | | | (1 | ) | | | 13 | | | | 45 | |
| | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | | (236 | ) | | | 405 | | | | | (230 | ) | | | (87 | ) | | | 16 | |
| | | | | | | | | | | | | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (145 | ) | | | (185 | ) | | | | (17 | ) | | | (24 | ) | | | (116 | ) |
Disposal of business, net | | | — | | | | — | | | | | — | | | | — | | | | (7 | ) |
Proceeds from sales of assets | | | 5 | | | | 8 | | | | | — | | | | — | | | | 38 | |
Changes to investment in and advances to non-consolidated affiliates | | | 20 | | | | 24 | | | | | 1 | | | | 1 | | | | 3 | |
Proceeds from related party loans receivable, net | | | 17 | | | | 18 | | | | | — | | | | 1 | | | | 37 | |
Net proceeds from settlement of derivative instruments | | | (8 | ) | | | 37 | | | | | 18 | | | | 24 | | | | 238 | |
| | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (111 | ) | | | (98 | ) | | | | 2 | | | | 2 | | | | 193 | |
| | | | | | | | | | | | | | | | | | | | | |
(Continued)
F-7
Novelis Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
(In millions)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | 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,
| |
| | 2009 | | | 2008 | | | | 2007 | | | 2007 | | | 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | | |
Proceeds from issuance of common stock | | | — | | | | 92 | | | | | — | | | | — | | | | — | |
Proceeds from issuance of debt | | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 263 | | | | 1,100 | | | | | 150 | | | | — | | | | 41 | |
— related parties | | | 91 | | | | — | | | | | — | | | | — | | | | — | |
Principal repayments | | | (235 | ) | | | (1,009 | ) | | | | (1 | ) | | | (1 | ) | | | (353 | ) |
Short-term borrowings, net | | | 176 | | | | (241 | ) | | | | 60 | | | | 113 | | | | 103 | |
Dividends | | | (6 | ) | | | (1 | ) | | | | (7 | ) | | | — | | | | (30 | ) |
Debt issuance costs | | | (3 | ) | | | (37 | ) | | | | (2 | ) | | | — | | | | (11 | ) |
Proceeds from the exercise of stock options | | | — | | | | — | | | | | 1 | | | | 27 | | | | 2 | |
Other | | | — | | | | — | | | | | — | | | | 1 | | | | 5 | |
| | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 286 | | | | (96 | ) | | | | 201 | | | | 140 | | | | (243 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (61 | ) | | | 211 | | | | | (27 | ) | | | 55 | | | | (34 | ) |
Effect of exchange rate changes on cash balances held in foreign currencies | | | (17 | ) | | | 13 | | | | | 1 | | | | — | | | | 7 | |
Cash and cash equivalents — beginning of period | | | 326 | | | | 102 | | | | | 128 | | | | 73 | | | | 100 | |
| | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents — end of period | | $ | 248 | | | $ | 326 | | | | $ | 102 | | | $ | 128 | | | $ | 73 | |
| | | | | | | | | | | | | | | | | | | | | |
Supplemental disclosures of cash flow information: | | | | | | | | | | | | | | | | | | | | | |
Interest paid | | $ | 169 | | | $ | 200 | | | | $ | 13 | | | $ | 84 | | | $ | 201 | |
Income taxes paid | | | 65 | | | | 64 | | | | | 9 | | | | 18 | | | | 68 | |
See accompanying notes to the consolidated financial statements.
F-8
Novelis Inc.
(In millions, except number of shares)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Equity of our Common Shareholder | | | | | | | Equity of our Common Shareholder | | | | | |
| | | | | | | | | | Accumulated
| | | | | | | | | | | | | | | Accumulated
| | | | | |
| | | | | | | | Retained
| | Other
| | | | | | | | | | | | | Retained
| | Other
| | | | | |
| | | | | | Additional
| | Earnings/
| | Comprehensive
| | Non-
| | | | | | | | | Additional
| | Earnings/
| | Comprehensive
| | Non-
| | | |
| | Common Stock | | Paid-in
| | (Accumulated
| | Income (Loss)
| | controlling
| | Total
| | | Common Stock | | Paid-in
| | (Accumulated
| | Income (Loss)
| | controlling
| | Total
| |
| | Shares | | Amount | | Capital | | Deficit) | | (AOCI) | | Interests | | Equity | | | Shares | | Amount | | Capital | | Deficit) | | (AOCI) | | Interests | | Equity | |
|
Predecessor | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2005 | | | 74,005,649 | | | $ | — | | | $ | 425 | | | $ | 92 | | | $ | (84 | ) | | $ | 159 | | | $ | 592 | | | | 74,005,649 | | | $ | — | | | $ | 425 | | | $ | 92 | | | $ | (84 | ) | | $ | 159 | | | $ | 592 | |
Fiscal 2006 Activity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss attributable to our common shareholder | | | — | | | | — | | | | — | | | | (275 | ) | | | — | | | | — | | | | (275 | ) | | | — | | | | — | | | | — | | | | (275 | ) | | | — | | | | — | | | | (275 | ) |
Net income attributable to noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1 | | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1 | | | | 1 | |
Issuance of common stock in connection with stock plans | | | 134,686 | | | | — | | | | 2 | | | | — | | | | — | | | | — | | | | 2 | | | | 134,686 | | | | — | | | | 2 | | | | — | | | | — | | | | — | | | | 2 | |
Spin-off settlement and post-closing adjustments | | | — | | | | — | | | | (38 | ) | | | — | | | | — | | | | — | | | | (38 | ) | | | — | | | | — | | | | (38 | ) | | | — | | | | — | | | | — | | | | (38 | ) |
Share-based compensation | | | — | | | | — | | | | 9 | | | | — | | | | — | | | | — | | | | 9 | | | | — | | | | — | | | | 9 | | | | — | | | | — | | | | — | | | | 9 | |
Currency translation adjustment, net of tax provision of $4 included in AOCI | | | — | | | | — | | | | — | | | | — | | | | 168 | | | | 13 | | | | 181 | | | | — | | | | — | | | | — | | | | — | | | | 168 | | | | 13 | | | | 181 | |
Change in fair value of effective portion of hedges, net | | | — | | | | — | | | | — | | | | — | | | | (46 | ) | | | — | | | | (46 | ) | |
Change in fair value of effective portion of hedges, net of tax of $— in AOCI | | | | — | | | | — | | | | — | | | | — | | | | (46 | ) | | | — | | | | (46 | ) |
Postretirement benefit plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in minimum pension liability, net of tax provision of $4 included in AOCI | | | — | | | | — | | | | — | | | | — | | | | 12 | | | | — | | | | 12 | | | | — | | | | — | | | | — | | | | — | | | | 12 | | | | — | | | | 12 | |
Initial impact of adopting Financial Accounting Standards Board Statement No. 158 | | | — | | | | — | | | | — | | | | — | | | | (55 | ) | | | — | | | | (55 | ) | | | — | | | | — | | | | — | | | | — | | | | (55 | ) | | | — | | | | (55 | ) |
Noncontrolling interests cash dividends | | | — | | | | — | | | | — | | | | — | | | | — | | | | (15 | ) | | | (15 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (15 | ) | | | (15 | ) |
Dividends on common shares | | | — | | | | — | | | | — | | | | (15 | ) | | | — | | | | — | | | | (15 | ) | | | — | | | | — | | | | — | | | | (15 | ) | | | — | | | | — | | | | (15 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2006 | | | 74,140,335 | | | | — | | | | 398 | | | | (198 | ) | | | (5 | ) | | | 158 | | | | 353 | | | | 74,140,335 | | | | — | | | | 398 | | | | (198 | ) | | | (5 | ) | | | 158 | | | | 353 | |
Activity for Three Months Ended March 31, 2007: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjustment for uncertain tax positions | | | — | | | | — | | | | — | | | | (1 | ) | | | — | | | | — | | | | (1 | ) | | | — | | | | — | | | | — | | | | (1 | ) | | | — | | | | — | | | | (1 | ) |
Net loss attributable to our common shareholder | | | — | | | | — | | | | — | | | | (64 | ) | | | — | | | | — | | | | (64 | ) | | | — | | | | — | | | | — | | | | (64 | ) | | | — | | | | — | | | | (64 | ) |
Net income attributable to noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2 | | | | 2 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2 | | | | 2 | |
Issuance of common stock from the exercise of stock options | | | 1,217,325 | | | | — | | | | 27 | | | | — | | | | — | | | | — | | | | 27 | | | | 1,217,325 | | | | — | | | | 27 | | | | — | | | | — | | | | — | | | | 27 | |
Share-based compensation | | | — | | | | — | | | | 2 | | | | — | | | | — | | | | — | | | | 2 | | | | — | | | | — | | | | 2 | | | | — | | | | — | | | | — | | | | 2 | |
Windfall tax benefit on share-based compensation | | | — | | | | — | | | | 1 | | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | — | | | | 1 | | | | — | | | | — | | | | — | | | | 1 | |
Currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | 11 | | | | (1 | ) | | | 10 | | |
Currency translation adjustment, net of tax of $— in AOCI | | | | — | | | | — | | | | — | | | | — | | | | 11 | | | | (1 | ) | | | 10 | |
Change in fair value of effective portion of hedges, net of tax provision of $4 included in AOCI | | | — | | | | — | | | | — | | | | — | | | | 3 | | | | — | | | | 3 | | | | — | | | | — | | | | — | | | | — | | | | 3 | | | | — | | | | 3 | |
Postretirement benefit plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of net actuarial loss, net of tax provision of $1 included in AOCI | | | — | | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | |
Noncontrolling interests cash dividends | | | — | | | | — | | | | — | | | | — | | | | — | | | | (7 | ) | | | (7 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (7 | ) | | | (7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of March 31, 2007 | | | 75,357,660 | | | | — | | | | 428 | | | | (263 | ) | | | 10 | | | | 152 | | | | 327 | | | | 75,357,660 | | | | — | | | | 428 | | | | (263 | ) | | | 10 | | | | 152 | | | | 327 | |
(Continued)
F-9
Novelis Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY — (Continued)
(In millions, except number of shares)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Equity of our Common Shareholder | | | | | | | Equity of our Common Shareholder | | | | | |
| | | | | | | | | | Accumulated
| | | | | | | | | | | | | | | Accumulated
| | | | | |
| | | | | | | | Retained
| | Other
| | | | | | | | | | | | | Retained
| | Other
| | | | | |
| | | | | | Additional
| | Earnings/
| | Comprehensive
| | Non-
| | | | | | | | | Additional
| | Earnings/
| | Comprehensive
| | Non-
| | | |
| | Common Stock | | Paid-in
| | (Accumulated
| | Income (Loss)
| | controlling
| | Total
| | | Common Stock | | Paid-in
| | (Accumulated
| | Income (Loss)
| | controlling
| | Total
| |
| | Shares | | Amount | | Capital | | Deficit) | | (AOCI) | | Interests | | Equity | | | Shares | | Amount | | Capital | | Deficit) | | (AOCI) | | Interests | | Equity | |
|
Predecessor | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Activity for April 1, 2007 through May 15, 2007: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss attributable to our common shareholder | | | — | | | | — | | | | — | | | | (97 | ) | | | — | | | | — | | | | (97 | ) | | | — | | | | — | | | | — | | | | (97 | ) | | | — | | | | — | | | | (97 | ) |
Net loss attributable to noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | (1 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | (1 | ) |
Issuance of common stock from the exercise of stock options | | | 57,876 | | | | — | | | | 1 | | | | — | | | | — | | | | — | | | | 1 | | | | 57,876 | | | | — | | | | 1 | | | | — | | | | — | | | | — | | | | 1 | |
Conversion of share-based compensation plans from equity-based plans to liability-based plans | | | — | | | | — | | | | (7 | ) | | | — | | | | — | | | | — | | | | (7 | ) | | | — | | | | — | | | | (7 | ) | | | — | | | | — | | | | — | | | | (7 | ) |
Currency translation adjustment, net of tax benefit of $4 included in AOCI | | | — | | | | — | | | | — | | | | — | | | | 35 | | | | 1 | | | | 36 | | | | — | | | | — | | | | — | | | | — | | | | 35 | | | | 1 | | | | 36 | |
Change in fair value of effective portion of hedges, net of tax | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) | |
Change in fair value of effective portion of hedges, net of tax of $— in AOCI | | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) |
Postretirement benefit plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | |
Amortization of net actuarial loss | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of May 15, 2007 | | | 75,415,536 | | | $ | — | | | $ | 422 | | | $ | (360 | ) | | $ | 43 | | | $ | 152 | | | $ | 257 | | | | 75,415,536 | | | $ | — | | | $ | 422 | | | $ | (360 | ) | | $ | 43 | | | $ | 152 | | | $ | 257 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of May 16, 2007 | | | 75,415,536 | | | $ | — | | | $ | 3,405 | | | $ | — | | | $ | — | | | $ | 152 | | | $ | 3,557 | | | | 75,415,536 | | | $ | — | | | $ | 3,405 | | | $ | — | | | $ | — | | | $ | 152 | | | $ | 3,557 | |
Activity for May 16, 2007 through March 31, 2008: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) attributable to our common shareholder | | | — | | | | — | | | | — | | | | (20 | ) | | | — | | | | — | | | | (20 | ) | | | — | | | | — | | | | — | | | | (20 | ) | | | — | | | | — | | | | (20 | ) |
Net income attributable to noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4 | | | | 4 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4 | | | | 4 | |
Issuance of additional common stock | | | 2,044,122 | | | | — | | | | 92 | | | | — | | | | — | | | | — | | | | 92 | | | | 2,044,122 | | | | — | | | | 92 | | | | — | | | | — | | | | — | | | | 92 | |
Currency translation adjustment, net of tax | | | — | | | | — | | | | — | | | | — | | | | 59 | | | | (6 | ) | | | 53 | | |
Currency translation adjustment, net of tax of $— in AOCI | | | | — | | | | — | | | | — | | | | — | | | | 59 | | | | (6 | ) | | | 53 | |
Postretirement benefit plans: | | | | | | | | | | | | | | | | | | | | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | |
Change in pension and other benefits, net of tax benefit of $4 included in AOCI | | | — | | | | — | | | | — | | | | — | | | | (13 | ) | | | — | | | | (13 | ) | | | — | | | | — | | | | — | | | | — | | | | (13 | ) | | | — | | | | (13 | ) |
Noncontrolling interests cash dividends | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | (1 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | (1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of March 31, 2008 | | | 77,459,658 | | | | — | | | | 3,497 | | | | (20 | ) | | | 46 | | | | 149 | | | | 3,672 | | | | 77,459,658 | | | | — | | | | 3,497 | | | | (20 | ) | | | 46 | | | | 149 | | | | 3,672 | |
Fiscal 2009 Activity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss attributable to our common shareholder | | | — | | | | — | | | | — | | | | (1,910 | ) | | | — | | | | — | | | | (1,910 | ) | | | — | | | | — | | | | — | | | | (1,910 | ) | | | — | | | | — | | | | (1,910 | ) |
Net loss attributable to noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | (12 | ) | | | (12 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (12 | ) | | | (12 | ) |
Currency translation adjustment, net of tax | | | — | | | | — | | | | — | | | | — | | | | (122 | ) | | | (41 | ) | | | (163 | ) | |
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 | ) | | | — | | | | — | | | | — | | | | — | | | | (19 | ) | | | — | | | | (19 | ) |
Postretirement benefit plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in pension and other benefits, net of tax benefit of $31 included in AOCI | | | — | | | | — | | | | — | | | | — | | | | (53 | ) | | | — | | | | (53 | ) | | | — | | | | — | | | | — | | | | — | | | | (53 | ) | | | — | | | | (53 | ) |
Noncontrolling interests cash dividends | | | — | | | | — | | | | — | | | | — | | | | — | | | | (6 | ) | | | (6 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (6 | ) | | | (6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of March 31, 2009 | | | 77,459,658 | | | $ | — | | | $ | 3,497 | | | $ | (1,930 | ) | | $ | (148 | ) | | $ | 90 | | | $ | 1,509 | | | | 77,459,658 | | | $ | — | | | $ | 3,497 | | | $ | (1,930 | ) | | $ | (148 | ) | | $ | 90 | | | $ | 1,509 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the consolidated financial statements.
F-10
Novelis Inc.
(in millions)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | May 16,
| | | | April 1,
| | | Three
| | | | |
| | Year
| | | 2007
| | | | 2007
| | | Months
| | | | |
| | Ended
| | | Through
| | | | Through
| | | Ended
| | | Year Ended
| |
| | March 31,
| | | March 31,
| | | | May 15,
| | | March 31,
| | | December 31,
| |
| | 2009 | | | 2008 | | | | 2007 | | | 2007 | | | 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Net income (loss) attributable to our common shareholder | | $ | (1,910 | ) | | $ | (20 | ) | | | $ | (97 | ) | | $ | (64 | ) | | $ | (275 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | |
Currency translation adjustment | | | (122 | ) | | | 59 | | | | | 31 | | | | 11 | | | | 172 | |
Change in fair value of effective portion of hedges, net | | | (30 | ) | | | — | | | | | (1 | ) | | | 7 | | | | (46 | ) |
Postretirement benefit plans: | | | | | | | | | | | | | | | | | | | | | |
Change in pension and other benefits | | | (84 | ) | | | (17 | ) | | | | — | | | | — | | | | | |
Amortization of net actuarial loss | | | — | | | | — | | | | | (1 | ) | | | 2 | | | | — | |
Change in minimum pension liability | | | — | | | | — | | | | | — | | | | — | | | | 16 | |
| | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss) before income tax effect | | | (236 | ) | | | 42 | | | | | 29 | | | | 20 | | | | 142 | |
Income tax provision (benefit) related to items of other comprehensive income (loss) | | | (42 | ) | | | (4 | ) | | | | (4 | ) | | | 5 | | | | 8 | |
| | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | (194 | ) | | | 46 | | | | | 33 | | | | 15 | | | | 134 | |
| | | | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss) attributable to our common shareholder | | | (2,104 | ) | | | 26 | | | | | (64 | ) | | | (49 | ) | | | (141 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Net income (loss) attributable to noncontrolling interests | | | (12 | ) | | | 4 | | | | | (1 | ) | | | 2 | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | |
Currency translation adjustment | | | (41 | ) | | | (6 | ) | | | | 1 | | | | (1 | ) | | | 13 | |
| | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | (41 | ) | | | (6 | ) | | | | 1 | | | | (1 | ) | | | 13 | |
| | | | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss) attributable to noncontrolling interests | | | (53 | ) | | | (2 | ) | | | | — | | | | 1 | | | | 14 | |
| | | | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss) | | $ | (2,157 | ) | | $ | 24 | | | | $ | (64 | ) | | $ | (48 | ) | | $ | (127 | ) |
| | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the consolidated financial statements.
F-11
Novelis Inc.
| |
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, 2009, we had operations on four continents: North America; South America; Asia; and Europe, through 32 operating plants and four research facilities in 11 countries. In addition to aluminum rolled products plants, our South American businesses include bauxite mining, alumina refining, primary aluminum smelting and power generation facilities that are integrated with our rolling plants in Brazil.
On May 18, 2004, Alcan announced its intention to transfer its rolled products businesses into a separate company and to pursue a spin-off of that company to its shareholders. The spin-off occurred on January 6, 2005, following approval by Alcan’s board of directors and shareholders, and legal and regulatory approvals. Alcan shareholders received one Novelis common share for every five Alcan common shares held.
Acquisition of Novelis Common Stock and Predecessor and Successor Reporting
On May 15, 2007, the Company was acquired by Hindalco through its indirect wholly-owned subsidiary pursuant to a plan of arrangement (the Arrangement) at a price of $44.93 per share. The aggregate purchase price for all of the 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.
Our acquisition by Hindalco was recorded in accordance with Staff Accounting Bulletin No. 103,Push Down Basis of Accounting Required in Certain Limited Circumstances(SAB 103). In the accompanying consolidated balance sheets, the consideration and related costs paid by Hindalco in connection with the acquisition have been “pushed down” to us and have been allocated to the assets acquired and liabilities assumed in accordance with Financial Accounting Standards Board (FASB) Statement No. 141,Business Combinations(FASB 141). Due to the impact of push down accounting, the Company’s consolidated financial statements and certain note presentations separate the Company’s presentation into two distinct periods to indicate the application of two different bases of accounting between the periods presented: (1) the periods up to, and including, the May 15, 2007 acquisition date (labeled “Predecessor”) and (2) the periods after that date (labeled “Successor”). The accompanying consolidated financial statements include a black line division which indicates that the Predecessor and Successor reporting entities shown are not comparable.
Change in Fiscal Year End
On June 26, 2007, our board of directors approved the change of our fiscal year end to March 31 from December 31. On June 28, 2007, we filed a Transition Report onForm 10-Q for the three month period ended March 31, 2007 with the United States Securities and Exchange Commission (SEC) pursuant toRule 13a-10 under the Securities Exchange Act of 1934 for transition period reporting. Accordingly, these consolidated financial statements present our financial position as of March 31, 2009 and 2008, and the results of our operations, cash flows and changes in shareholder’s equity for the year ended March 31, 2009; the periods from May 16, 2007 through March 31, 2008 and from April 1, 2007 through May 15, 2007; the three months ended March 31, 2007 and the year ended December 31, 2006.
F-12
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Consolidation Policy
Our consolidated financial statements include the assets, liabilities, revenues and expenses of all wholly-owned subsidiaries, majority-owned subsidiaries over which we exercise control, 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 financial statements.
We use the equity method to account for our investments in entities that we do not control, but where we have the ability to exercise significant influence over operating and financial policies. Consolidated net income (loss) attributable to our common shareholder includes our share of the net earnings (losses) of these entities. The difference between consolidation and the equity method impacts certain of our financial ratios because of the presentation of the detailed line items reported in the consolidated financial statements for consolidated entities, compared to a two-line presentation of equity method investments and net losses.
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 (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) impairments of long lived assets, intangible assets and equity investments; (4) actuarial assumptions related to pension and other postretirement benefit plans; (5) income tax reserves and valuation allowances and (6) assessment of loss contingencies, including environmental and litigation reserves. 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.
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.
F-13
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
We have established reserves 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 reserves may not ultimately be adequate, especially in light of potential changes in environmental conditions, 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. 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 position or results of operations 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 a 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 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.
F-14
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 increase in energy costs or disruption of energy supplies or supply arrangements could have a material impact on our financial position, results of operations and cash flows.
Approximately 70% 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 17 — Fair Value of Assets and Liabilities and Note 20 — Commitments and Contingencies for a discussion of financial instruments and commitments and contingencies.
F-15
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reclassifications
Certain reclassifications of the prior period amounts and presentation have been made to conform to the presentation adopted for the current period.
The following reclassifications and presentation changes were made to the prior periods’ consolidated balance sheet and consolidated statements of operations to conform to the current period presentation. These reclassifications had no effect on total assets, total shareholder’s equity, net income (loss) attributable to our common shareholder or cash flows as previously presented:
| | |
| • | The current portion of liabilities related to the Fair value of derivative instruments were reclassified from Accrued expenses and other current liabilities to a separate line item. |
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| • | Restructuring charges, net were reclassified from Other (income) expenses, net to a separate line item. |
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| • | Interest income was reclassified from Interest expense and amortization of debt issuance costs to a separate line item. |
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| • | Sale transaction fees were reclassified from a separate line item to Other (income) expense, net. |
In the consolidated balance sheet as of March 31, 2008, we reclassified $6 million from Current deferred income tax assets, $2 million from Accrued expenses and other current liabilities, and $53 million from Long-term deferred income tax liabilities to Goodwill due to a misclassification on the opening balance sheet of the Successor company. The impact of this reclassification increased total assets and total liabilities by $55 million, but had no effect on total shareholder’s equity, net income (loss) attributable to our common shareholder or cash flows as previously presented and is not considered material to the March 31, 2008 financial statements.
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 collectibility of the fixed or determinable sales price is reasonably assured.
We recognize product revenue, net of trade discounts and allowances, in the reporting period in which the products are shipped and the title and risk of ownership pass to the customer. We generally ship our product to our customers FOB (free on board) destination point. Our standard terms of delivery are included in our contracts of sale, order confirmation documents and invoices. We sell most of our products under contracts based on a “conversion premium,” which is subject to periodic adjustments based on market factors. As a result, the aluminum price risk is largely absorbed by the customer. In situations where we offer customers fixed prices for future delivery of our products, we may enter into derivative instruments for all or a portion of the cost of metal inputs to protect our profit on the conversion of the product. In addition, certain of our sales contracts provide for a ceiling over which metal prices cannot contractually be passed through to our customers, unless adjusted. We partially mitigate the risk of this metal price exposure through the purchase of derivative instruments.
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 sales.
Shipping and handling amounts we bill to our customers are included in Net sales and the related shipping and handling costs we incur are included in Cost of goods sold (exclusive of depreciation and amortization).
F-16
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 expenses include selling, marketing and advertising expenses; salaries, travel and office expenses of administrative employees and contractors; legal and professional fees; software license fees; and bad debt expenses.
Cash and Cash Equivalents
Cash and cash equivalents 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.
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.
For each of the periods presented, we performed an analysis of our historical cash collection patterns and considered the impact of any known material events in determining the allowance for doubtful accounts. In performing the analysis, the impact of any adverse changes in general economic conditions was considered, and for certain customers we reviewed a variety of factors including: past due receivables; macro-economic conditions; significant one-time events and historical experience. Specific reserves for individual accounts may be established due to a customer’s inability to meet their financial obligations, such as in the case of bankruptcy filings or the deterioration in a customer’s operating results or financial position. As circumstances related to customers change, we adjust our estimates of the recoverability of the accounts receivable.
Derivative Instruments
We utilize derivative instruments to manage our exposure to changes in commodity prices, foreign currency exchange rates and interest rates. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date. Changes in the fair value of these instruments are recognized as (Gain) loss on change in fair value of derivative instruments, net and included in our consolidated statements of
F-17
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
operations or included in Accumulated other comprehensive income (loss) (AOCI) on our consolidated balance sheet, depending on the nature or use of the derivative and whether it qualifies for hedge accounting treatment under the provisions of FASB Statement No. 133,Accounting for Derivative Instruments and Hedging Activities(FASB 133), as amended.
Gains and losses on derivative instruments qualifying as cash flow hedges are included, to the extent the hedges are effective, in AOCI, until the underlying transactions are recognized as gains or losses and included in our consolidated statements of operations. Gains and losses on derivative instruments used as hedges of our net investment in foreign operations are included, net of taxes, to the extent the hedges are effective, in AOCI as part of the cumulative translation adjustment (CTA). The ineffective portions of cash flow hedges and hedges of net investments in foreign operations, if any, are recognized as gains or losses and included in our consolidated statements of operations, in (Gain) loss on change in fair value of derivative instruments, net in the current period.
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.
Property, Plant and Equipment
We report land, buildings, leasehold improvements and machinery and equipment at cost. We report 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. As a result of the Arrangement, land, building, leasehold improvements and machinery and equipment as of May 16, 2007 were adjusted to reflect fair value.
The ranges of estimated useful lives are as follows:
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| | Years | |
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Buildings | | | 30 to 40 | |
Leasehold improvements | | | 7 to 20 | |
Machinery and equipment | | | 5 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 5 to 25 years. Most of our large scale machinery, including hot mills, cold mills, continuous casting mills, furnaces and finishing mills have useful lives of15-25 years. Supporting machinery and equipment, including automation and work rolls, have useful lives of 5-15 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, less any proceeds, is included as a gain or loss in Other (income) expenses, net in our consolidated statements of operations.
F-18
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We account for operating leases under the provisions of FASB Statement No. 13,Accounting for Leases(FASB 13), and FASB TechnicalBulletin No. 85-3,Accounting for Operating Leases with Scheduled Rent Increases.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 account for goodwill under the guidance in FASB Statement No. 141,Business Combinations (FASB 141) and FASB Statement No. 142,Goodwill and Other Intangible Assets(FASB 142).
We test goodwill for impairment using a fair value approach at the reporting unit level. We use our operating segments as our reporting units. 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 accordance with FASB 142, we concluded that events had occurred and circumstances had changed during our third quarter of fiscal 2009 requiring us to perform an interim period goodwill impairment test. See Note 3 — Impairment of Goodwill and Investment in Affiliate.
We use the present value of estimated future cash flows to establish the estimated fair value of our reporting units as 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 of a reporting unit’s goodwill were to exceed its estimated fair value, we would recognize an impairment charge in Impairment 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 of FASB 142.
Long-Lived Assets and Other Intangible Assets
In accordance with FASB 142, we amortize the cost of intangible assets over their respective estimated useful lives to their estimated residual value.
Under the guidance in FASB Statement No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets,we assess the recoverability of long-lived assets (excluding goodwill) and definite-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 charges, net and Other income (expense), net 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 (income) expenses, net in our consolidated statements of operations. No impairments of other intangible assets have been identified during any of the periods presented.
F-19
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We continue to amortize 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 forother-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 account for certain guarantees in accordance with FASB Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others(FIN 45). FIN 45 requires that a guarantor 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” and straight-line methods. The related income or expense is included in Interest expense and amortization of debt issuance costs 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
FASB Statement No. 157,Fair Value Measurements (FASB 157), defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. FASB 157 also applies to measurements under other accounting pronouncements, such as FASB Statement No. 107,Disclosures about Fair Value of Financial Instruments(FASB 107) that require or permit fair value measurements. FASB 107 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.
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.
F-20
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pensions and Postretirement Benefits
We account for our pensions and other postretirement benefits in accordance with FASB Statements No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans(FASB 158),No. 87,Employers’ Accounting for Pensions, and No. 106,Employers’ Accounting for Postretirement Benefits Other than Pensions.We adopted FASB 158 for the year ended December 31, 2006. FASB 158 requires us to 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. Prior to and including the three months ended March 31, 2007, we used a December 31 measurement date for our pension and postretirement plans. As a result of our acquisition by Hindalco and the application of push down accounting, our pension and postretirement plans were remeasured as of May 16, 2007. For the years ended March 31, 2009 and 2008, 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.
Noncontrolling Interests in Consolidated Affiliates
These financial statements reflect the retrospective application of FASB Statement No. 160,Noncontrolling Interests in Consolidated Financial Statements(FASB 160) for all periods presented. FASB 160 establishes accounting and reporting standards that require: (i) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the condensed 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, 2009, we have no such losses.
F-21
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 remediation efforts progress or as additional technical or legal information become available. Accruals for environmental liabilities are stated at undiscounted amounts. Environmental liabilities are included in our consolidated balance sheets in Accrued expenses and other current liabilities and Other long-term liabilities, depending on their short- or long-term nature. Any receivables for related insurance or other third party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in our consolidated balance sheets in Prepaid expenses and other current assets.
Costs related to environmental contamination treatment andclean-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 Reserves
FASB Statement No. 5,Accounting for Contingencies,requires that 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 as required by FASB Statement No. 109,Accounting for Income Taxes(FASB 109). 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 FASB 109, 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 future taxable income.
Share-Based Compensation
On January 1, 2006, we adopted FASB Statement No. 123 (Revised),Share-Based Payment(FASB 123(R)), which is a revision to FASB Statement No. 123. FASB 123(R) requires the recognition of 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 FASB 123(R) using the modified prospective method, which requires companies to record compensation cost beginning with the effective date based on the requirements of FASB 123(R) for all share-based payments granted after the effective date. All awards granted to employees prior to the effective date of FASB 123(R) that remain unvested at the adoption date will continue 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. Various valuation methods were used to determine the fair value of these awards.
Cash flows resulting from tax benefits for deductions in excess of compensation cost recognized are classified within financing cash flows.
F-22
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Foreign Currency Translation
In accordance with FASB Statement No. 52,Foreign Currency Translation, 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 accumulated other comprehensive income. If there is a reduction in our ownership in a foreign operation, the relevant portion of the CTA is recognized in Other (income) expenses, net.
For all operations, the remeasurement of monetary items denominated in currencies other than the functional currency produce transaction gains and losses. For these operations, the monetary items denominated in currencies other than the functional currency are remeasured at period exchange rates and transaction gains and losses are included in Other (income) expenses, 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, net include employee severance and benefit costs, impairments of assets, and other costs associated with exit activities. We apply the provisions of FASB Statement No. 146,Accounting for Costs Associated with Exit or Disposal Activities(FASB 146) relating to one-time termination benefits. Severance costs accounted for under FASB 146 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.
Recently Adopted Accounting Standards
The following accounting standards have been adopted by us during the twelve months ended March 31, 2009.
During the quarter ended March 31, 2009, we adopted FASB Statement No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133(FASB 161). FASB 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under FASB 133 and its related interpretations and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. This standard had no impact on our consolidated financial position, results of operations and cash flows.
During the quarter ended December 31, 2008, we adopted FASB Staff Position (FSP)No. FAS 140-4 and FASB Interpretation No. 46(R)-8 (FIN 46(R)-8),Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.FIN 46(R)-8 calls for enhanced disclosures by public entities about interests in variable interest entities (VIE) and provides users of the financial statements
F-23
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
with greater transparency about an enterprise’s involvement with variable interest entities. This FSP had no impact on our consolidated financial position, results of operation and cash flows.
On April 1, 2008, we adopted FASB Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115(FASB 159). FASB 159 permits entities to choose to measure financial instruments and certain other assets and liabilities at fair value on aninstrument-by-instrument basis (the “fair value option”) with changes in fair value reported in earnings each reporting period. The fair value option enables some companies to reduce the volatility in reported earnings caused by measuring related assets and liabilities differently without applying the complex hedge accounting requirements under FASB 133, to achieve similar results. We previously recorded our derivative contracts and hedging activities at fair value in accordance with FASB 133. We did not elect the fair value option for any other financial instruments or certain other financial assets and liabilities that were not previously required to be measured at fair value.
On April 1, 2008, we adopted FASB Statement No. 157,Fair Value Measurements(FASB 157), as it relates to financial assets and financial liabilities. On October 10, 2008, we adopted FASB Staff PositionFAS 157-3,Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active(FSPFAS 157-3). The FSP clarifies the application of FASB 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSPFAS 157-3 is effective for prior periods for which financial statements have not been issued. This standard had no impact on our consolidated financial position, results of operation and cash flows. See Note 17 — Fair Value of Assets and Liabilities regarding our adoption of this standard.
On April 1, 2008, we adopted FASB Staff PositionNo. FIN 39-1,Amendment of FASB Interpretation No. 39, (FSPFIN 39-1). FSPFIN 39-1 amends FASB Statement No. 39,Offsetting of Amounts Related to Certain Contracts, by permitting entities that enter into master netting arrangements as part of their derivative transactions to offset in their financial statements net derivative positions against the fair value of amounts (or amounts that approximate fair value) recognized for the right to reclaim cash collateral or the obligation to return cash collateral under those arrangements. Our adoption of this standard did not have a material impact on our consolidated financial position, results of operations and cash flows.
Recently Issued Accounting Standards
The following new accounting standards have been issued, but have not yet been adopted by us as of March 31, 2009, as adoption is not required until future reporting periods.
In April 2009, the FASB issued FASB Staff PositionNo. 107-1 (FSPFAS 107-1) and APB Opinion28-1 (APB28-1),Interim Disclosures about Fair Value of Financial Instruments. FSPFAS 107-1 and APB28-1 amends FASB 107 and APB Opinion No. 28,Interim Financial Reporting, to require disclosures about the fair value of financial instruments for interim reporting periods. FSPFAS 107-1 and APB28-1 will be effective for interim reporting periods ending after June 15, 2009. As FSPFAS 107-1 and APB28-1 only require enhanced disclosures, they will have no impact on our consolidated financial position, results of operation and cash flows.
In April 2009, the FASB issued FASB Staff PositionNo. 157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly(FSPFAS 157-4). FSPFAS 157-4 provides additional guidance in accordance with FASB No. 157,Fair Value Measurements, when the volume and level of activity for the asset or liability has significantly decreased. FSPFAS 157-4 will be effective for interim and annual reporting periods ending after June��June 15, 2009. This standard will have no impact our consolidated financial position, results of operations and cash flows.
In April 2009, the FASB issued FASB Staff PositionNo. 115-2 (FSPFAS 115-2) and FASB Staff PositionNo. 124-2 (FSPFAS 124-2),Recognition ofOther-than-Temporary-Impairments.FSPFAS No. 115-2 and FSPFAS No. 124-2 amends theother-than-temporary impairment guidance in U.S. GAAP for debt and equity
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
securities. FSPFAS No. 115-2 and FSPFAS No. 124-2 will be effective for interim and annual reporting periods ending after June 15, 2009. This standard will have no impact our consolidated financial position, results of operations and cash flows.
In December 2008, the FASB issued FSP No. 132(R)-1,Employers’ Disclosures about Pensions and Other Postretirement Benefits(FSP No. 132(R)-1). FSP No. 132(R)-1 requires that an employer disclose the following information about the fair value of plan assets: 1) how investment allocation decisions are made, including the factors that are pertinent to understanding of investment policies and strategies; 2) the major categories of plan assets; 3) the inputs and valuation techniques used to measure the fair value of plan assets; 4) the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period; and 5) significant concentrations of risk within plan assets. FSP No. 132(R)-1 will be effective for fiscal years ending after December 15, 2009, with early application permitted. At initial adoption, application of FSP No. 132(R)-1 would not be required for earlier periods that are presented for comparative purposes. This standard will have no impact on our consolidated financial position, results of operations and cash flows.
In November 2008, the Emerging Issues Task Force (EITF) issued IssueNo. 08-06,Equity Method Investment Accounting Considerations(EITF 08-06).EITF 08-6 address questions that have arisen about the application of the equity method of accounting for investments acquired after the effective date of both FASB 141(R) and FASB Statement No. 160,Noncontrolling Interests in Consolidated Financial Statements.EITF 08-06 clarifies how to account for certain transactions involving equity method investments.EITF 08-6 is effective on a prospective basis for fiscal years beginning after December 15, 2008, with early adoption prohibited. This standard will have no impact our consolidated financial position, results of operations and cash flows.
In April 2008, the FASB issued Staff PositionNo. FAS 142-3,Determination of Useful Life of Intangible Assets(FSPFAS 142-3). FSPFAS 142-3 amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB 142. FSPFAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSPFAS 142-3 is effective for fiscal years beginning after December 15, 2008. Earlier adoption is prohibited. We have not yet commenced evaluating the potential impact, if any, of the adoption of FSPFAS 142-3 on our consolidated financial position, results of operations and cash flows.
In December 2007, the FASB issued Statement No. 141 (Revised),Business Combinations(FASB 141(R)). FASB 141(R) establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FASB 141(R) also requires acquirers to estimate the acquisition-date fair value of any contingent consideration and to recognize any subsequent changes in the fair value of contingent consideration in earnings. We will be required to apply this new standard prospectively to business combinations occurring after March 31, 2009, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. FASB 141(R) amends certain provisions of FASB 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of FASB 141(R) would also apply the provisions of FASB 141(R). Early adoption is prohibited.
We have determined that all other recently issued accounting standards will not have a material impact on our consolidated financial position, results of operations or cash flows, or do not apply to our operations.
We believe we have adequate liquidity to meet our operational and capital requirements for the foreseeable future. Our primary sources of liquidity are available cash and cash equivalents, borrowing
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
availability under our revolving credit facility and future cash generated by operating activities. During the first nine months of fiscal 2009, our liquidity position decreased significantly as the global recession led to a rapid decline in aluminum prices and end-customer demand for flat-rolled products. However, we believe aluminum prices have stabilized and that there is limited risk of further significant volume declines in fiscal 2010 due to the volume of our sales into the beverage can sheet market. We had stable liquidity in the fourth quarter of fiscal 2009 and expect to operate with positive cash flow in 2010, despite continued low levels of demand and net cash outflows to settle derivative positions. This reflects our ongoing efforts to preserve liquidity through cost and capital spending controls and effective management of working capital. Risks associated with supplier terms, customer credit and broker hedging capacity, while still present to some degree, have been managed to date with minimal negative impact on our business. Although there can be no assurances that further deterioration in global market conditions would not negatively impact our liquidity in 2010, we believe that our liquidity position will improve during fiscal 2010, due primarily to expected reduced cash outflows for metal derivatives and cash savings from previously-announced restructuring programs.
| |
3. | IMPAIRMENT OF GOODWILL AND INVESTMENT IN AFFILIATE |
In accordance with FASB 142, we evaluate the carrying value of goodwill for potential impairment annually during the fourth quarter of each fiscal year or on an interim basis if an event occurs or circumstances change that indicate that the fair value of a reporting unit is likely to be below its carrying value. During the third quarter of fiscal 2009, we concluded that interim impairment testing was required due to the recent deterioration in the global economic environment and the resulting significant decrease in both the market capitalization of our parent company and the valuation of our publicly traded 7.25% Senior Notes.
We test consolidated goodwill for impairment using a fair value approach at the reporting unit level. We use our operating segments as our reporting units and perform our goodwill impairment test in two steps. Step one compares the fair value of each reporting unit (operating segment) to its carrying amount. If step one indicates that an impairment potentially exists, the second step is performed to measure the amount of impairment, if any. Goodwill impairment exists when the estimated fair value of goodwill is less than its carrying value.
Quarter Ended December 31, 2008 Impairment Testing
For purposes of our step one analysis, our estimate of fair value of each reporting unit is based on a combination of (1) quoted market prices/relationships (the market approach), (2) discounted cash flows (the income approach) and (3) a stock pricebuild-up approach (thebuild-up approach). Under the market approach, the fair value of each reporting unit was determined based upon comparisons to public companies engaged in similar businesses. Under the income approach, the fair value of each reporting unit was based on the present value of estimated future cash flows. The income approach is dependent on a number of significant management assumptions including estimated demand in each geographic market, future LME prices and the discount rate. The discount rate is commensurate with the risk inherent in the projected cash flows and reflects the rate of return required by an investor in the current economic conditions. Under thebuild-up approach, which is a variation of the market approach, we estimated the fair value of each reporting unit based on the estimated contribution of each of the reporting units to Hindalco’s total business enterprise value. The estimated fair value for each reporting unit was within the range of fair values yielded under each approach. The result of our step one test indicated a potential impairment.
For our reporting units in North America, Europe and South America, we proceeded to step two for the goodwill impairment calculation in which we determined the implied fair value of the goodwill and compared it to the carrying value of the goodwill. We allocated the fair value of the reporting unit to all of its assets and liabilities as if the reporting unit has been acquired and the fair value was the price paid to acquire each reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
liabilities is the implied fair value of the reporting unit’s goodwill. Step two was not performed for Asia as no goodwill has been allocated to this reporting unit.
As a result of our step two evaluation, we recorded a $1.34 billion impairment charge in the quarter ended December 31, 2008. We finalized our interim goodwill impairment test in the fourth quarter which resulted in no adjustment to the charge as recorded.
We also evaluated the carrying value of our investment in Aluminium Norf GmbH for impairment. This resulted in an impairment charge of $160 million, which is reported in Equity in net (income) loss of non-consolidated affiliates on the consolidated statement of operations.
Year End Impairment Testing
Our annual goodwill impairment test was performed in the fourth quarter and no additional impairment was identified. The table below summarizes goodwill by reporting unit (in millions).
| | | | | | | | | | | | | | | | |
| | March 31,
| | | | | | Other
| | | March 31,
| |
Reporting Unit | | 2008(A) | | | Impairments | | | Adjustments(B) | | | 2009 | |
| | Successor | | | | | | | | | Successor | |
|
North America | | $ | 1,149 | | | $ | (860 | ) | | $ | (1 | ) | | $ | 288 | |
Europe | | | 518 | | | | (330 | ) | | | (7 | ) | | | 181 | |
South America | | | 263 | | | | (150 | ) | | | — | | | | 113 | |
| | | | | | | | | | | | | | | | |
| | $ | 1,930 | | | $ | (1,340 | ) | | $ | (8 | ) | | $ | 582 | |
| | | | | | | | | | | | | | | | |
| | |
(A) | | See Note 1 — Business and Summary of Significant Accounting Policies (Reclassifications) for discussion of goodwill balance reclassification at March 31, 2008. |
|
(B) | | Other adjustments include: (1) an adjustment in North America for final payment related to the transfer of pension plans in Canada for employees who elected to transfer their past service to Novelis during the quarter ended June 30, 2008 and (2) adjustments in Europe related to tax audits during the year ended March 31, 2009. |
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
4. | RESTRUCTURING PROGRAMS |
The following table summarizes the restructuring activity by region (in millions). Restructuring charges, net on the consolidated statement of operations for the year ended March 31, 2009 of $95 million include $22 million of non-cash charges related to restructuring actions in Europe and Asia, discussed below.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | North
| | | | | | South
| | | | | | Restructuring
| |
| | Europe | | | America | | | Asia | | | America | | | Corporate | | | Reserves | |
|
Predecessor | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2006 | | $ | 33 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | | | $ | 34 | |
January 1, 2007 to March 31, 2007 Activity: | | | | | | | | | | | | | | | | | | | | | | | | |
Provisions (recoveries), net | | | 9 | | | | — | | | | — | | | | — | | | | — | | | | 9 | |
Cash payments | | | (5 | ) | | | — | | | | — | | | | — | | | | (1 | ) | | | (6 | ) |
Adjustments — other | | | (1 | ) | | | — | | | | — | | | | — | | | | — | | | | (1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of March 31, 2007 | | | 36 | | | | — | | | | — | | | | — | | | | — | | | | 36 | |
April 1, 2007 to May 15, 2007 Activity: | | | | | | | | | | | | | | | | | | | | | | | | |
Provisions (recoveries), net | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | 1 | |
Cash payments | | | (1 | ) | | | — | | | | — | | | | — | | | | — | | | | (1 | ) |
Adjustments — other | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of May 15, 2007 | | | 37 | | | | — | | | | — | | | | — | | | | — | | | | 37 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Successor | | | | | | | | | | | | | | | | | | | | | | | | |
May 16, 2007 to March 31, 2008 Activity: | | | | | | | | | | | | | | | | | | | | | | | | |
Provisions (recoveries), net | | | 2 | | | | 4 | | | | — | | | | — | | | | — | | | | 6 | |
Cash payments | | | (20 | ) | | | — | | | | — | | | | — | | | | — | | | | (20 | ) |
Adjustments — other | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of March 31, 2008 | | | 20 | | | | 4 | | | | — | | | | — | | | | — | | | | 24 | |
Fiscal 2009 Activity: | | | | | | | | | | | | | | | | | | | | | | | | |
Provisions (recoveries), net | | | 53 | | | | 16 | | | | 1 | | | | 2 | | | | 1 | | | | 73 | |
Cash payments | | | (8 | ) | | | (5 | ) | | | (1 | ) | | | — | | | | — | | | | (14 | ) |
Adjustments — other | | | (4 | ) | | | 1 | | | | — | | | | — | | | | — | | | | (3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of March 31, 2009 | | $ | 61 | | | $ | 16 | | | $ | — | | | $ | 2 | | | $ | 1 | | | $ | 80 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended March 31, 2009 Restructuring Activities
Europe
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 action is $63 million, of which $60 million was recorded in the year ended March 31, 2009. Included within the $60 million recorded for the year ended March 31, 2009 was the following (in millions):
| | | | |
Severance related costs | | $ | 20 | |
Environmental remediation expense | | | 20 | |
Fixed asset impairments(A) | | | 12 | |
Write-down of parts and supplies(A) | | | 8 | |
Reduction of reserve associated with unfavorable contract(A) | | | (3 | ) |
Other exit costs | | | 3 | |
| | | | |
| | $ | 60 | |
| | |
(A) | | These restructuring charges are not included in the restructuring provision table above but have been reflected as reductions to the respective balance sheet accounts. |
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
While no significant payments have been made related to this facility closure as of March 31, 2009, we expect all severance and other exit costs to be paid within one year. Environmental liabilities are projected to be settled through April 2011.
In March 2009, we announced a restructuring plan to streamline our operations at our Rugles facility located in Upper Normandy, France, which eliminates approximately 80 positions. The facility will continue operation of its five major processes, including continuous casting, breakdown/foilstock, rolling, grinding and finishing. For the year ended March 31, 2009, we recorded $9 million in severance-related costs.
In March 2009, we recorded $1 million in severance costs at our Ohle, Germany facility related to the elimination of 13 positions.
North America
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 for the year ended March 31, 2009, and recorded $16 million in severance-related costs for the VSP and ISP programs.
South America
In January 2009, we announced that we will cease production of alumina at our Ouro Preto facility in Brazil effective May 2009. The global economic crisis and the recent dramatic drop in alumina prices have made alumina production at Ouro Preto economically unfeasible. For the foreseeable future, the Ouro Preto facility will purchase alumina through third-parties. Approximately 290 positions were eliminated at Ouro Preto, including 150 employees and 140 contractors. For the year ended March 31, 2009, we recorded approximately $2 million in severance-related costs. Other exit costs include less than $1 million related to the idling of the refinery. Other activities related to the facility, including electric power generation and the production of primary aluminum, will continue unaffected.
Asia
In February 2009, we recorded approximately $1 million in severance-related costs related to a voluntary retirement program in Asia which eliminated 34 positions. Also, during the year ended March 31, 2009, we recorded an impairment charge of approximately $5 million in Novelis Korea due to the obsolescence of certain production related fixed assets. These restructuring charges are not included in the restructuring provision table above but have been reflected as reductions to the respective balance sheet account.
Year Ended March 31, 2008 Restructuring Activities
North America
In March 2008, management approved the closure of our light gauge converter products facility in Louisville, Kentucky. The closure is intended to bring the capacity of our North American operations in line with local market demand. As a result of the closure, we recognized approximately $5 million in restructuring charges during the quarter ended March 31, 2008. Our Louisville facility closed in June 2008.
Three Months Ended March 31, 2007 Restructuring Activities
Europe
In March 2007, management approved the proposed restructuring of our facilities in Bridgnorth, U.K. These proposed actions were intended to bring the capacity of our U.K. operations in line with local market demand and to reduce the cost of our U.K. operations. Certain production lines were shut down in the U.K. and volume was relocated to other European plants. For the three months ended March 31, 2007, we
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
recognized approximately $8 million each in impairment charges on long-lived assets in the U.K. that will no longer be used and severance costs.
Year Ended December 31, 2006 Restructuring Activities
Europe
In December 2006, we announced several restructuring actions at our facilities in the U.K., Germany, France and Italy. These actions are intended to streamline the management of these operations. We incurred $2 million in severance-related costs through December 31, 2006 in connection with these programs. We incurred no additional costs related to these programs and we completed all actions by March 2008.
In August 2006, we announced a restructuring of our European central management and administration activities in Zurich, Switzerland to reduce overhead costs and streamline support functions. In addition, we exited our Neuhausen research and development center in Switzerland. Through March 31, 2008, we completed this action and incurred costs of approximately $4 million.
In July 2006, we announced restructuring actions at our Goettingen facility in Germany to reduce overhead administrative costs and streamline functions. We incurred approximately $5 million related primarily to severance costs through December 31, 2006. As of March 31, 2009, we have completed this action and have not incurred significant additional costs.
In March 2006, we announced the restructuring of our European operations, with the reorganization of our plants in Ohle and Ludenscheid, Germany, including the closing of two non-core business lines located within those facilities. In connection with the reorganization of our Ohle and Ludenscheid plants, we incurred costs of approximately $5 million during the year ended December 31, 2006. We do not anticipate future costs related to these programs to be significant and expect all obligations to be fulfilled by December 2011.
North America
In December 2006, we announced the closing of our Montreal planning office. We incurred approximately $1 million of severance-related costs through December 31, 2006. Through March 31, 2008, we completed this action and incurred no additional costs.
Accounts receivable consists of the following (in millions).
| | | | | | | | |
| | March 31, | |
| | 2009 | | | 2008 | |
| | Successor | | | Successor | |
|
Trade accounts receivable | | $ | 1,002 | | | $ | 1,160 | |
Other accounts receivable | | | 49 | | | | 89 | |
| | | | | | | | |
Accounts receivable — third parties | | | 1,051 | | | | 1,249 | |
Allowance for doubtful accounts — third parties | | | (2 | ) | | | (1 | ) |
| | | | | | | | |
| | | 1,049 | | | | 1,248 | |
Other accounts receivable — related parties | | | 25 | | | | 31 | |
| | | | | | | | |
Accounts receivable, net | | $ | 1,074 | | | $ | 1,279 | |
| | | | | | | | |
Allowance for Doubtful Accounts
The allowance for doubtful accounts is management’s best estimate of probable losses inherent in the accounts receivable balance. Management determines the allowance based on known uncollectible accounts,
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
historical experience and other currently available evidence. As of March 31, 2009 and 2008, our allowance for doubtful accounts represented approximately 0.2% and 0.1%, respectively, of gross accounts receivable.
Activity in the allowance for doubtful accounts is as follows (in millions).
| | | | | | | | | | | | | | | | | | | | |
| | Balance at
| | | Additions
| | | Accounts
| | | | | | | |
| | Beginning
| | | Charged to
| | | Recovered/
| | | Foreign Exchange
| | | Balance at
| |
| | of Period | | | Expense | | | (Written-Off) | | | and Other | | | End of Period | |
|
Predecessor | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2006 | | $ | 26 | | | $ | 4 | | | $ | (4 | ) | | $ | 3 | | | $ | 29 | |
Three Months Ended March 31, 2007 | | $ | 29 | | | $ | — | | | $ | — | | | $ | — | | | $ | 29 | |
April 1, 2007 Through May 15, 2007 | | $ | 29 | | | $ | — | | | $ | (2 | ) | | $ | 1 | | | $ | 28 | |
|
Successor | | | | | | | | | | | | | | | | | | | | |
May 16, 2007 Through March 31, 2008 | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | 1 | |
Year Ended March 31, 2009 | | $ | 1 | | | $ | 2 | | | $ | (1 | ) | | $ | — | | | $ | 2 | |
Forfaiting 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 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 the accompanying consolidated balance sheets. Forfaiting expenses are included in Selling, general and administrative expenses in our consolidated statements of operations.
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 the accompanying consolidated balance sheets. Factoring expenses are included in Selling, general and administrative expenses in our consolidated statements of operations.
Summary Disclosures of Financial Amounts
The following tables summarize amounts relating to our forfaiting and factoring activities (in millions).
| | | | | | | | | | | | | | | | | | | | | |
| | | | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | Year Ended
| |
| | Year Ended
| | | Through
| | | | Through
| | | Ended
| | | December 31,
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Receivables forfaited | | $ | 570 | | | $ | 507 | | | | $ | 51 | | | $ | 68 | | | $ | 424 | |
Receivables factored | | $ | 70 | | | $ | 75 | | | | $ | — | | | $ | 18 | | | $ | 71 | |
Forfaiting expense | | $ | 5 | | | $ | 6 | | | | $ | 1 | | | $ | 1 | | | $ | 5 | |
Factoring expense | | $ | 1 | | | $ | 1 | | | | $ | — | | | $ | — | | | $ | 1 | |
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | |
| | March 31, |
| | 2009 | | 2008 |
| | Successor | | Successor |
|
Forfaited receivables outstanding | | $ | 71 | | | $ | 149 | |
Factored receivables outstanding | | $ | — | | | $ | — | |
Inventories consist of the following (in millions).
| | | | | | | | |
| | March 31, | |
| | 2009 | | | 2008 | |
| | Successor | | | Successor | |
|
Finished goods | | $ | 215 | | | $ | 381 | |
Work in process | | | 296 | | | | 638 | |
Raw materials | | | 207 | | | | 362 | |
Supplies | | | 79 | | | | 75 | |
| | | | | | | | |
| | | 797 | | | | 1,456 | |
Allowances | | | (4 | ) | | | (1 | ) |
| | | | | | | | |
Inventories | | $ | 793 | | | $ | 1,455 | |
| | | | | | | | |
| |
7. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment, net, consists of the following (in millions).
| | | | | | | | | | | | |
| | As of March 31, | |
| | 2009 | | | | | | 2008 | |
| | Successor | | | | | | Successor | |
|
Land and property rights | | $ | 213 | | | | | | | $ | 258 | |
Buildings | | | 760 | | | | | | | | 826 | |
Machinery and equipment | | | 2,495 | | | | | | | | 2,460 | |
| | | | | | | | | | | | |
| | | 3,468 | | | | | | | | 3,544 | |
Accumulated depreciation and amortization | | | (741 | ) | | | | | | | (331 | ) |
| | | | | | | | | | | | |
| | | 2,727 | | | | | | | | 3,213 | |
Construction in progress | | | 72 | | | | | | | | 144 | |
| | | | | | | | | | | | |
Property, plant and equipment, net | | $ | 2,799 | | | | | | | $ | 3,357 | |
| | | | | | | | | | | | |
Due to the assignment of new fair values as a result of the Arrangement, we have no fully depreciated assets included in our consolidated balance sheet as of March 31, 2009 and 2008.
Total depreciation expense is shown in the table below (in millions). Capitalized interest related to construction of property, plant and equipment was immaterial in the periods presented.
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
| | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | Year Ended
| |
| | March 31,
| | | Through
| | | | Through
| | | Ended
| | | December 31,
| |
| | 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Depreciation expense related to property, plant and equipment | | $ | 398 | | | $ | 338 | | | | $ | 28 | | | $ | 58 | | | $ | 231 | |
| | | | | | | | | | | | | | | | | | | | | |
F-32
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Asset impairments
During the year ended March 31, 2009, we recorded $1 million of impairment charges, which is included in Other (income) expense, net on the consolidated statement of operations. 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 (see Note 4 — Restructuring Programs).
During the period from May 16, 2007 through March 31, 2008, we recorded an impairment charge of $1 million in Novelis Italy due to the obsolescence of certain production related fixed assets.
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 a15-year capital lease through 2020 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
| | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | Year Ended
| |
| | March 31,
| | | Through
| | | | Through
| | | Ended
| | | December 31,
| |
| | 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Rent expense | | $ | 25 | | | $ | 27 | | | | $ | 3 | | | $ | 4 | | | $ | 22 | |
| | | | | | | | | | | | | | | | | | | | | |
Future minimum lease payments as of March 31, 2009, 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). The future minimum lease payments for capital lease obligations exclude $3 million of unamortized fair value adjustments recorded as a result of the Arrangement (see Note 12 — Debt in the accompanying consolidated financial statements).
| | | | | | | | |
| | Operating
| | | Capital Lease
| |
Year Ending March 31, | | Leases | | | Obligations | |
|
2010 | | $ | 19 | | | $ | 7 | |
2011 | | | 16 | | | | 7 | |
2012 | | | 14 | | | | 7 | |
2013 | | | 13 | | | | 7 | |
2014 | | | 11 | | | | 6 | |
Thereafter | | | 23 | | | | 34 | |
| | | | | | | | |
Total minimum lease payments | | $ | 96 | | | | 68 | |
| | | | | | | | |
Less: interest portion on capital lease | | | | | | | (21 | ) |
| | | | | | | | |
Principal obligation on capital leases | | | | | | $ | 47 | |
| | | | | | | | |
F-33
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Assets and related accumulated amortization under capital lease obligations as of March 31, 2009 and 2008 are as follows (in millions).
| | | | | | | | |
| | March 31, | |
| | 2009 | | | 2008 | |
| | Successor | | | Successor | |
|
Assets under capital lease obligations: | | | | | | | | |
Buildings | | $ | 9 | | | $ | 13 | |
Machinery and equipment | | | 63 | | | | 55 | |
| | | | | | | | |
| | | 72 | | | | 68 | |
Accumulated amortization | | | (19 | ) | | | (17 | ) |
| | | | | | | | |
| | $ | 53 | | | $ | 51 | |
| | | | | | | | |
Sale of assets
There were no material sales of fixed assets during the year ended March 31, 2009. During March 2008, we sold land at our Kingston facility in Ontario, Canada for $5 million. No gain or loss was recognized on the sale. During the year ended December 31, 2006, we sold our rights to develop and operate two hydroelectric power plants in South America and recorded a pre-tax gain of approximately $11 million, included inOther (income) expenses, netin our consolidated statements of operations.
Asset Retirement Obligations
The following is a summary of our asset retirement obligation activity. The period-end balances are included in Other long-term liabilities in our consolidated balance sheets (in millions).
| | | | |
Predecessor | | | | |
Asset retirement obligation as of December 31, 2006 | | $ | 13 | |
Liability incurred | | | 1 | |
Liability settled | | | — | |
Accretion | | | — | |
| | | | |
Asset retirement obligation as of March 31, 2007 | | | 14 | |
Liability incurred | | | — | |
Liability settled | | | — | |
Accretion | | | — | |
| | | | |
Asset retirement obligation as of May 15, 2007 | | $ | 14 | |
| | | | |
|
Successor | | | | |
Asset retirement obligation as of May 16, 2007 | | $ | 14 | |
Liability incurred | | | — | |
Liability settled | | | — | |
Accretion | | | 2 | |
| | | | |
Asset retirement obligation as of March 31, 2008 | | | 16 | |
Liability incurred | | | — | |
Liability settled | | | — | |
Accretion | | | 1 | |
Other | | | (1 | ) |
| | | | |
Asset retirement obligation as of March 31, 2009 | | $ | 16 | |
| | | | |
F-34
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The components of intangible assets were as follows (in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2009 —Successor | | | March 31, 2008 —Successor | |
| | Gross
| | | | | | Net
| | | Weighted
| | | Gross
| | | | | | Net
| | | Weighted
| |
| | Carrying
| | | Accumulated
| | | Carrying
| | | Average
| | | Carrying
| | | Accumulated
| | | Carrying
| | | Average
| |
| | Amount | | | Amortization | | | Amount | | | Life | | | Amount | | | Amortization | | | Amount | | | Life | |
|
Tradenames | | $ | 140 | | | $ | (13 | ) | | $ | 127 | | | | 20 years | | | $ | 152 | | | $ | (6 | ) | | $ | 146 | | | | 20 years | |
Technology | | | 165 | | | | (21 | ) | | | 144 | | | | 15 years | | | | 169 | | | | (10 | ) | | | 159 | | | | 15 years | |
Customer-related intangible assets | | | 459 | | | | (43 | ) | | | 416 | | | | 20 years | | | | 484 | | | | (21 | ) | | | 463 | | | | 20 years | |
Favorable energy supply contract | | | 124 | | | | (28 | ) | | | 96 | | | | 9.5 years | | | | 124 | | | | (13 | ) | | | 111 | | | | 9.5 years | |
Other favorable contracts | | | 13 | | | | (9 | ) | | | 4 | | | | 3.3 years | | | | 15 | | | | (6 | ) | | | 9 | | | | 3.3 years | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 901 | | | $ | (114 | ) | | $ | 787 | | | | 17.2 years | | | $ | 944 | | | $ | (56 | ) | | $ | 888 | | | | 17.2 years | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Our favorable energy supply contract and other favorable contracts are amortized over their estimated useful lives using methods that reflect 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 assets is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
| | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | Year Ended
| |
| | March 31,
| | | Through
| | | | Through
| | | Ended
| | | December 31,
| |
| | 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Total Amortization expense related to intangible assets | | $ | 59 | | | $ | 56 | | | | $ | — | | | $ | — | | | $ | 2 | |
Less: Amortization expense related to intangible assets included in Cost of goods sold (exclusive of depreciation and amortization)(A) | | | 18 | | | | 19 | | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
Amortization expense related to intangible assets included in Depreciation and amortization | | $ | 41 | | | $ | 37 | | | | $ | — | | | $ | — | | | $ | 2 | |
| | | | | | | | | | | | | | | | | | | | | |
| | |
(A) | | Relates to amortization of favorable energy and other supply contracts. |
Estimated total amortization expense related to intangible assets 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.
F-35
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | |
Fiscal Year Ending March 31, | | | |
|
2010 | | $ | 58 | |
2011 | | | 55 | |
2012 | | | 54 | |
2013 | | | 54 | |
2014 | | | 53 | |
| |
9. | CONSOLIDATION OF VARIABLE INTEREST ENTITIES |
We have a variable interest in Logan Aluminum, Inc. (Logan) and have concluded that we are the primary beneficiary. As a result, this entity is consolidated pursuant to FASB Interpretation No. 46 (Revised),Consolidation of Variable Interest Entities(FIN 46(R)) in all periods presented. All significant intercompany transactions and balances have been eliminated.
Logan Organization and Operations
In 1985, Alcan purchased an interest in Logan to provide tolling services jointly with ARCO Aluminum, Inc. (ARCO). Logan produces approximately one-third of the can sheet utilized in the U.S. can sheet market. According to the joint venture agreements between Alcan and ARCO, Alcan owned 40 shares of Class A common stock and ARCO owned 60 shares of Class B common stock in Logan. Each share provides its holder with one vote, regardless of class. However, Class A shareholders have the right to select four directors, and Class B shareholders have the right to select three directors. Generally, a majority vote is required for the Logan board of directors to take action. In connection with our spin-off from Alcan in January 2005, Alcan transferred all of its rights and obligations under a joint venture agreement and subsequent ancillary agreements (collectively, the JV Agreements) to us.
Logan processes metal received from Novelis and ARCO and charges the respective partner a fee to cover expenses. Logan has no equity and relies on the regular reimbursement of costs and expenses by Novelis and ARCO to fund its operations. This reimbursement is considered a variable interest as it constitutes a form of financing of the activities of Logan. Other than these contractually required reimbursements, we do not provide other additional support to Logan. We are obligated to absorb a majority of the risk of loss; however, Logan’s creditors do not have recourse to our general credit.
Primary Beneficiary
A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities and noncontrolling interests at fair value. Generally, the primary beneficiary is the reporting enterprise with a variable interest in the entity that is obligated to absorb the majority (greater than 50%) of the VIE’s expected loss.
Based upon a previous restructuring program, Novelis acquired the right to use the excess capacity at Logan. To utilize this capacity, we installed and have sole ownership of a cold mill at the Logan facility which enabled us have the ability to take the majority share of production and costs. These facts qualify Novelis as Logan’s primary beneficiary under FIN 46(R).
F-36
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Carrying Value
The following table summarizes the carrying value and classification on our consolidated balance sheets of assets and liabilities owned by the Logan joint venture and consolidated under FIN 46(R) (in millions). There are significant other assets used in the operations of Logan that are not part of the joint venture.
| | | | | | | | |
| | March 31, | |
| | 2009 | | | 2008 | |
| | Successor | | | Successor | |
|
Current assets | | $ | 64 | | | $ | 61 | |
Total assets | | $ | 124 | | | $ | 106 | |
Current liabilities | | $ | (35 | ) | | $ | (39 | ) |
Total liabilities | | $ | (135 | ) | | $ | (112 | ) |
Net carrying value | | $ | (11 | ) | | $ | (6 | ) |
| |
10. | 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, 2009, 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.
| | | | | | |
| | | | Ownership
| |
Affiliate Name | | Ownership Structure | | Percentage | |
|
Aluminium Norf GmbH | | Corporation | | | 50 | % |
Consorcio Candonga | | Unincorporated Joint Venture | | | 50 | % |
MiniMRF LLC | | Limited Liability Company | | | 50 | % |
Deutsche Aluminium Verpackung Recycling GmbH | | Corporation | | | 30 | % |
France Aluminium Recyclage S.A. | | Public Limited Company | | | 20 | % |
In September 2007, we completed the dissolution of EuroNorca Partners, and we received approximately $2 million upon the completion of liquidation proceedings. No gain or loss was recognized on the liquidation.
In November 2006, we sold the common and preferred shares of our 25% interest in Petrocoque S.A. Industria e Comercio (Petrocoque) to the other shareholders of Petrocoque. Prior to the sale, we accounted for Petrocoque using the equity method of accounting. The results of operations of Petrocoque through the date of sale are included in the table below.
The following table summarizes the condensed assets, liabilities and equity of our equity method affiliates (on a 100% basis, in millions) on a historical basis of accounting. The results do not include the unamortized fair value adjustments relating to our non-consolidated affiliates due to the Arrangement. As of March 31,
F-37
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2009 and 2008, there were $551 million and $766 million, respectively, of unamortized fair value adjustments recorded in Investment in and advances to non-consolidated affiliates.
| | | | | | | | |
| | March 31, | |
| | 2009 | | | 2008 | |
|
Assets: | | | | | | | | |
Current assets | | $ | 158 | | | $ | 192 | |
Non-current assets | | | 560 | | | | 677 | |
| | | | | | | | |
Total assets | | $ | 718 | | | $ | 869 | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Current liabilities | | $ | 128 | | | $ | 151 | |
Non-current liabilities | | | 254 | | | | 359 | |
| | | | | | | | |
Total liabilities | | | 382 | | | | 510 | |
Equity: | | | | | | | | |
Novelis | | | 168 | | | | 180 | |
Third parties | | | 168 | | | | 179 | |
| | | | | | | | |
Total liabilities and equity | | $ | 718 | | | $ | 869 | |
| | | | | | | | |
The following table summarizes the condensed results of operations of our equity method affiliates (on a 100% basis, in millions) on a historical basis of accounting. These results do not include the incremental depreciation and amortization expense that we record in our equity method accounting, which arises as a result of the amortization of fair value adjustments we made to our investments in non-consolidated affiliates due to the Arrangement. These results also do not include the $160 million impairment charge to reduce the carrying value of our investment in Aluminium Norf GmbH for the year ended March 31, 2009. (See Note 3 — Impairment of Goodwill and Investment in Affiliate.)
| | | | | | | | | | | | | | | | | | | | |
| | Year
| | | May 16, 2007
| | | April 1, 2007
| | | Three Months
| | | Year
| |
| | Ended
| | | Through
| | | Through
| | | Ended
| | | Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | May 15, 2007 | | | March 31, 2007 | | | December 31, 2006 | |
|
Net sales | | $ | 553 | | | $ | 564 | | | $ | 45 | | | $ | 127 | | | $ | 558 | |
Costs, expenses and income taxes | | | 511 | | | | 495 | | | | 43 | | | | 122 | | | | 521 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 42 | | | $ | 69 | | | $ | 2 | | | $ | 5 | | | $ | 37 | |
| | | | | | | | | | | | | | | | | | | | |
The table below summarizes our incremental depreciation and amortization expense on our equity method investments due to the Arrangement.
| | | | | | | | |
| | Year
| | | May 16, 2007
| |
| | Ended
| | | Through
| |
| | March 31, 2009 | | | March 31, 2008 | |
| | Successor | | | Successor | |
|
Incremental depreciation and amortization expense | | $ | 48 | | | $ | 39 | |
Tax benefit(A) | | | (15 | ) | | | (29 | ) |
| | | | | | | | |
Incremental depreciation and amortization expense, net | | $ | 33 | | | $ | 10 | |
| | | | | | | | |
| | |
(A) | | The tax benefits for the period from May 16, 2007 through March 31, 2008 includes tax benefits associated with amortization and a statutory tax rate change recorded as part of our equity method accounting |
F-38
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | |
| | for these investments. There were no such statutory tax rate changes in the other period noted in the table above. |
Included in the accompanying consolidated financial statements are transactions and balances arising from business we conduct with these non-consolidated affiliates, which we classify as related party transactions and balances. The following table describes the nature and amounts of transactions that we had with related parties (in millions).
| | | | | | | | | | | | | | | | | | | | | |
| | Year
| | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | Year
| |
| | Ended
| | | Through
| | | | Through
| | | Ended
| | | Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | December 31, 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Purchases of tolling services, electricity and inventories | | | | | | | | | | | | | | | | | | | | | |
Aluminium Norf GmbH(A) | | $ | 257 | | | $ | 253 | | | | $ | 21 | | | $ | 61 | | | $ | 227 | |
Consorcio Candonga(B) | | | 18 | | | | 24 | | | | | 1 | | | | 3 | | | | 14 | |
Petrocoque S.A. Industria e Comercio(C) | | | n.a. | | | | n.a. | | | | | n.a. | | | | n.a. | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | | |
Total purchases from related parties | | $ | 275 | | | $ | 277 | | | | $ | 22 | | | $ | 64 | | | $ | 243 | |
| | | | | | | | | | | | | | | | | | | | | |
Interest (income) expense | | | | | | | | | | | | | | | | | | | | | |
Aluminium Norf GmbH(D) | | $ | — | | | $ | 1 | | | | $ | — | | | $ | — | | | $ | (1 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | |
(A) | | We purchase tolling services (the conversion of customer-owned metal) from Aluminium Norf GmbH. |
|
(B) | | We obtain electricity from Consorcio Candonga for our operations in South America. |
|
(C) | | We purchased calcined-coke from Petrocoque for use in our smelting operations in South America. As previously discussed, we sold our interest in Petrocoque in November 2006. They are not considered a related party in periods subsequent to November 2006. |
|
(D) | | We earn interest income on a loan due from Aluminium Norf GmbH. |
n.a. not applicable — see (C).
The following table describes the period-end account balances that we have with these non-consolidated affiliates, shown as related party balances in the accompanying consolidated balance sheets (in millions).
| | | | | | | | |
| | March 31, | |
| | 2009 | | | 2008 | |
| | Successor | | | Successor | |
|
Accounts receivable(A) | | $ | 25 | | | $ | 31 | |
Other long-term receivables(A) | | $ | 23 | | | $ | 41 | |
Accounts payable(B) | | $ | 48 | | | $ | 55 | |
| | |
(A) | | The balances represent current and non-current portions of a loan due from Aluminium Norf GmbH. |
|
(B) | | We purchase tolling services from Aluminium Norf GmbH and electricity from Consorcio Candonga. |
F-39
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
11. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Accrued expenses and other current liabilities are comprised of the following (in millions).
| | | | | | | | |
| | March 31, | |
| | 2009 | | | 2008 | |
| | Successor | | | Successor | |
|
Accrued compensation and benefits | | $ | 103 | | | $ | 141 | |
Accrued settlement of legal claim | | | — | | | | 39 | |
Accrued interest payable | | | 12 | | | | 15 | |
Accrued income taxes | | | 33 | | | | 37 | |
Current portion of fair value of unfavorable sales contracts | | | 152 | | | | 242 | |
Other current liabilities | | | 216 | | | | 230 | |
| | | | | | | | |
Accrued expenses and other current liabilities | | $ | 516 | | | $ | 704 | |
| | | | | | | | |
F-40
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Debt consists of the following (in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2009 | | | March 31, 2008 | |
| | | | | | | | Unamortized
| | | | | | | | | Unamortized
| | | | |
| | Interest
| | | | | | Fair Value
| | | Carrying
| | | | | | Fair Value
| | | Carrying
| |
| | Rates(A) | | | Principal | | | Adjustments(B) | | | Value | | | Principal | | | Adjustments(B) | | | Value | |
| | | | | | | | Successor | | | | | | | | | Successor | | | | |
|
Long-term debt, net of current portion — third parties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Novelis Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
7.25% Senior Notes, due February 2015 | | | 7.25 | % | | $ | 1,124 | | | $ | 47 | | | $ | 1,171 | | | $ | 1,399 | | | $ | 67 | | | $ | 1,466 | |
Floating rate Term Loan facility, due July 2014 | | | 3.21 | %(C) | | | 295 | | | | — | | | | 295 | | | | 298 | | | | — | | | | 298 | |
Novelis Corporation | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Floating rate Term Loan facility, due July 2014 | | | 3.21 | %(C) | | | 867 | | | | (54 | ) | | | 813 | | | | 655 | | | | — | | | | 655 | |
Novelis Switzerland S.A. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Capital lease obligation, due December 2019 (Swiss francs (CHF) 51 million) | | | 7.50 | % | | | 45 | | | | (3 | ) | | | 42 | | | | 54 | | | | (4 | ) | | | 50 | |
Capital lease obligation, due August 2011 (CHF 3 million) | | | 2.49 | % | | | 2 | | | | — | | | | 2 | | | | 3 | | | | — | | | | 3 | |
Novelis Korea Limited | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bank loan, due October 2010 | | | 5.44 | % | | | 100 | | | | — | | | | 100 | | | | 100 | | | | — | | | | 100 | |
Bank loan, due February 2010 (Korean won (KRW) 50 billion) | | | 3.94 | % | | | 37 | | | | — | | | | 37 | | | | — | | | | — | | | | — | |
Bank loan, due May 2009 (KRW 10 billion) | | | 7.47 | % | | | 7 | | | | — | | | | 7 | | | | — | | | | — | | | | — | |
Bank loans, due September 2010 through June 2011 (KRW 308 million) | | | 3.24 | %(D) | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other debt, due April 2009 through December 2012 | | | 0.61 | %(D) | | | 1 | | | | — | | | | 1 | | | | 2 | | | | — | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total debt — third parties | | | | | | | 2,478 | | | | (10 | ) | | | 2,468 | | | | 2,512 | | | | 63 | | | | 2,575 | |
Less: current portion | | | | | | | (59 | ) | | | 8 | | | | (51 | ) | | | (15 | ) | | | — | | | | (15 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt, net of current portion — third parties: | | | | | | $ | 2,419 | | | $ | (2 | ) | | $ | 2,417 | | | $ | 2,497 | | | $ | 63 | | | $ | 2,560 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt, net of current portion — related party | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Novelis Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unsecured credit facility — related party, due January 2015 | | | 13.00 | % | | $ | 91 | | | $ | — | | | $ | 91 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
(A) | | Interest rates are as of March 31, 2009 and exclude the effects of accretion/amortization of fair value adjustments as a result of the Arrangement. |
|
(B) | | Debt existing at the time of the Arrangement was recorded at fair value. Additional floating rate Term Loan with a face value of $220 million issued in March 2009 was recorded at a fair value of $165 million. See discussion below. |
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | |
(C) | | Excludes the effect of related interest rate swaps and the effect of accretion of fair value. |
|
(D) | | Weighted average interest rate. |
Principal repayment requirements for our total debt over the next five years and thereafter (excluding unamortized fair value adjustments and using rates of exchange as of March 31, 2009 for our debt denominated in foreign currencies) are as follows (in millions).
| | | | |
Year Ending March 31, | | Amount | |
|
2010 | | $ | 59 | |
2011 | | | 116 | |
2012 | | | 16 | |
2013 | | | 16 | |
2014 | | | 15 | |
Thereafter | | | 2,347 | |
| | | | |
Total | | $ | 2,569 | |
| | | | |
7.25% Senior Notes
On February 3, 2005, we issued $1.4 billion aggregate principal amount of senior unsecured debt securities (Senior Notes). The Senior Notes were priced at par, bear interest at 7.25% and mature on February 15, 2015.
As a result of the Arrangement, the Senior Notes were recorded at their fair value of $1.474 billion based on their market price of 105.25% of $1,000 face value per bond as of May 14, 2007. The incremental fair value of $74 million is being amortized over the remaining life of the Senior Notes as an offset to interest expense using the effective interest amortization method.
Under the indenture that governs the Senior Notes, we are subject to certain restrictive covenants applicable to incurring additional debt and providing additional guarantees, paying dividends beyond certain amounts and making other restricted payments, sales and transfers of assets, certain consolidations or mergers, and certain transactions with affiliates.
In March 2009, we recognized a $122 million pre-tax gain on the extinguishment of debt as part of a debt restructuring action. We exchanged Senior Notes with a principal value of $275 million for additional floating rate Term Loan with a face value of $220 million and estimated fair value of $165 million. In accordance withEITF 96-19,Debtor’s Accounting for a Modification or Exchange of Debt Instruments,the exchange was accounted for as a debt extinguishment and issuance of new debt, with the fair value of the Term Loan used to determine the gain on extinguishment. The carrying value of the Senior Notes used in the gain calculation includes $12 million representing the pro rata allocation of the remaining unamortized fair value adjustment that was established in connection with the Arrangement.
Credit Agreements
On July 6, 2007, we entered into new senior secured credit facilities with a syndicate of lenders led by affiliates of UBS and ABN AMRO (Credit Agreements) providing for aggregate borrowings of up to $1.76 billion. The Credit Agreements consist of (1) a $960 million seven-year Term Loan facility (Term Loan facility) and (2) an $800 million five year multi-currency asset-based revolving credit line and letter of credit facility (ABL facility).
Under the ABL facility, interest charged is dependent on the type of loan as follows: (1) any swingline loan or any loan categorized as an ABR borrowing will bear interest at an annual rate equal to the alternate
F-42
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
base rate (which is the greater of (a) the base rate in effect on a given day and (b) the federal funds effective rate in effect on a given day, plus 0.50%) plus the applicable margin; (2) Eurocurrency loans will bear interest at an annual rate equal to the adjusted LIBOR rate for the applicable interest period, plus the applicable margin; (3) loans designated as Canadian base rate borrowings will bear an annual interest rate equal to the Canadian base rate (CAPRIME), plus the applicable margin; (4) loans designated as bankers acceptances (BA) rate loans will bear interest at the average discount rate offered for bankers’ acceptances for the applicable BA interest period, plus the applicable margin and (5) loans designated as Euro Interbank Offered Rate (EURIBOR) loans will bear interest annually at a rate equal to the adjusted EURIBOR rate for the applicable interest period, plus the applicable margin. Applicable margins under the ABL facility depend upon excess availability levels calculated on a quarterly basis.
Generally, for both the Term Loan facility and ABL facility, interest rates reset every three months and interest is payable on a monthly, quarterly, or other periodic basis depending on the type of loan.
The proceeds from the Term Loan facility of $960 million, drawn in full at the time of closing, and an initial draw of $324 million under the ABL facility were used to pay off our old senior secured credit facility, pay for debt issuance costs of the Credit Agreements and provide for additional working capital. Mandatory minimum principal amortization payments under the Term Loan facility are $2.4 million per calendar quarter. Additional mandatory prepayments are required to be made for certain collateral liquidations, asset sales, debt and preferred stock issuances, equity issuances, casualty events and excess cash flow (as defined in the Credit Agreements). Any unpaid principal is due in full on July 6, 2014.
Under the Term Loan facility, loans characterized as alternate base rate (ABR) borrowings bear interest annually at a rate equal to the alternate base rate (which is the greater of (a) the base rate in effect on a given day and (b) the federal funds effective rate in effect on a given day, plus 0.50%) plus the applicable margin. Loans characterized as Eurocurrency borrowings bear interest at an annual rate equal to the adjusted LIBOR rate for the interest period in effect, plus the applicable margin.
Borrowings under the ABL facility are generally based on 85% of eligible accounts receivable and 70% to 75% of eligible inventories. Commitment fees ranging from 0.25% to 0.375% are based on average daily amounts outstanding under the ABL facility during a fiscal quarter and are payable quarterly.
The Credit Agreements include customary affirmative and negative covenants. Under the ABL facility, if our excess availability, as defined under the borrowing, is less than $80 million, we are required to maintain a minimum fixed charge coverage ratio of 1 to 1. As of March 31, 2009, our fixed charge coverage ratio is less than 1 to 1, resulting in a reduction of availability under our ABL facility of $80 million. Substantially all of our assets are pledged as collateral under the Credit Agreements.
As discussed above, in March 2009, we issued an additional Term Loan with a face value of $220 million in exchange for $275 million of Senior Notes. The additional Term Loan was recorded at a fair value of $165 million determined using a discounted cash flow model. The difference between the fair value and the face value of the new Term Loan will be accreted over the life of the Term Loan using the effective interest method, resulting in additional non-cash interest expense.
Interest Rate Swaps
As of March 31, 2009, we had entered into interest rate swaps to fix the variable LIBOR interest rate on $700 million of our floating rate Term Loan facility. We are still obligated to pay any applicable margin, as defined in our Credit Agreements. Interest rate swaps related to $400 million at an effective weighted average interest rate of 4.0% expire March 31, 2010. In January 2009, we entered into two interest rate swaps to fix the variable LIBOR interest rate on an additional $300 million of our floating Term Loan facility at a rate of 1.49%, plus any applicable margin. These interest rate swaps are effective from March 31, 2009 through March 31, 2011.
F-43
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of March 31, 2009 approximately 71% of our debt was fixed rate and approximately 29% was variable-rate.
Unsecured Credit Facility
In February 2009, to assist in maintaining adequate liquidity levels, we entered into an unsecured credit facility of $100 million (the Unsecured Credit Facility) with a scheduled maturity date of January 15, 2015 from an affiliate of the Aditya Birla group. Any advance of the Unsecured Credit Facility is deemed to be a permanent reduction of the loan and any part of the loan which is repaid may not be re-borrowed. For each advance under the credit facility, interest is payable quarterly at a rate of 13% per annum prior to the first anniversary of the advance and 14% per annum thereafter, until the earlier of repayment or maturity.
Under the Unsecured Credit Facility, we are subject to certain negative covenants applicable to the restriction of prepayments of other indebtedness and to certain modification of our Credit Agreements and 7.25% Senior Notes.
As of March 31, 2009, we have drawn down $91 million of this facility.
Short-Term Borrowings and Lines of Credit
As of March 31, 2009, our short-term borrowings were $264 million consisting of (1) $231 million of short-term loans under our ABL facility, (2) a $9 million short-term loan in Italy, (3) a $22 million short-term loan in Korea and (4) $2 million in bank overdrafts. As of March 31, 2009, $42 million of our ABL facility was utilized for letters of credit and we had $233 million in remaining availability under this revolving credit facility before the covenant related restriction discussed above.
As of March 31, 2009, we had an additional $92 million outstanding under letters of credit in Korea not included in our revolving credit facility. The weighted average interest rate on our total short-term borrowings was 2.75% and 4.12% as of March 31, 2009 and 2008, respectively.
Korean Bank Loans
In December 2004, we entered into (1) a $70 million floating rate loan and (2) a KRW 25 billion ($25 million) floating rate loan, both due in December 2007. We immediately entered into an interest rate and cross currency swap on the $70 million floating rate loan through a 4.55% fixed rate KRW 73 billion ($73 million) loan and an interest rate swap on the KRW 25 billion floating rate loan to fix the interest rate at 4.45%. In October 2007, we entered into a $100 million floating rate loan due October 2010 and immediately repaid the $70 million loan. In December 2007, we repaid the KRW 25 billion loan from the proceeds of the $100 million floating rate loan. Additionally, we immediately entered into an interest rate swap and cross currency swap for the $100 million floating rate loan through a 5.44% fixed rate KRW 92 billion ($92 million) loan.
In November 2008, we entered into a 7.47% interest rate KRW 10 billion ($7 million) bank loan due May 2009. In February 2009, we entered into a 3.94% interest rate KRW 50 billion ($37 million) bank loan due February 2010.
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 $1.5 million at the exchange rate as of March 31, 2009.
F-44
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In September 2005, we entered into a six-year capital lease obligation for equipment in Switzerland which has an interest rate of 2.49% and fixed monthly payments of CHF 0.1 million, which is equivalent to $0.1 million at the exchange rate as of March 31, 2009.
| |
13. | SHARE-BASED COMPENSATION |
Share-Based Compensation Expense
Total share-based compensation expense for active and inactive plans for the respective periods, including amounts related to the cumulative effect of an accounting change (exclusive of income taxes) from adopting FASB Statement No. 123(R) on January 1, 2006, is presented in the table below (in millions). These amounts are included in Selling, general and administrative expenses in our consolidated statements of operations. For the year ended March 31, 2009, total compensation expense related to share-based awards was less than $1 million, and therefore are not included in the table.
| | | | | | | | | | | | | | | | | |
| | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | Year Ended
| |
| | Through
| | | | Through
| | | Ended
| | | December 31,
| |
| | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | 2006 | |
| | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Active Plans(A): | | | | | | | | | | | | | | | | | |
Recognition Awards(B) | | $ | 2.3 | | | | $ | 1.5 | | | $ | 0.5 | | | $ | 0.5 | |
| | | | | | | | | | | | | | | | | |
Inactive Plans: | | | | | | | | | | | | | | | | | |
Novelis 2006 Incentive Plan (stock options) | | | n.a. | | | | | 14.5 | | | | 0.9 | | | | 0.7 | |
Novelis 2006 Incentive Plan (stock appreciation rights) | | | n.a. | | | | | 5.6 | | | | 1.4 | | | | 0.4 | |
Novelis Conversion Plan of 2005 | | | n.a. | | | | | 23.8 | | | | 0.3 | | | | 7.3 | |
Stock Price Appreciation Unit Plan | | | n.a. | | | | | (0.5 | ) | | | 4.4 | | | | 4.5 | |
Deferred Share Unit Plan for Non-Executive Directors | | | n.a. | | | | | 0.2 | | | | 2.2 | | | | 1.8 | |
Novelis Founders Performance Awards | | | n.a. | | | | | 0.1 | | | | 6.0 | | | | 2.7 | |
Total Shareholder Returns Performance Plan | | | n.a. | | | | | — | | | | — | | | | 0.2 | |
| | | | | | | | | | | | | | | | | |
Inactive Plants — Total Share-Based Compensation Expense | | | n.a. | | | | $ | 43.7 | | | $ | 15.2 | | | $ | 17.6 | |
| | | | | | | | | | | | | | | | | |
| | |
(A) | | In June 2008, our board of directors authorized the 2009 Novelis Long-Term Incentive Plan. As of March 31, 2009, only the 2009 Novelis Long-term Incentive Plan remained active; however, there was no share-based compensation expense related to this plan in any period reflected in the table above or for the year ended March 31, 2009. |
|
(B) | | One-half of the outstanding Recognition Awards vested on December 31, 2007. The remaining outstanding Recognition Awards vested on December 31, 2008. As of March 31, 2009, the Recognition Awards were inactive. |
n.a. Not applicable as plan was cancelled as a result of the Arrangement
Effect of Acquisition by Hindalco
As a result of the Arrangement, all of our share-based compensation awards (except for our Recognition Awards) were accelerated to vest, cancelled and settled in cash using the $44.93 purchase price per common share paid by Hindalco in the transaction. We made aggregate cash payments (including applicable payroll-
F-45
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
related taxes) totaling $72 million to plan participants following consummation of the Arrangement, as follows:
| | | | | | | | |
| | Shares/Units
| | | Cash Payments
| |
| | Settled | | | (In millions) | |
|
Novelis 2006 Incentive Plan (stock options) | | | 825,850 | | | $ | 16 | |
Novelis 2006 Incentive Plan (stock appreciation rights) | | | 378,360 | | | | 7 | |
Novelis Conversion Plan of 2005 | | | 1,238,183 | | | | 29 | |
Stock Price Appreciation Unit Plan | | | 299,873 | | | | 7 | |
Deferred Share Unit Plan for Non-Executive Directors | | | 109,911 | | | | 5 | |
Novelis Founders Performance Awards | | | 180,400 | | | | 8 | |
| | | | | | | | |
| | | | | | $ | 72 | |
| | | | | | | | |
Compensation expense resulting from the accelerated vesting of plan awards, totaling $45 million is included in Selling, general and administrative expenses in our consolidated statement of operations for the period from April 1, 2007 through May 15, 2007. We also recorded a $7 million reduction to Additional paid-in capital during the period from April 1, 2007 through May 15, 2007 for the conversion of certain of our share-based compensation plans from equity-based to liability-based plans.
2009 Novelis Long-Term Incentive Plan
In June 2008, our board of directors authorized the Novelis Long-Term Incentive Plan FY 2009 — FY 2012 (2009 LTIP) covering the performance period from April 1, 2008 through March 31, 2012. Under the 2009 LTIP, stock appreciation rights (SARs) are to be granted to certain of our executive officers and key employees. The SARs will vest at the rate of 25% per year (every June 19th) subject to performance criteria (see below), and expire seven years from the date the plan was authorized by the board. Each SAR is to be settled in cash based on the difference between the market value of one Hindalco share on the date of grant compared to the date of exercise, converted from Indian rupees to the participant’s payroll currency at the time of exercise. The amount of cash paid would be limited to (i) 2.5 times the target payout if exercised within one year of vesting or (ii) 3 times the target payout if exercised after one year of vesting. The SARs do not transfer any shareholder rights in Hindalco to a participant. SARs that do not vest as a result of failure to achieve a performance criterion will be cancelled. Generally, all vested SARs expire 90 days after termination of employment, except (1) in the case of death or disability, when any unvested SARs will vest immediately and expire within one year and (2) in the case of retirement, when, if retirement occurs more than one year from the grant date, the SARs would continue to vest and expire three years following retirement. All awards vest upon a change in control of the Company (as defined in the 2009 LTIP).
The performance criterion for vesting is based on the actual overall Novelis Operating Earnings before Interest, Depreciation, Amortization and Taxes (Operating EBITDA, as defined in the 2009 LTIP) compared to the target Operating EBITDA established and approved each fiscal year. The minimum threshold for vesting each year is 75% of each annual target Operating EBITDA, at which point 75% of the SARs for that period would vest, with an equal pro rata amount of SARs vesting through 100% achievement of the target. This performance condition has no impact on the fair value of the SARs.
In October 2008, our board of directors approved an amendment to the 2009 LTIP. The design elements of the amended 2009 LTIP are largely unchanged from the original 2009 LTIP. However, the amended 2009 LTIP now specifies that (a) the plan shall be administered by the Compensation Committee of the Board of Directors, (b) all payments shall be made in cash upon exercise (less applicable withholdings), and (c) the Compensation Committee has the authority to make adjustments in the number and price of SARs covered by the plan in order to prevent dilution or enlargement of the rights of employees that would otherwise result
F-46
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
from a change in the capital structure of the Company (e.g., dividends, stock splits, rights issuances, reorganizations, liquidation of assets, etc.).
In November 2008, grants totaling 21,534,619 SARs at an exercise price of 60.50 Indian Rupees ($1.23 at the December 31, 2008 exchange rate) per SAR were made to our executive officers and key employees. For the year ended March 31, 2009, there were 1,168,426 SARs forfeited.
At March 31, 2009, for outstanding SARs, the average remaining contractual term is 6.22 years and the aggregate intrinsic value is zero as the market value of a share of Hindalco stock was less than the SAR exercise price. No SARs were exercisable at March 31, 2009.
The fair value of each SAR is based on the difference between the fair value of a long call and a short call option. The fair value of each of these call options was determined using the Black-Scholes valuation method. We used historical stock price volatility data of Hindalco on the Bombay Stock Exchange to determine expected volatility assumptions. The annual expected dividend yield is based on Hindalco dividend payments of $0.04 (1.85 Indian Rupees) per year. Risk-free interest rates are based on treasury yields in India, consistent with the expected remaining lives of the SARs. Because we do not have a sufficient history of SAR exercise or cancellation, we estimated the expected remaining life of the SARs based on an extension of the “simplified method” as prescribed by Staff Accounting Bulletin No. 107,Share-Based Payment(SAB 107).
The fair value of each SAR under the 2009 LTIP was estimated as of March 31, 2009 using the following assumptions:
| | |
Expected volatility | | 47.60 - 54.49% |
Weighted average volatility | | 50.87% |
Dividend yield | | 3.55% |
Risk-free interest rate | | 6.21 - 6.72% |
Expected life | | 3.22 - 4.72 years |
The fair value of the SARs is being recognized over the requisite performance and service period of each tranche, subject to the achievement of any performance criterion. No compensation expense for this performance period has been recorded in the year ended March 31, 2009 as annual performance criterion were not met. Additionally, since the performance criteria for the fiscal years 2010 to 2012 have not yet been established and therefore, no measurement periods have commenced, no expense has been recorded for those tranches in the year ended March 31, 2009.
Unrecognized compensation expense related to the non-vested SARs (assuming all future performance criteria are met except for the 2009 performance period) of $3 million is expected to be realized over a weighted average period of 4.2 years.
Recognition Awards
In September 2006, we entered into Recognition Agreements and granted Recognition Awards to certain executive officers and other key employees (Executives) to retain and reward them for continued dedication towards corporate objectives. Under the terms of these agreements, Executives who remained continuously employed by us through the vesting dates of December 31, 2007 and December 31, 2008 were entitled to receive one-half of their total Recognition Awards on each vesting date. The number of Recognition Awards payable under the agreements varied by Executive. As a result of the Arrangement, the Recognition Awards changed from an equity-based to a liability-based plan using the $44.93 per common share transaction price as the per share value. This change resulted in additional share-based compensation expense of $1.3 million during the period from April 1, 2007 through May 15, 2007.
F-47
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
One-half of the outstanding Recognition Awards vested on December 31, 2007, and were settled for approximately $3 million in cash in January 2008. The remaining outstanding Recognition Awards vested on December 31, 2008, and were settled for approximately $2 million in cash in January 2009.
Inactive Plans
As previously mentioned, as a result of the Arrangement, all of our share-based compensation awards (except for our Recognition Awards) were accelerated to vest, cancelled and settled in cash using the $44.93 purchase price per common share paid by Hindalco in the transaction. The following tables summarizes the activity and assumptions used to estimate fair value of the cancelled plans.
Novelis 2006 Incentive Plan
In October 2006, our shareholders approved the Novelis 2006 Incentive Plan (2006 Incentive Plan) to effectively replace the Novelis Conversion Plan of 2005 and Stock Price Appreciation Unit Plan (both described below). Under the 2006 Incentive Plan, up to an aggregate number of 7,000,000 shares of Novelis common stock were authorized to be issued in the form of stock options, stock appreciation rights (SARs), restricted shares, restricted share units, performance shares and other share-based incentives.
2006 Stock Options
In October 2006, our board of directors authorized a grant of an aggregate of 885,170 seven-year non-qualified stock options under the 2006 Incentive Plan at an exercise price of $25.53 to certain of our executive officers and key employees.
Prior to the Arrangement, the fair value of our premium and non-premium options was estimated using the following assumptions for the year ended December 31, 2006, the three months ended March 31, 2007 and the period from April 1, 2007 through May 15, 2007(Predecessor):
| | |
Expected volatility | | 42.20 to 46.40% |
Weighted average volatility | | 44.30% |
Dividend yield | | 0.16% |
Risk-free interest rate | | 4.68 to 4.71% |
Expected life | | 1.00 to 4.75 years |
As a result of the Arrangement, 825,850 premium and non-premium options under the 2006 Incentive Plan were accelerated to vest and were settled in cash for approximately $16 million.
Stock Appreciation Rights
In October 2006, our board of directors authorized a grant of 381,090 Stock Appreciation Rights (SARs) under the 2006 Incentive Plan at an exercise price of $25.53 to certain of our executive officers and key employees.
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair value of premium and non-premium SARs under the 2006 Incentive Plan was estimated using the following assumptions:
| | | | |
| | Three Months Ended
| | Year Ended
|
| | March 31, 2007 | | December 31, 2006 |
| | Predecessor | | Predecessor |
|
Expected volatility | | 40.70 to 44.70% | | 40.80 to 45.40% |
Weighted average volatility | | 42.70% | | 43.10% |
Dividend yield | | None | | 0.14% |
Risk-free interest rate | | 4.51 to 4.59% | | 4.67 to 4.71% |
Expected life | | 0.57 to 4.32 years | | 0.83 to 4.57 years |
As a result of the Arrangement, 378,360 premium and non-premium SARs were accelerated to vest and were settled in cash for approximately $7 million.
Novelis Conversion Plan of 2005
In January 2005, our board of directors adopted the Novelis Conversion Plan of 2005 (the Conversion Plan) to allow for 1,372,663 Alcan stock options held by employees of Alcan who became our employees following our spin-off from Alcan to be replaced with options to purchase 2,723,914 of our common shares.
The fair value of each option was estimated using the following assumptions for the year ended December 31, 2006, the three months ended March 31, 2007 and the period from April 1 through May 15, 2007:
| | |
Expected volatility | | 30.30% |
Weighted-average volatility | | 30.30% |
Dividend yield | | 1.56% |
Risk-free interest rate | | 2.88 to 3.73% |
Expected life | | 0.70 to 5.70 years |
As a result of the Arrangement, 563,651 options were accelerated to vest with a total fair value of approximately $4 million and a total of 1,238,183 options were settled in cash using the $44.93 purchase price per common share paid by Hindalco in the transaction for approximately $29 million.
Stock Price Appreciation Unit Plan
Prior to the spin-off, some Alcan employees who later transferred to Novelis held Alcan stock price appreciation units (SPAUs). These units entitled them to receive cash equal to the excess of the market value of an Alcan common share on the exercise date of a SPAU over the market value of an Alcan common share on its grant date.
The fair value of each SPAU was estimated using the following assumptions:
| | | | |
| | Three Months Ended
| | Year Ended
|
| | March 31, 2007 | | December 31, 2006 |
| | Predecessor | | Predecessor |
|
Expected volatility | | 38.20 to 40.80% | | 36.20 to 40.30% |
Weighted average volatility | | 39.31% | | 39.32% |
Dividend yield | | None | | 0.14% |
Risk-free interest rate | | 4.51 to 4.56% | | 4.67 to 4.80% |
Expected life | | 2.25 to 4.37 years | | 2.37 to 4.37 years |
F-49
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As a result of the Arrangement, 201,495 SPAUs were accelerated to vest and 299,873 SPAUs were settled in cash using the $44.93 per common share purchase price paid by Hindalco in the transaction for approximately $7 million.
Deferred Share Unit Plan for Non-Executive Directors
In January 2005, Novelis established the Deferred Share Unit Plan for Non-Executive Directors under which non-executive directors would receive 50% of their compensation payable in the form of directors’ deferred share units (DDSUs) and the other 50% in the form of either cash, additional DDSUs or a combination of these two (at the election of each non-executive director).
As a result of the Arrangement, 109,911 DDSUs were settled in cash using the $44.93 purchase price per common share paid by Hindalco in the transaction for approximately $5 million.
Novelis Founders Performance Awards
In March 2005 (as amended and restated in March 2006 and February 2007), Novelis established a plan to reward certain key executives with Performance Share Units (PSUs) if Novelis common share price improvement targets were achieved within specific time periods. There were three equal tranches of PSUs, and each had a specific share price improvement target.
The share price improvement targets for the first tranche were achieved and 180,350 Performance Share Units (PSUs) were awarded on June 20, 2005. For the year ended December 31, 2005, 1,650 PSUs were forfeited and 178,700 remained outstanding. In March 2006, 46,850 PSUs were forfeited and 131,850 PSUs were ultimately paid out. The liability for the first tranche was accrued over its term, was valued on March 24, 2006, and was paid in April 2006 in the aggregate amount of approximately $3 million.
The fair value of each PSUs was estimated using the following assumptions:
| | |
| | Year Ended
|
| | December 31, 2006 |
| | Predecessor |
|
Expected volatility | | 37.00% |
Weighted average volatility | | 37.00% |
Dividend yield | | 0.14% |
Risk-free interest rate | | 4.75% |
Expected life (derived service periods) | | 0.93 to 1.23 years |
As a result of the Arrangement, the second and third tranches (represented by 94,450 and 85,950 PSUs, respectively) were settled in cash using the $44.93 purchase price per common share paid by Hindalco in the transaction for approximately $8 million.
Total Shareholder Returns Performance Plan
Some Alcan employees who transferred to Novelis were entitled to receive cash awards under the Alcan Total Shareholder Returns Performance Plan (TSR). In January 2005, the accrued awards for all of the TSR participants were converted into 452,667 Novelis restricted share units (RSUs). In October 2005, an aggregate of $7 million was paid to employees who held RSUs that had vested on September 30, 2005. In October 2006, 120,949 RSUs and related dividends outstanding were paid to employees in the aggregate amount of $3 million.
F-50
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
14. | POSTRETIREMENT BENEFIT PLANS |
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 (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.
Some of our employees participated in defined benefit plans that were previously managed by Alcan in the U.S., Canada, the U.K. and Switzerland. These benefits are generally based on the employee’s years of service and the highest average eligible compensation before retirement.
For the period January 1, 2006 through March 31, 2009, the following occurred related to existing Alcan pension plans covering our employees:
a) In the U.K., former Alcan employees who participated in the British Alcan RILA Plan in 2005 began participating in the Novelis U.K. pension plan effective January 1, 2006. Of the approximate 575 Novelis employees who had participated in the British Alcan RILA plan, 208 employees elected to transfer their past service to the Novelis U.K. pension plan. Novelis made a payment of $7 million to the British Alcan RILA plan in November 2006 to pay the statutory withdrawal liability. In October 2007, we completed the transfer of U.K. plan assets and liabilities from Alcan to Novelis. Plan liabilities assumed exceeded plan assets received by $4 million. We made an additional contribution of approximately $2 million to the plan in February 2008.
b) In Canada, former Alcan employees who participated in the Alcan Pension Plan (Canada) began participating in the NPP (Canada) effective January 1, 2005. Of the approximate 680 employees who had participated in the Alcan plan, 420 employees elected to transfer their past service to the Novelis Plan. During the first quarter of fiscal 2009, we completed the transfer of plan assets and liabilities from Alcan to Novelis. Plan assets received exceeded plan liabilities assumed by $1 million. We recorded the $1 million difference between transferred plan assets and liabilities as an adjustment to Goodwill.
c) In the U.S., former non-union Alcan employees who participated in the Alcancorp Pension Plan had their pension liabilities transferred to the Novelis Pension Plan effective January 1, 2006. Plan liabilities exceeded plan assets received by $22 million on the transfer date.
d) In Switzerland, we have been a participating employer in the Alcan Swiss Pension Plan since January 1, 2005. Our employees are participating in this plan indefinitely (subject to Alcan approval and provided we make the required pension contributions). Effective May 16, 2007, we changed our treatment of our participation in the Alcan Swiss Pension Plan from a multi-employer plan to a single-employer plan; thus, Novelis’ share of plan assets, liabilities, contributions and expenses are included in this note.
F-51
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Employer Contributions to Plans
For pension plans, our policy is to fund an amount required to provide for contractual benefits attributed to service to date, and amortize unfunded actuarial liabilities typically over periods of 15 years or less. We also participate in savings plans in Canada and the U.S., as well as defined contribution pension plans in the U.S., U.K., Canada, Germany, Italy, Switzerland, Malaysia and Brazil. We contributed the following amounts to all plans, including the Alcan plans that cover our employees (in millions).
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
| | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | Year Ended
| |
| | March 31,
| | | Through
| | | | Through
| | | Ended
| | | December 31,
| |
| | 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Funded pension plans | | $ | 29 | | | $ | 35 | | | | $ | 4 | | | $ | 10 | | | $ | 39 | |
Unfunded pension plans | | | 16 | | | | 19 | | | | | 2 | | | | 6 | | | | 22 | |
Savings and defined contribution pension plans | | | 16 | | | | 13 | | | | | 2 | | | | 3 | | | | 12 | |
| | | | | | | | | | | | | | | | | | | | | |
Total contributions | | $ | 61 | | | $ | 67 | | | | $ | 8 | | | $ | 19 | | | $ | 73 | |
| | | | | | | | | | | | | | | | | | | | | |
During fiscal year 2010, we expect to contribute $52 million to our funded pension plans, $14 million to our unfunded pension plans and $16 million to our savings and defined contribution plans.
Investment Policy and Asset Allocation
Each of our funded pension plans is governed by an Investment Fiduciary, who establishes an investment policy appropriate for the pension plan. The Investment Fiduciary is responsible for selecting the asset allocation for each plan, monitoring investment managers, monitoring returns versus benchmarks and monitoring compliance with the investment policy. The targeted allocation ranges by asset class, and the actual allocation percentages for each class are listed in the table below.
| | | | | | | | | | | | |
| | | | | Allocation in
| |
| | | | | Aggregate as of
| |
| | Target
| | | March 31, | |
Asset Category | | Allocation Ranges | | | 2009 | | | 2008 | |
| | | | | Successor | | | Successor | |
|
Equity securities | | | 35 - 70 | % | | | 46 | % | | | 50 | % |
Debt securities | | | 25 - 60 | % | | | 46 | % | | | 42 | % |
Real estate | | | 0 - 25 | % | | | 4 | % | | | 4 | % |
Other | | | 0 - 15 | % | | | 4 | % | | | 3 | % |
F-52
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Benefit Obligations, Fair Value of Plan Assets, Funded Status and Amounts Recognized in Financial Statements
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 effective May 16, 2007. 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 | |
| | | | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | Year Ended
| |
| | Year Ended
| | | Through
| | | | Through
| | | Ended
| | | December 31,
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Change in benefit obligation | | | | | | | | | | | | | | | | | | | | | |
Benefit obligation at beginning of period | | $ | 991 | | | $ | 867 | | | | $ | 885 | | | $ | 877 | | | $ | 575 | |
Service cost | | | 38 | | | | 40 | | | | | 6 | | | | 12 | | | | 42 | |
Interest cost | | | 57 | | | | 43 | | | | | 6 | | | | 12 | | | | 44 | |
Members’ contributions | | | 9 | | | | 5 | | | | | — | | | | 1 | | | | 4 | |
Benefits paid | | | (39 | ) | | | (39 | ) | | | | (4 | ) | | | (10 | ) | | | (30 | ) |
Amendments | | | — | | | | (9 | ) | | | | — | | | | — | | | | 1 | |
Transfers/mergers | | | 48 | | | | 95 | | | | | — | | | | — | | | | 209 | |
Curtailments/ termination benefits | | | (2 | ) | | | — | | | | | — | | | | — | | | | (5 | ) |
Actuarial (gains) losses | | | (33 | ) | | | (52 | ) | | | | (32 | ) | | | (9 | ) | | | (10 | ) |
Currency (gains) losses | | | (124 | ) | | | 41 | | | | | 6 | | | | 2 | | | | 47 | |
| | | | | | | | | | | | | | | | | | | | | |
Benefit obligation at end of period | | $ | 945 | | | $ | 991 | | | | $ | 867 | | | $ | 885 | | | $ | 877 | |
| | | | | | | | | | | | | | | | | | | | | |
Benefit obligation of funded plans | | $ | 787 | | | $ | 800 | | | | $ | 680 | | | $ | 696 | | | $ | 690 | |
Benefit obligation of unfunded plans | | | 158 | | | | 191 | | | | | 187 | | | | 189 | | | | 187 | |
| | | | | | | | | | | | | | | | | | | | | |
Benefit obligation at end of period | | $ | 945 | | | $ | 991 | | | | $ | 867 | | | $ | 885 | | | $ | 877 | |
| | | | | | | | | | | | | | | | | | | | | |
F-53
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | |
| | Other Benefits | |
| | | | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | | |
| | Year Ended
| | | Through
| | | | Through
| | | Ended
| | | Year Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | December 31, 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Benefit obligation at beginning of period | | $ | 171 | | | $ | 140 | | | | $ | 141 | | | $ | 139 | | | $ | 122 | |
Service cost | | | 7 | | | | 4 | | | | | 1 | | | | 2 | | | | 5 | |
Interest cost | | | 10 | | | | 7 | | | | | 1 | | | | 2 | | | | 7 | |
Benefits paid | | | (7 | ) | | | (6 | ) | | | | (1 | ) | | | (2 | ) | | | (8 | ) |
Transfers/mergers | | | — | | | | — | | | | | (1 | ) | | | — | | | | 1 | |
Curtailments/termination benefits | | | (3 | ) | | | — | | | | | — | | | | — | | | | — | |
Actuarial (gains) losses | | | (14 | ) | | | 25 | | | | | (2 | ) | | | — | | | | 12 | |
Currency (gains) losses | | | (2 | ) | | | 1 | | | | | 1 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
Benefit obligation at end of period | | $ | 162 | | | $ | 171 | | | | | 140 | | | $ | 141 | | | $ | 139 | |
| | | | | | | | | | | | | | | | | | | | | |
Benefit obligation of funded plans | | $ | — | | | $ | — | | | | $ | — | | | $ | — | | | $ | — | |
Benefit obligation of unfunded plans | | | 162 | | | | 171 | | | | | 140 | | | | 141 | | | | 139 | |
| | | | | | | | | | | | | | | | | | | | | |
Benefit obligation at end of period | | $ | 162 | | | $ | 171 | | | | $ | 140 | | | $ | 141 | | | $ | 139
| |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | |
| | | | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | | |
| | Year Ended
| | | Through
| | | | Through
| | | Ended
| | | Year Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | December 31, 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Change in fair value of plan assets | | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at beginning of period | | $ | 724 | | | $ | 607 | | | | $ | 578 | | | $ | 568 | | | $ | 301 | |
Actual return on plan assets | | | (102 | ) | | | (14 | ) | | | | 16 | | | | 6 | | | | 41 | |
Members’ contributions | | | 9 | | | | 5 | | | | | — | | | | 1 | | | | 4 | |
Benefits paid | | | (39 | ) | | | (39 | ) | | | | (2 | ) | | | (5 | ) | | | (30 | ) |
Company contributions | | | 45 | | | | 54 | | | | | 12 | | | | 3 | | | | 51 | |
Transfers/mergers | | | 49 | | | | 94 | | | | | — | | | | 4 | | | | 178 | |
Currency gains (losses) | | | (88 | ) | | | 17 | | | | | 3 | | | | 1 | | | | 23 | |
| | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at end of period | | $ | 598 | | | $ | 724 | | | | $ | 607 | | | $ | 578 | | | $ | 568 | |
| | | | | | | | | | | | | | | | | | | | | |
F-54
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | |
| | March 31, | |
| | 2009 | | | | 2008 | |
| | Pension
| | | Other
| | | | Pension
| | | Other
| |
| | Benefits | | | Benefits | | | | Benefits | | | Benefits | |
| | Successor | | | | Successor | |
|
Funded status | | | | | | | | | | | | | | | | | |
Funded Status at end of period: | | | | | | | | | | | | | | | | | |
Assets less the benefit obligation of funded plans | | $ | (189 | ) | | $ | — | | | | $ | (76 | ) | | $ | — | |
Benefit obligation of unfunded plans | | | (158 | ) | | | (162 | ) | | | | (191 | ) | | | (171 | ) |
| | | | | | | | | | | | | | | | | |
| | $ | (347 | ) | | $ | (162 | ) | | | $ | (267 | ) | | $ | (171 | ) |
| | | | | | | | | | | | | | | | | |
As included on consolidated balance sheet | | | | | | | | | | | | | | | | | |
Other long-term assets — third parties | | $ | — | | | $ | — | | | | $ | 7 | | | $ | — | |
Accrued expenses and other current liabilities | | | (12 | ) | | | (7 | ) | | | | (16 | ) | | | (8 | ) |
Accrued postretirement benefits | | | (335 | ) | | | (155 | ) | | | | (258 | ) | | | (163 | ) |
| | | | | | | | | | | | | | | | | |
| | $ | (347 | ) | | $ | (162 | ) | | | $ | (267 | ) | | $ | (171 | ) |
| | | | | | | | | | | | | | | | | |
The postretirement amounts recognized in Accumulated other comprehensive income (loss), before tax effects, are presented in the table below (in millions).
| | | | | | | | | | | | | | | | | |
| | March 31, | |
| | 2009 | | | | 2008 | |
| | Pension
| | | Other
| | | | Pension
| | | Other
| |
| | Benefits | | | Benefits | | | | Benefits | | | Benefits | |
| | Successor | | | | Successor | |
|
Net actuarial loss | | $ | 118 | | | $ | 9 | | | | $ | 2 | | | $ | 25 | |
Prior service cost (credit) | | | (7 | ) | | | — | | | | | (10 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
Total postretirement amounts recognized in Accumulated other comprehensive loss (income) | | $ | 111 | | | $ | 9 | | | | $ | (8 | ) | | $ | 25 | |
| | | | | | | | | | | | | | | | | |
The estimated amounts that will be amortized from Accumulated other comprehensive income (loss) into net periodic benefit cost in fiscal 2010 are $10 million for pension benefits and $1 million for other postretirement benefits, primarily related to net actuarial loss.
Accumulated Benefit Obligation in Excess of Plan Assets
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, 2009 and 2008 are presented in the table below (in millions).
| | | | | | | | | |
| | March 31, | |
| | 2009 | | | | 2008 | |
| | Successor | | | | Successor | |
|
Projected benefit obligation | | $ | 887 | | | | $ | 528 | |
Accumulated benefit obligation | | $ | 784 | | | | $ | 496 | |
Fair value of plan assets | | $ | 549 | | | | $ | 302 | |
F-55
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 | |
|
2010 | | $ | 35 | | | $ | 7 | |
2011 | | | 36 | | | | 8 | |
2012 | | | 40 | | | | 9 | |
2013 | | | 44 | | | | 10 | |
2014 | | | 49 | | | | 11 | |
2015 through 2019 | | | 301 | | | | 69 | |
| | | | | | | | |
Total | | $ | 505 | | | $ | 114 | |
| | | | | | | | |
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
| | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | Year Ended
| |
| | March 31,
| | | Through
| | | | Through
| | | Ended
| | | December 31,
| |
Pension Benefits | | 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Net periodic benefit cost | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 38 | | | $ | 40 | | | | $ | 6 | | | $ | 12 | | | $ | 42 | |
Interest cost | | | 57 | | | | 43 | | | | | 6 | | | | 12 | | | | 44 | |
Expected return on assets | | | (50 | ) | | | (41 | ) | | | | (5 | ) | | | (11 | ) | | | (38 | ) |
Amortization | | | | | | | | | | | | | | | | | | | | | |
— actuarial losses | | | — | | | | — | | | | | — | | | | 1 | | | | 6 | |
— prior service cost | | | (1 | ) | | | — | | | | | — | | | | — | | | | 2 | |
Curtailment/settlement losses | | | (1 | ) | | | — | | | | | — | | | | — | | | | (4 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Net periodic benefit cost | | | 43 | | | | 42 | | | | | 7 | | | | 14 | | | | 52 | |
Proportionate share of non-consolidated affiliates’ deferred pension costs, net of tax | | | 4 | | | | 4 | | | | | — | | | | — | | | | 4 | |
| | | | | | | | | | | | | | | | | | | | | |
Total net periodic benefit costs recognized | | $ | 47 | | | $ | 46 | | | | $ | 7 | | | $ | 14 | | | $ | 56 | |
| | | | | | | | | | | | | | | | | | | | | |
F-56
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
| | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | Year Ended
| |
| | March 31,
| | | Through
| | | | Through
| | | Ended
| | | December 31,
| |
Other Benefits | | 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Net periodic benefit cost | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 7 | | | $ | 4 | | | | $ | 1 | | | $ | 1 | | | $ | 5 | |
Interest cost | | | 10 | | | | 7 | | | | | 1 | | | | 2 | | | | 7 | |
Amortization | | | | | | | | | | | | | | | | | | | | | |
— actuarial losses | | | 2 | | | | — | | | | | — | | | | 1 | | | | 1 | |
Curtailment/termination benefits | | | (3 | ) | | | — | | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
Total net periodic benefit costs recognized | | $ | 16 | | | $ | 11 | | | | $ | 2 | | | $ | 4 | | | $ | 13 | |
| | | | | | | | | | | | | | | | | | | | | |
The expected long-term rate of return on plan assets is 6.7% in fiscal 2010.
Actuarial Assumptions and Sensitivity Analysis
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
| | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | Year Ended
| |
| | March 31,
| | | Through
| | | | Through
| | | Ended
| | | December 31,
| |
Pension Benefits | | 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Weighted average assumptions used to determine benefit obligations | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 6.0 | % | | | 5.8 | % | | | | 5.4 | % | | | 5.3 | % | | | 5.4 | % |
Average compensation growth | | | 3.6 | % | | | 3.4 | % | | | | 3.8 | % | | | 3.8 | % | | | 3.8 | % |
Weighted average assumptions used to determine net periodic benefit cost | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 5.9 | % | | | 5.2 | % | | | | 5.4 | % | | | 5.4 | % | | | 5.1 | % |
Average compensation growth | | | 3.6 | % | | | 3.7 | % | | | | 3.8 | % | | | 3.8 | % | | | 3.9 | % |
Expected return on plan assets | | | 6.9 | % | | | 7.3 | % | | | | 7.5 | % | | | 7.5 | % | | | 7.3 | % |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
| | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | Year Ended
| |
| | March 31,
| | | Through
| | | | Through
| | | Ended
| | | December 31,
| |
Other Benefits | | 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Weighted average assumptions used to determine benefit obligations | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 6.2 | % | | | 6.1 | % | | | | 5.8 | % | | | 5.7 | % | | | 5.7 | % |
Average compensation growth | | | 3.9 | % | | | 3.9 | % | | | | 3.9 | % | | | 3.9 | % | | | 3.9 | % |
Weighted average assumptions used to determine net periodic benefit cost | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 6.1 | % | | | 5.7 | % | | | | 5.7 | % | | | 5.7 | % | | | 5.7 | % |
Average compensation growth | | | 3.9 | % | | | 3.9 | % | | | | 3.9 | % | | | 3.9 | % | | | 3.9 | % |
F-57
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
We provide unfunded healthcare and life insurance benefits to our retired employees in Canada, the U.S. and Brazil, for which we paid $7 million for the year ended March 31, 2009, $6 million for the period from May 16, 2007 through March 31, 2008, $1 million for the period from April 1, 2007 through May 15, 2007, $2 million for the three months ended March 31, 2007 and $8 million for the year ended December 31, 2006. The assumed healthcare cost trend used for measurement purposes is 7.5% for fiscal 2010, decreasing gradually to 5% in 2014 and remaining at that level thereafter.
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 | | $ | 14 | | | $ | (12 | ) |
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 with FASB Statement No. 112,Employers’ Accounting for Postemployment Benefits. Other long-term liabilities on our consolidated balance sheets includes $20 million and $23 million as of March 31, 2009 and 2008, respectively, for these benefits.
F-58
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
15. | CURRENCY LOSSES (GAINS) |
The following currency losses (gains) are included in the accompanying consolidated statements of operations (in millions).
| | | | | | | | | | | | | | | | | | | | | |
| | | | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | | |
| | Year Ended
| | | Through
| | | | Through
| | | Ended
| | | Year Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | December 31, 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Net (gain) loss on change in fair value of currency derivative instruments(A) | | $ | (21 | ) | | $ | 44 | | | | $ | (10 | ) | | $ | (5 | ) | | $ | 24 | |
Net (gain) loss on remeasurement of monetary assets and liabilities(B) | | | 98 | | | | (2 | ) | | | | 4 | | | | 6 | | | | (8 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Net currency (gain) loss | | $ | 77 | | | $ | 42 | | | | $ | (6 | ) | | $ | 1 | | | $ | 16 | |
| | | | | | | | | | | | | | | | | | | | | |
| | |
(A) | | Included in(Gain) loss on change in fair value of derivative instruments, net. |
|
(B) | | Included inOther (income) expenses, net. |
The following currency gains (losses) are included in Accumulated other comprehensive income (loss) (AOCI), net of tax (in millions).
| | | | | | | | |
| | | | | May 16, 2007
| |
| | Year Ended
| | | Through
| |
| | March 31, 2009 | | | March 31, 2008 | |
| | Successor | | | Successor | |
|
Cumulative currency translation adjustment — beginning of period | | $ | 85 | | | $ | 32 | |
Effect of changes in exchange rates | | | (163 | ) | | | 53 | |
| | | | | | | | |
Cumulative currency translation adjustment — end of period | | $ | (78 | ) | | $ | 85 | |
| | | | | | | | |
| |
16. | FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS |
In conducting our business, we use various derivative and non-derivative instruments to manage the risks arising from fluctuations in exchange rates, interest rates, aluminum prices and energy prices. Such instruments are used for risk management purposes only. We may be exposed to losses in the future if the counterparties to the contracts fail to perform. We are satisfied that the risk of such non-performance is remote due to our monitoring of credit exposures. Our ultimate gain or loss on these derivatives may differ from the amount recognized in the accompanying March 31, 2009 consolidated balance sheet.
The decision of whether and when to execute derivative instruments, along with the duration of the instrument, can vary from period to period depending on market conditions, the relative costs of the instruments and capacity to hedge. The duration is always linked to the timing of the underlying exposure, with the connection between the two being regularly monitored.
The current and noncurrent portions of derivative assets and the current portion of derivative liabilities are presented on the face of our accompanying consolidated balance sheets. The noncurrent portions of derivative liabilities are included in Other long-term liabilities in the accompanying consolidated balance sheets.
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair values of our financial instruments and commodity contracts as of March 31, 2009 and March 31, 2008 are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2009 | |
| | Assets | | | Liabilities | | | Net Fair Value
| |
| | Current | | | Noncurrent | | | Current | | | Noncurrent | | | Assets/(Liabilities) | |
|
Successor | | | | | | | | | | | | | | | | | | | | |
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
Currency exchange contracts | | $ | — | | | $ | — | | | $ | — | | | $ | (11 | ) | | $ | (11 | ) |
Interest rate swaps | | | — | | | | — | | | | (13 | ) | | | — | | | | (13 | ) |
Electricity swap | | | — | | | | — | | | | (6 | ) | | | (12 | ) | | | (18 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total derivatives designated as hedging instruments | | | — | | | | — | | | | (19 | ) | | | (23 | ) | | | (42 | ) |
| | | | | | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
Aluminum contracts | | | 99 | | | | 41 | | | | (532 | ) | | | (13 | ) | | | (405 | ) |
Currency exchange contracts | | | 20 | | | | 31 | | | | (77 | ) | | | (12 | ) | | | (38 | ) |
Energy contracts | | | — | | | | — | | | | (12 | ) | | | — | | | | (12 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total derivatives not designated as hedging instruments | | | 119 | | | | 72 | | | | (621 | ) | | | (25 | ) | | | (455 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total derivative fair value | | $ | 119 | | | $ | 72 | | | $ | (640 | ) | | $ | (48 | ) | | $ | (497 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2008 | |
| | Assets | | | Liabilities | | | Net Fair Value
| |
| | Current | | | Noncurrent | | | Current | | | Noncurrent | | | Assets/(Liabilities) | |
|
Successor | | | | | | | | | | | | | | | | | | | | |
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
Currency exchange contracts | | $ | — | | | $ | — | | | $ | — | | | $ | (184 | ) | | $ | (184 | ) |
Interest rate swaps | | | — | | | | — | | | | (3 | ) | | | (12 | ) | | | (15 | ) |
Electricity swap | | | 3 | | | | 11 | | | | — | | | | — | | | | 14 | |
| | | | | | | | | | | | | | | | | | | | |
Total derivatives designated as hedging instruments | | | 3 | | | | 11 | | | | (3 | ) | | | (196 | ) | | | (185 | ) |
| | | | | | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
Aluminum contracts | | | 131 | | | | 4 | | | | (29 | ) | | | — | | | | 106 | |
Currency exchange contracts | | | 64 | | | | 6 | | | | (116 | ) | | | (5 | ) | | | (51 | ) |
Energy contracts | | | 5 | | | | — | | | | — | | | | — | | | | 5 | |
| | | | | | | | | | | | | | | | | | | | |
Total derivatives not designated as hedging instruments | | | 200 | | | | 10 | | | | (145 | ) | | | (5 | ) | | | 60 | |
| | | | | | | | | | | | | | | | | | | | |
Total derivative fair value | | $ | 203 | | | $ | 21 | | | $ | (148 | ) | | $ | (201 | ) | | $ | (125 | ) |
| | | | | | | | | | | | | | | | | | | | |
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net Investment Hedges
We use cross-currency swaps to manage our exposure to fluctuating exchange rates arising from our loans to and investments in our European operations. We have designated these as net investment hedges. The effective portion of gain or loss on the fair value of the derivative is included in Other comprehensive income (loss) (OCI). Prior to the Arrangement, the effective portion on the derivative was included in Change in fair value of effective portion of hedges, net. After the completion of the Acquisition, the effective portion on the derivative is included in Currency translation adjustments. The ineffective portion of gain or loss on the derivative is included in (Gain) loss on change in fair value of derivative instruments, net. We had cross-currency swaps of Euro 135 million against the U.S. dollar outstanding as of March 31, 2009.
The following table summarizes the amount of gain (loss) we recognized in OCI related to our net investment hedge derivatives (in millions).
| | | | | | | | | | | | | |
| | | | May 16, 2007
| | | April 1, 2007
|
| | Year Ended
| | Through
| | | Through
|
| | March 31, 2009 | | March 31, 2008 | | | May 15, 2007 |
| | Successor | | Successor | | | Predecessor |
Currency exchange contracts | | $ | 169 | | | $ | (82 | ) | | | $ | (8 | ) |
Cash Flow Hedges
We own an interest in an electricity swap which we have designated as a cash flow hedge against our exposure to fluctuating electricity prices. The effective portion of gain or loss on the derivative is included in OCI and reclassified into (Gain) loss on change in fair value of derivatives, net in our accompanying consolidated statements of operations. As of March 31, 2009, the outstanding portion of this swap includes 20,888 megawatt hours through 2017.
We use interest rate swaps to manage our exposure to changes in the benchmark LIBOR interest rate arising from our variable-rate debt. We have designated these as cash flow hedges. The effective portion of gain or loss on the derivative is included in OCI and reclassified into Interest expense and amortization of debt issuance costs in our accompanying consolidated statements of operations. We had $690 million of outstanding interest rate swaps designated as cash flow hedges as of March 31, 2009.
For all derivatives designated as cash flow hedges, gains or losses representing hedge ineffectiveness are recognized in (Gain) loss on change in fair value of derivative instruments, net in our current period earnings. If at any time during the life of a cash flow hedge relationship we determine that the relationship is no longer effective, the derivative will be de-designated as a cash flow hedge. This could occur if the underlying hedged exposure is determined to no longer be probable, or if our ongoing assessment of hedge effectiveness determines that the hedge relationship no longer meets the measures we have established at the inception of the hedge. Gains or losses recognized to date in AOCI would be immediately reclassified into current period earnings, as would any subsequent changes in the fair value of any such derivative.
During the next twelve months we expect to realize $13 million in effective net losses from our cash flow hedges. The maximum period over which we have hedged our exposure to cash flow variability is through 2017.
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the impact on AOCI and earnings of derivative instruments designated as cash flow hedge (in millions).
| | | | | | | | | | | | |
| | | | | | Gain or (Loss)
|
| | | | | | Recognized in Income
|
| | | | Gain (Loss)
| | (Ineffective Portion and Amount
|
| | Gain (Loss)
| | Reclassified from
| | Excluded from
|
| | Recognized in OCI | | AOCI into Income | | Effectiveness Testing) |
| | Year Ended
| | Year Ended
| | Year Ended
|
| | March 31, 2009 | | March 31, 2009 | | March 31, 2009 |
| | Successor | | Successor | | Successor |
|
Energy contracts | | $ | (21 | ) | | $ | 12 | | | $ | — | |
Interest rate swaps | | $ | 3 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Gain (Loss)
| |
| | | | | | | | Recognized in Income
| |
| | | | | Gain (Loss)
| | | (Ineffective Portion and Amount
| |
| | Gain (Loss)
| | | Reclassified from
| | | Excluded from
| |
| | Recognized in OCI | | | AOCI into Income | | | Effectiveness Testing) | |
| | May 16, 2007
| | | | April 1, 2007
| | | May 16, 2007
| | | | April 1, 2007
| | | May 16, 2007
| | | | April 1, 2007
| |
| | Through
| | | | Through
| | | Through
| | | | Through
| | | Through
| | | | Through
| |
| | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2008 | | | | May 15, 2007 | |
| | Successor | | | | Predecessor | | | Successor | | | | Predecessor | | | Successor | | | | Predecessor | |
Currency exchange contracts | | $ | — | | | | $ | 4 | | | $ | — | | | | $ | 1 | | | $ | — | | | | $ | — | |
Energy contracts | | $ | 23 | | | | $ | 4 | | | $ | 8 | | | | $ | — | | | $ | — | | | | $ | — | |
Interest rate swaps | | $ | (15 | ) | | | $ | — | | | $ | — | | | | $ | — | | | $ | (1 | ) | | | $ | — | |
Derivative Instruments Not Designated as Hedges
We use aluminum forward contracts and options to hedge our exposure to changes in the London Metal Exchange (LME) price of aluminum. These exposures arise from firm commitments to sell aluminum in future periods at fixed or capped prices, the forecasted output of our smelter operations in South America and the forecasted metal price lag associated with firm commitments to sell aluminum in future periods at prices based on the LME. In addition, transactions with certain customers meet the definition of a derivative under FASB 133 and are recognized as assets or liabilities at fair value on the accompanying consolidated balance sheets. As of March 31, 2009, we had 294 kilotonnes (kt) of outstanding aluminum contracts not designated as hedges.
We recognize a derivative position which arises from a contractual relationship with a customer that entitles us to pass-through the economic effect of trading positions that we take with other third parties on our customers’ behalf.
We use foreign exchange forward contracts and cross-currency swaps to manage our exposure to changes in exchange rates. These exposures arise from recorded assets and liabilities, firm commitments and forecasted cash flows denominated in currencies other than the functional currency of certain of our operations. As of March 31, 2009, we had outstanding currency exchange contracts with a total notional amount of $1.4 billion not designated as hedges.
We use interest rate swaps to manage our exposure to fluctuating interest rates associated with variable-rate debt. As of March 31, 2009, we had $10 million of outstanding interest rate swaps that were not designated as hedges.
We use heating oil swaps and natural gas swaps to manage our exposure to fluctuating energy prices in North America. As of March 31, 2009, we had 3.4 million gallons of heating oil swaps and 3.8 million MMBtu’s of natural gas that were not designated as hedges.
F-62
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
While each of these derivatives is intended to be effective in helping us manage risk, they have not been designated as hedging instruments under FASB 133. The change in fair value of these derivative instruments is included in (Gain) loss on change in fair value of derivative instruments, net in the accompanying consolidated statement of operations.
The following table summarizes the gains (losses) recognized in current period earnings (in millions).
| | | | | | | | | | | | | |
| | | | | May 16, 2007
| | | | April 1, 2007
| |
| | Year Ended
| | | Through
| | | | Through
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | |
| | Successor | | | Successor | | | | Predecessor | |
Derivative Instruments Not Designated as Hedges | | | | | | | | | | | | | |
Aluminum contracts | | $ | (561 | ) | | $ | 44 | | | | $ | 7 | |
Currency exchange contracts | | | 21 | | | | (44 | ) | | | | 10 | |
Energy contracts | | | (29 | ) | | | 12 | | | | | 3 | |
| | | | | | | | | | | | | |
Gain (loss) recognized | | | (569 | ) | | | 12 | | | | | 20 | |
Derivative Instruments Designated as Cash Flow Hedges | | | | | | | | | | | | | |
Interest rate swaps | | | — | | | | (1 | ) | | | | — | |
Electricity swap | | | 13 | | | | 11 | | | | | — | |
| | | | | | | | | | | | | |
Gain (loss) on change in fair value of derivative instruments, net | | $ | (556 | ) | | $ | 22 | | | | $ | 20 | |
| | | | | | | | | | | | | |
| |
17. | FAIR VALUE OF ASSETS AND LIABILITIES |
FASB 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions. Additionally, FASB 157 amended FASB 107,Disclosure about Fair Value of Financial Instruments(FASB 107), and as such, we follow FASB 157 in determination of FASB 107 fair value disclosure amounts. The disclosures required under FASB 157 and FASB 107 are included in this note.
The following is a description of valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial instruments not previously recorded at fair value.
FASB 157 Instruments
Our adoption of FASB 157 on April 1, 2008 resulted in (1) a gain of $1 million, which is included in (Gain) loss on change in fair value of derivative instruments, net in our consolidated statement of operations, (2) a $1 million decrease to the fair value of effective portion of hedges included in Accumulated other comprehensive income (loss) and (3) a $29 million increase to the foreign currency translation adjustment included in Accumulated other comprehensive income (loss). These adjustments are primarily due to the inclusion of nonperformance risk (i.e., credit spreads) in our valuation models related to certain of our cross-currency swap derivative instruments (see Note 16 — Financial Instruments and Commodity Contracts).
FASB 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. FASB 157 is the single source in GAAP for the definition of fair value, except for the fair value of leased property as defined in FASB 13, for purposes of lease classification or measurement. FASB 157 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under FASB 157 are described as follows:
Level 1 — Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that we have the ability to access at the measurement date;
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3 — Unobservable inputs for which there is little or no market data, which require us to develop our own assumptions based on the best information available as what market participants would use in pricing the asset or liability.
The following section describes the valuation methodologies we used to measure our various financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified:
Derivative contracts
For certain of our derivative contracts whose fair values are based upon trades in liquid markets, such as aluminum forward contracts and options, valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are generally classified within Level 2 of the fair value hierarchy.
The majority of our derivative contracts are valued using industry-standard models that use observable market inputs as their basis, such as time value, forward interest rates, volatility factors, and current (spot) and forward market prices for foreign exchange rates. We generally classify these instruments within Level 2 of the valuation hierarchy. Such derivatives include interest rate swaps, cross-currency swaps, foreign currency forward contracts and certain energy-related forward contracts (e.g., natural gas).
We classify derivative contracts that are valued based on models with significant unobservable market inputs as Level 3 of the valuation hierarchy. These derivatives include certain of our energy-related forward contracts (e.g., electricity) and certain foreign currency forward contracts. Models for these fair value measurements include inputs based on estimated future prices for periods beyond the term of the quoted prices.
FASB 157 requires that for Level 2 and 3 of the fair value hierarchy, where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit considerations (nonperformance risk).
The following table presents our assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of March 31, 2009 (in millions).
| | | | | | | | | | | | | | | | |
| | Fair Value Measurements Using |
| | Level 1 | | Level 2 | | Level 3 | | Total |
|
Successor: | | | | | | | | | | | | | | | | |
Assets — Derivative instruments | | $ | — | | | $ | 191 | | | $ | — | | | $ | 191 | |
Liabilities — Derivative instruments | | $ | — | | | $ | (644 | ) | | $ | (44 | ) | | $ | (688 | ) |
Financial instruments classified as Level 3 in the fair value hierarchy represent derivative contracts (primarily energy-related and certain foreign currency forward contracts) in which at least one significant
F-64
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
unobservable input is used in the valuation model. We incurred $26 million of unrealized losses related to Level 3 financial instruments that were still held as of March 31, 2009. These unrealized losses are included in (Gain) loss on change in fair value of derivative instruments, net.
The following table presents a reconciliation of fair value activity for Level 3 derivative contracts on a net basis (in millions).
| | | | |
| | Level 3
| |
| | Derivative
| |
| | Instruments(A) | |
|
Successor: | | | | |
Balance as of April 1, 2008 | | $ | 11 | |
Net realized/unrealized (losses) included in earnings(B) | | | (10 | ) |
Net realized/unrealized (losses) included in Other comprehensive income (loss)(C) | | | (33 | ) |
Net purchases, issuances and settlements | | | (13 | ) |
Net transfers in and/or (out) of Level 3 | | | 1 | |
| | | | |
Balance as of March 31, 2009 | | $ | (44 | ) |
| | | | |
| | |
(A) | | Represents derivative assets net of derivative liabilities. |
|
(B) | | Included in (Gain) loss on change in fair value of derivative instruments, net. |
|
(C) | | Included in Change in fair value of effective portion of hedges, net. |
FASB 107 Instruments
The table below is a summary of fair value estimates as of March 31, 2009 and 2008, for financial instruments, as defined by FASB 107, excluding short-term financial assets and liabilities, for which carrying amounts approximate fair value, and excluding financial instruments recorded at fair value on a recurring basis (FASB 157 instruments) (in millions).
| | | | | | | | | | | | | | | | |
| | March 31, | |
| | 2009 | | | 2008 | |
| | Carrying
| | | Fair
| | | Carrying
| | | Fair
| |
| | Value | | | Value | | | Value | | | Value | |
| | Successor | | | Successor | | | Successor | | | Successor | |
|
Assets | | | | | | | | | | | | | | | | |
Long-term receivables from related parties | | $ | 23 | | | $ | 23 | | | $ | 41 | | | $ | 41 | |
Liabilities | | | | | | | | | | | | | | | | |
Long-term debt | | | | | | | | | | | | | | | | |
Novelis Inc. | | | | | | | | | | | | | | | | |
7.25% Senior Notes, due February 2015 | | | 1,171 | | | | 454 | | | | 1,466 | | | | 1,249 | |
Floating rate Term Loan facility, due July 2014 | | | 295 | | | | 200 | | | | 298 | | | | 298 | |
Unsecured credit facility — related party, due January 2015 | | | 91 | | | | 93 | | | | — | | | | — | |
Novelis Corporation | | | | | | | | | | | | | | | | |
Floating rate Term Loan facility, due July 2014 | | | 813 | | | | 584 | | | | 655 | | | | 655 | |
Novelis Switzerland S.A. | | | | | | | | | | | | | | | | |
Capital lease obligation, due December 2019 (CHF 51 million) | | | 42 | | | | 36 | | | | 50 | | | | 43 | |
Capital lease obligation, due August 2011 (CHF 3 million) | | | 2 | | | | 2 | | | | 3 | | | | 3 | |
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | |
| | March 31, | |
| | 2009 | | | 2008 | |
| | Carrying
| | | Fair
| | | Carrying
| | | Fair
| |
| | Value | | | Value | | | Value | | | Value | |
| | Successor | | | Successor | | | Successor | | | Successor | |
|
Novelis Korea Limited | | | | | | | | | | | | | | | | |
Bank loan, due October 2010 | | | 100 | | | | 83 | | | | 100 | | | | 87 | |
Bank loan, due February 2010 (KRW 50 billion) | | | 37 | | | | 33 | | | | — | | | | — | |
Bank loan, due May 2009 (KRW 10 billion) | | | 7 | | | | 7 | | | | — | | | | — | |
Bank loans, due September 2010 through June 2011 (KRW 308 million) | | | — | | | | — | | | | 1 | | | | 1 | |
Other | | | | | | | | | | | | | | | | |
Other debt, due April 2009 through December 2012 | | | 1 | | | | 1 | | | | 2 | | | | 2 | |
Financial commitments | | | | | | | | | | | | | | | | |
Letters of credit | | | — | | | | 134 | | | | — | | | | 148 | |
| |
18. | OTHER (INCOME) EXPENSES, NET |
Other (income) expenses, net is comprised of the following (in millions).
| | | | | | | | | | | | | | | | | | | | | |
| | | | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | | |
| | Year Ended
| | | Through
| | | | Through
| | | Ended
| | | Year Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | December 31, 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Exchange (gains) losses, net | | $ | 98 | | | $ | (2 | ) | | | $ | 4 | | | $ | 6 | | | $ | (8 | ) |
Gain on reversal of accrued legal claims(A) | | | (26 | ) | | | — | | | | | — | | | | — | | | | — | |
Brazilian tax settlement(B) | | | 9 | | | | — | | | | | — | | | | — | | | | — | |
Impairment charges on long-lived assets | | | 1 | | | | 1 | | | | | — | | | | 8 | | | | — | |
Loss on disposal of business | | | — | | | | — | | | | | — | | | | — | | | | 15 | |
Gain on sale of equity interest in non-consolidated affiliate(C) | | | — | | | | — | | | | | — | | | | — | | | | (15 | ) |
Gain on sale of rights to develop and operate hydroelectric power plants(D) | | | — | | | | — | | | | | — | | | | — | | | | (11 | ) |
Losses on disposals of property, plant and equipment, net | | | — | | | | — | | | | | — | | | | — | | | | 5 | |
Sale transaction fees | | | — | | | | — | | | | | 32 | | | | 32 | | | | — | |
Other, net | | | 4 | | | | (5 | ) | | | | (1 | ) | | | 1 | | | | (5 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Other (income) expenses, net | | $ | 86 | | | $ | (6 | ) | | | $ | 35 | | | $ | 47 | | | $ | (19 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | |
(A) | | We recognized a $26 million gain on the reversal of a previously recorded legal accrual upon settlement in September 2008. |
|
(B) | | Interest and penalty on Brazilian tax settlement. See Note 20 — Commitments and Contingencies(Brazil Tax Matters). |
|
(C) | | In November 2006, we sold the common and preferred shares of our 25% interest in Petrocoque to the other shareholders of Petrocoque for approximately $20 million. We recognized a pre-tax gain of approximately $15 million. |
|
(D) | | During the fourth quarter of 2006, we sold our rights to develop and operate two hydroelectric power plants in South America and recorded a pre-tax gain of approximately $11 million. |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 provision (benefit) for taxes on income (loss) (and after removing our Equity in net (income) loss of non-consolidated affiliates) are as follows (in millions).
| | | | | | | | | | | | | | | | | | | | | |
| | | | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | | |
| | Year Ended
| | | Through
| | | | Through
| | | Ended
| | | Year Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | December 31, 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Domestic (Canada) | | $ | (15 | ) | | $ | (102 | ) | | | $ | (45 | ) | | $ | (44 | ) | | $ | (100 | ) |
Foreign (all other countries) | | | (1,981 | ) | | | 134 | | | | | (50 | ) | | | (14 | ) | | | (194 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Pre-tax income (loss) before equity in net (income) loss on non-consolidated affiliates | | $ | (1,996 | ) | | $ | 32 | | | | $ | (95 | ) | | $ | (58 | ) | | $ | (294 | ) |
| | | | | | | | | | | | | | | | | | | | | |
The components of the Income tax provision (benefit) are as follows (in millions).
| | | | | | | | | | | | | | | | | | | | | |
| | | | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | | |
| | Year Ended
| | | Through
| | | | Through
| | | Ended
| | | Year Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | December 31, 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Current provision (benefit): | | | | | | | | | | | | | | | | | | | | | |
Domestic (Canada) | | $ | 7 | | | $ | 7 | | | | $ | — | | | $ | 1 | | | $ | 1 | |
Foreign (all other countries) | | | 78 | | | | 71 | | | | | 21 | | | | 15 | | | | 72 | |
| | | | | | | | | | | | | | | | | | | | | |
Total current | | | 85 | | | | 78 | | | | | 21 | | | | 16 | | | | 73 | |
| | | | | | | | | | | | | | | | | | | | | |
Deferred provision (benefit): | | | | | | | | | | | | | | | | | | | | | |
Domestic (Canada) | | | — | | | | — | | | | | 4 | | | | — | | | | 4 | |
Foreign (all other countries) | | | (331 | ) | | | (5 | ) | | | | (21 | ) | | | (9 | ) | | | (81 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Total deferred | | | (331 | ) | | | (5 | ) | | | | (17 | ) | | | (9 | ) | | | (77 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Income tax provision (benefit) | | $ | (246 | ) | | $ | 73 | | | | $ | 4 | | | $ | 7 | | | $ | (4 | ) |
| | | | | | | | | | | | | | | | | | | | | |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The reconciliation of the Canadian statutory tax rates to our effective tax rates are shown below (in millions).
| | | | | | | | | | | | | | | | | | | | | |
| | | | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | | |
| | Year Ended
| | | Through
| | | | Through
| | | Ended
| | | Year Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | December 31, 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Pre-tax income (loss) before equity in net (income) loss on non-consolidated affiliates | | $ | (1,996 | ) | | $ | 32 | | | | $ | (95 | ) | | $ | (58 | ) | | $ | (294 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Canadian Statutory tax rate | | | 31 | % | | | 32 | % | | | | 33 | % | | | 33 | % | | | 33 | % |
| | | | | | | | | | | | | | | | | | | | | |
Provision (benefit) at the Canadian statutory rate | | $ | (619 | ) | | $ | 10 | | | | $ | (31 | ) | | $ | (19 | ) | | $ | (97 | ) |
Increase (decrease) for taxes on income (loss) resulting from: | | | | | | | | | | | | | | | | | | | | | |
Non-deductible goodwill impairment | | | 415 | | | | — | | | | | — | | | | — | | | | — | |
Exchange translation items | | | (4 | ) | | | 39 | | | | | 23 | | | | 6 | | | | 15 | |
Exchange remeasurement of deferred income taxes | | | (48 | ) | | | 27 | | | | | 3 | | | | 2 | | | | 3 | |
Change in valuation allowances | | | 61 | | | | (6 | ) | | | | 13 | | | | 23 | | | | 71 | |
Tax credits and other allowances | | | (8 | ) | | | (1 | ) | | | | — | | | | — | | | | — | |
Expense (income) items not subject to tax | | | 3 | | | | 5 | | | | | (9 | ) | | | 1 | | | | 13 | |
Enacted tax rate changes | | | (7 | ) | | | (17 | ) | | | | — | | | | — | | | | — | |
Tax rate differences on foreign earnings | | | (33 | ) | | | 2 | | | | | 2 | | | | (6 | ) | | | (15 | ) |
Uncertain tax positions | | | 2 | | | | 17 | | | | | — | | | | — | | | | — | |
Other, net | | | (8 | ) | | | (3 | ) | | | | 3 | | | | — | | | | 6 | |
| | | | | | | | | | | | | | | | | | | | | |
Income tax provision (benefit) | | $ | (246 | ) | | $ | 73 | | | | $ | 4 | | | $ | 7 | | | $ | (4 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Effective tax rate | | | 12 | % | | | 228 | % | | | | (4 | )% | | | (12 | )% | | | 1 | % |
| | | | | | | | | | | | | | | | | | | | | |
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) the remeasurement of deferred income taxes due to foreign currency changes, which is shown above as exchange remeasurement of deferred income taxes; (4) changes in valuation allowances primarily related to tax losses in certain jurisdictions where we believe it is more likely than not that we will not be able to utilize those losses; (5) the effects of enacted tax rate changes on cumulative taxable temporary differences; (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 in uncertain tax positions recorded under the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes(FIN 48).
In connection with our spin-off from Alcan we entered into a tax sharing and disaffiliation agreement 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 the spin-off. 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
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
accrued prior to the spin-off and after the spin-off as well as transfer taxes resulting therefrom. 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; however, the net impact of these tax holidays on our income tax provision (benefit) is immaterial.
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, | |
| | 2009 | | | 2008 | |
| | Successor | | | Successor | |
|
Deferred income tax assets: | | | | | | | | |
Provisions not currently deductible for tax purposes | | $ | 363 | | | $ | 324 | |
Tax losses/benefit carryforwards, net | | | 390 | | | | 311 | |
Depreciation and Amortization | | | 85 | | | | 91 | |
Other assets | | | 45 | | | | 47 | |
| | | | | | | | |
Total deferred income tax assets | | | 883 | | | | 773 | |
Less: valuation allowance | | | (228 | ) | | | (160 | ) |
| | | | | | | | |
Net deferred income tax assets | | $ | 655 | | | $ | 613 | |
| | | | | | | | |
Deferred income tax liabilities: | | | | | | | | |
Depreciation and amortization | | $ | 774 | | | $ | 940 | |
Inventory valuation reserves | | | 55 | | | | 134 | |
Other liabilities | | | 75 | | | | 201 | |
| | | | | | | | |
Total deferred income tax liabilities | | $ | 904 | | | $ | 1,275 | |
| | | | | | | | |
Total deferred income tax liabilities | | $ | 904 | | | $ | 1,275 | |
Less: Net deferred income tax assets | | | 655 | | | | 613 | |
| | | | | | | | |
Net deferred income tax liabilities | | $ | 249 | | | $ | 662 | |
| | | | | | | | |
FASB 109 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 not realize a portion of our deferred tax assets and that valuation allowances of $228 million and $160 million were necessary as of March 31, 2009 and 2008, respectively, as described below.
As of March 31, 2009, we had net operating loss carryforwards of approximately $354 million (tax effected) and tax credit carryforwards of $36 million, which will be available to offset future taxable income and tax liabilities, respectively. The carryforwards begin expiring in 2009 with some amounts being carried forward indefinitely. As of March 31, 2009, valuation allowances of $117 million and $17 million had been recorded against net operating loss carryforwards and tax credit carryforwards, respectively, where it appeared
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
more likely than not that such benefits will not be realized. The net operating loss carryforwards are predominantly in the U.S., the U.K., Canada, France, Italy, and Luxembourg.
As of March 31, 2008, we had net operating loss carryforwards of approximately $269 million (tax effected) and tax credit carryforwards of $42 million, which will be available to offset future taxable income and tax liabilities, respectively. The carryforwards began expiring in 2008 with some amounts being carried forward indefinitely. As of March 31, 2008, valuation allowances of $103 million and $21 million had been recorded against net operating loss carryforwards and tax credit carryforwards, respectively, where it appeared more likely than not that such benefit will not be realized. The net operating loss carryforwards are predominantly in the U.S., the U.K., Canada, France, and Italy.
Our valuation allowance increased $68 million (net) during the year ended March 31, 2009. Of this amount, $61 million was charged to expense.
Although realization is not assured, we believe that it is more likely than not that the remaining deferred income 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 provided. 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.
During the year ended March 31, 2009, Canadian legislation was enacted allowing us to elect to calculate and pay our Canadian tax liability in U.S. dollars. Our election is effective April 1, 2008, and due to a full valuation allowance against our net deferred tax asset position in Canada, the election has an immaterial effect on our deferred income tax assets and liabilities as of March 31, 2009.
Tax Uncertainties
Adoption of FASB Interpretation No. 48
In June 2006, the FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes (FIN 48) which clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Upon adoption of FIN 48 as of January 1, 2007, we increased our reserves for uncertain tax positions by $1 million. We recognized the increase as a cumulative effect adjustment to Shareholder’s equity, as an increase to ourRetained earnings(Accumulated deficit). Including this adjustment, reserves for uncertain tax positions totaled $46 million as of January 1, 2007.
As of March 31, 2009 and March 31, 2008, 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 $46 million and $44 million, respectively. Of the March 31, 2009 amount, it is reasonably possible that the expiration of the statutes of limitations or examinations by taxing authorities will result in a decrease in the unrecognized tax benefits of $25 million related to potential withholding taxes and cross-border intercompany pricing of services rendered in various jurisdictions by March 31, 2010.
Separately, we are awaiting a court ruling regarding the utilization of certain operating losses. We anticipate that it is reasonably possible that this ruling will result in a $10 million decrease in unrecognized
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
tax benefits by March 31, 2010 related to this matter. We have fully funded this contingent liability through a judicial deposit, which is included in Other long-term assets — third parties since January 2007.
Tax authorities are currently examining certain of our tax returns for fiscal years 2004 through 2008. We are evaluating potential adjustments and we do not anticipate that settlement of the examinations will result in a material payout. With few exceptions, tax returns for all jurisdictions for all tax years before 2003 are no longer subject to examination by taxing authorities.
During the year ended March 31, 2009, taxing authorities in Germany concluded their audit of the tax years1999-2003. As a result of the settlement, we reduced our unrecognized tax benefits by $10 million, including cash payments to taxing authorities of $6 million and a reduction to Goodwill of $4 million.
Our continuing practice and policy is to record potential interest and penalties related to unrecognized tax benefits in our Income tax provision (benefit). As of March 31, 2009 and March 31, 2008, we had $12 million and $14 million accrued for potential interest on income taxes, respectively. For the periods from May 16, 2007 through March 31, 2008; from April 1, 2007 through May 15, 2007 and for the three months ended March 31, 2007, our Income tax provision included a charge for an additional $5 million, $0.4 million and $1 million of potential interest, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
| | | | | | | | | | | | | | | | | |
| | | | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| |
| | Year Ended
| | | Through
| | | | Through
| | | Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | |
Beginning balance | | $ | 61 | | | $ | 47 | | | | $ | 46 | | | $ | 46 | |
Additions based on tax positions related to the current period | | | 1 | | | | 2 | | | | | — | | | | — | |
Additions based on tax positions of prior years | | | 3 | | | | 7 | | | | | — | | | | 1 | |
Reductions based on tax positions of prior years | | | (3 | ) | | | — | | | | | — | | | | (1 | ) |
Settlements | | | (4 | ) | | | — | | | | | — | | | | — | |
Statute Lapses | | | (1 | ) | | | — | | | | | — | | | | — | |
Foreign Exchange | | | (6 | ) | | | 5 | | | | | 1 | | | | — | |
| | | | | | | | | | | | | | | | | |
Ending Balance | | $ | 51 | | | $ | 61 | | | | $ | 47 | | | $ | 46 | |
| | | | | | | | | | | | | | | | | |
Income Taxes Payable
Our consolidated balance sheets include income taxes payable of $85 million and $96 million as of March 31, 2009 and 2008, respectively. Of these amounts, $33 million and $35 million are reflected in Accrued expenses and other current liabilities as of March 31, 2009 and 2008, respectively.
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
20. | COMMITMENTS AND CONTINGENCIES |
Primary Supplier
Alcan is our primary supplier of metal inputs, including prime and sheet ingot. The table below shows our purchases from Alcan as a percentage of our total combined metal purchases.
| | | | | | | | | | | | | | | | | | | | | |
| | | | May 16, 2007
| | | April 1, 2007
| | Three Months
| | |
| | Year Ended
| | Through
| | | Through
| | Ended
| | Year Ended
|
| | March 31, 2009 | | March 31, 2008 | | | May 15, 2007 | | March 31, 2007 | | December 31, 2006 |
| | Successor | | Successor | | | Predecessor | | Predecessor | | Predecessor |
Purchases from Alcan as a percentage of total combined prime and sheet ingot purchases in kt(A) | | | 47 | % | | | 35 | % | | | | 34 | % | | | 35 | % | | | 35 | % |
| | | | | | | | | | | | | | | | | | | | | |
| | |
(A) | | One kilotonne (kt) is 1,000 metric tonnes. One metric tonne is equivalent to 2,204.6 pounds. |
Legal Proceedings
Coca-Cola Lawsuit. A lawsuit was commenced against Novelis Corporation on February 15, 2007 byCoca-Cola Bottler’s Sales and Services Company LLC (CCBSS) in Georgia state court. CCBSS is a consortium ofCoca-Cola bottlers across the United States, includingCoca-Cola Enterprises Inc. CCBSS alleges that Novelis Corporation breached an aluminum can stock supplya soft toll agreement between the parties relating to the supply of aluminum can stock, and seeks monetary damages in an amount to be determined at trial and a declaration of its rights under the agreement. The agreement includes a “most favored nations” provision regarding certain pricing matters. CCBSS alleges that Novelis Corporation breached the terms of the “most favored nations” provision. The dispute will likely turn on the facts that are presented to the court by the parties and the court’s finding as to how certain provisions of the agreement ought to be interpreted. If CCBSS were to prevail in this litigation, the amount of damages would likely be material. However, we have concluded that a loss from the CCBSS litigation is not probable and therefore have not recorded an accrual. In addition, we do not believe that there is a reasonable possibility of a loss from the lawsuit based on information available at this time. Novelis Corporation has filed its answer and the parties are proceeding with discovery.
ARCO Aluminum Complaint. On May 24, 2007, Arco Aluminum Inc. (ARCO) filed a complaint against Novelis Corporation and Novelis Inc. in the United States District Court for the Western District of Kentucky. ARCO and Novelis are partners in a joint venture rolling mill located in Logan County, Kentucky. In the complaint, ARCO alleged that its consent was required in connection with Hindalco’s acquisition of Novelis. Failure to obtain consent, ARCO alleged, put us in default of the joint venture agreements, thereby triggering certain provisions in those agreements. The provisions include a reversion of the production management at the joint venture to Logan Aluminum from Novelis, and a reduction of the board of directors of the entity that manages the joint venture from seven members (four appointed by Novelis and three appointed by ARCO) to six members (three appointed by each of Novelis and ARCO).
ARCO sought a court declaration that (1) Novelis and its affiliates are prohibited from exercising any managerial authority or control over the joint venture, (2) Novelis’ interest in the joint venture is limited to an economic interest only and (3) ARCO has authority to act on behalf of the joint venture. Alternatively, ARCO sought a reversion of the production management function to Logan Aluminum, and a change in the composition of the board of directors of the entity that manages the joint venture. Novelis filed its answer to the complaint on July 16, 2007.
On July 3, 2007, ARCO filed a motion for partial summary judgment with respect to one of the counts of its complaint relating to the claim that Novelis breached the joint venture agreement by not seeking ARCO’s consent. On July 30, 2007, Novelis filed a motion to hold ARCO’s motion for summary judgment in abeyance (pending further discovery), along with a demand for a jury. On February 14, 2008, the judge issued an order
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(pending further discovery), along with a demand for a jury. On February 14, 2008, the judge issued an order granting our motion to hold ARCO’s summary judgment motion in abeyance. Following this ruling, the joint venture continued to conduct operational, management and board activities as normal.
On June 4, 2009, ARCO and Novelis entered into a settlement agreement to address and resolve all matters at issue in the lawsuit, including the Logan Joint Venture governance issues. On June 22, 2009, the parties requested an order from the United States District Court for the Western District of Kentucky to dismiss the lawsuit with prejudice. As a result of the settlement, among other things, Novelis will retain control of the Logan board of directors, production management responsibilities will revert to Logan, and certain Novelis employees who work at Logan will become employees of Logan. There are no remaining reserves on this matter.
Environmental Matters
The following describes certain environmental matters relating to our business.
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 are, from time to time, subject to environmental reviews and investigations by relevant governmental authorities.
As described further in the following paragraph, we have established procedures for regularly evaluating environmental loss contingencies, including those arising from such environmental reviews and investigations and any other environmental remediation or compliance matters. We believe we have a reasonable basis for evaluating these environmental loss contingencies, and we believe we have made reasonable estimates of the costs that are likely to be borne by us for these environmental loss contingencies. Accordingly, we have established reserves based on our reasonable estimates for the currently anticipated costs associated with these environmental matters. We estimate that the undiscounted remainingclean-up costs related to all of our known environmental matters as of March 31, 2009 will be approximately $52 million. Of this amount, $38 million is included in Other long-term liabilities, with the remaining $14 million included in Accrued expenses and other current liabilities in our consolidated balance sheet as of March 31, 2009. Management has reviewed the environmental matters, including those for which we assumed liability as a result of our spin-off from Alcan. As a result of this review, management has determined that the currently anticipated costs associated with these environmental matters will not, individually or in the aggregate, materially impair our operations or materially adversely affect our financial condition, results of operations or liquidity.
With respect to environmental loss contingencies, we record a loss contingency on 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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Butler Tunnel Site. Novelis Corporation was a party in a 1989 U.S. Environmental Protection Agency (EPA) lawsuit before the U.S. District Court for the Middle District of Pennsylvania involving the Butler Tunnel Superfund site, a third-party disposal site. In May 1991, the court granted summary judgment against Novelis Corporation for alleged disposal of hazardous waste. After unsuccessful appeals, Novelis Corporation paid the entire judgment plus interest.
The EPA filed a second cost recovery action against Novelis Corporation seeking recovery of expenses associated with the installation of an early warning and response system for potential future releases from the Butler Tunnel site. In January 2008, Novelis Corporation and the Department of Justice, on behalf of the EPA, entered into a consent decree whereby Novelis Corporation agreed to pay approximately $2 million in three installments in settlement of its liability with the U.S. government. This settlement has been fully paid.
Prior to the execution of the Novelis Corporation consent decree, the EPA entered into consent decrees with the other Butler Tunnel PRPs to finance and construct the early warning and response system. On October 30, 2008, the trustee for the PRPs provided a detailed analysis of the past and future costs associated with the implementation of the early warning system and advised us of their intention to file a contribution action against us.
On February 3, 2009, Butler Tunnel PRPs and Novelis Corporation entered into a settlement agreement resolving the contribution claims. On March 5, 2009, pursuant to these agreements, Novelis Corporation remitted its settlement payment of past costs in the amount of approximately $1 million. As part of the settlement, Novelis became a member of the PRP group. Accordingly, Novelis bears an allocated share of certain future costs in the approximate annual amount of $75,000 between 2009 and 2018 related to the costs to complete and maintain the early warning and response system at the Butler Tunnel site. Accordingly, Novelis Corporation has established a reserve of $742,000 for these payments through 2018.
In December 2005, the United States Environmental Protection Agency (USEPA) issued a Notice of Violation (NOV) to the Company’s subsidiary, Logan Aluminum, Inc. (Logan), alleging violations of Logan’s Title V Operating Permit, which regulates emissions of air pollutants from the facility. In March 2006, the Kentucky Department of Environmental Protection (KDEP) issued a separate NOV to Logan alleging other violations of the Title V Operating Permit. In March 2009, as a result of these enforcement actions, Logan agreed to install new air pollution control equipment. Logan has also agreed to settle the USEPA NOV, including the payment of a civil penalty of $285,000. The KDEP NOV is currently subject to a Tolling Agreement with the state agency.
Brazil Tax Matters
Primarily as a result of legal proceedings with Brazil’s Ministry of Treasury regarding certain taxes in South America, as of March 31, 2009 and 2008, we had cash deposits aggregating approximately $30 million and $36 million, respectively, in judicial depository accounts pending finalization of the related cases. The depository accounts are in the name of the Brazilian government and will be expended towards these legal proceedings or released to us, depending on the outcome of the legal cases. These deposits are included in Other long-term assets — third parties in our accompanying consolidated balance sheets. In addition, we are involved in several disputes with Brazil’s Ministry of Treasury about various forms of manufacturing taxes and social security contributions, for which we have made no judicial deposits but for which we have established reserves ranging from $6 million to $118 million as of March March��31, 2009. In total, these reserves approximate $135 million as of March 31, 2009 and are included in Other long-term liabilities in our accompanying consolidated balance sheet.
On May 28, 2009, the Brazilian government passed a law allowing taxpayers to settle certain federal tax disputes with the Brazilian tax authorities, including disputes relating to a Brazilian national tax on manufactured products, through an installment program. Pursuant to the installment plan, companies can elect
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to (a) pay the principal amount of the disputed tax amounts over a near-term period (e.g., 1-60 monthly installments) and receive a35-45% discount on the interest and80-100% discount on the penalties owed, (b) pay the principal and interest over a medium-term period (e.g.,60-120 monthly installments) and receive a30-35% discount on the interest and70-80% discount on the penalties owed, or (c) pay the full amount of the disputed tax amounts, including interest and penalties, over a longer-term period (e.g.,120-180 monthly installments) and receive a25-30% discount on the interest and60-70% discount on the penalties owed. Novelis has already joined the installment plan. However, we will announce (a) the amount of the tax disputes that will be settled and (b) the number of installments elected once the Ministry of Treasury enacts the final installment plan regulations.
Guarantees of Indebtedness
We have issued guarantees on behalf of certain of our subsidiaries and non-consolidated affiliates, including certain of our wholly-owned subsidiaries and Aluminium Norf GmbH, which is a fifty percent (50%) owned joint venture that does not meet the requirements for consolidation under FIN 46(R).
In the case of our wholly-owned subsidiaries, the indebtedness guaranteed is for trade accounts payable to third parties. Some of the guarantees have annual terms while others have no expiration and have termination notice requirements. Neither we nor any of our subsidiaries or non-consolidated affiliates holds any assets of any third parties as collateral to offset the potential settlement of these guarantees.
Since we consolidate wholly-owned and majority-owned subsidiaries in our 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 as of March 31, 2009 (in millions). We did not have obligations under guarantees of indebtedness related to our majority-owned subsidiaries as of March 31, 2009.
| | | | | | | | |
| | Maximum
| | Liability
|
| | Potential
| | Carrying
|
Type of Entity | | Future Payment | | Value |
|
Wholly-owned subsidiaries | | $ | 50 | | | $ | 14 | |
Aluminium Norf GmbH | | | 13 | | | | — | |
We have no retained or contingent interest in assets transferred to an unconsolidated entity or similar entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets.
| |
21. | SEGMENT, GEOGRAPHICAL AREA AND MAJOR CUSTOMER INFORMATION |
Segment Information
Due in part to the regional nature of supply and demand of aluminum rolled products and in order to best serve our customers, we manage our activities on the basis of geographical areas and are organized under four operating segments: North America; Europe; Asia and South America.
Corporate and Other includes functions that are managed directly from our corporate office, which focuses on strategy development and oversees governance, policy, legal compliance, human resources and finance matters. These expenses have not been allocated to the regions. It also includes realized gains (losses) on corporate derivative instruments, consolidating and other elimination accounts.
We measure the profitability and financial performance of our operating segments, based on Segment income, in accordance with FASB Statement No. 131,Disclosure About the Segments of an Enterprise and Related Information.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 as earnings before (a) depreciation
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and amortization; (b) interest expense and amortization of debt issuance costs; (c) interest income; (d) unrealized gains (losses) on change in fair value of derivative instruments, net; (e) impairment of goodwill; (f) impairment charges on long-lived assets (other than goodwill); (g) gain on extinguishment of debt; (h) noncontrolling interests’ share; (i) adjustments to reconcile our proportional share of Segment income from non-consolidated affiliates to income as determined on the equity method of accounting; (k) restructuring charges, net; (k) gains or losses on disposals of property, plant and equipment and businesses, net; (l) other costs, net; (m) litigation settlement, net of insurance recoveries; (n) sale transaction fees; (o) income tax provision (benefit) (p) cumulative effect of accounting change, net of tax.
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 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.
The following is a description of our operating segments:
| | |
| • | North America. Headquartered in Cleveland, Ohio, this segment manufactures aluminum sheet and light gauge products and operates 11 plants, including two fully dedicated recycling facilities, in two countries. |
|
| • | Europe. Headquartered in Zurich, Switzerland, this segment manufactures aluminum sheet and light gauge products and operates 14 plants, including one recycling facility, in six countries. |
|
| • | Asia. Headquartered in Seoul, South Korea, this segment manufactures aluminum sheet and light gauge products and operates three plants in two countries. |
|
| • | South America. Headquartered in Sao Paulo, Brazil, this segment comprises bauxite mining, alumina refining, smelting operations, power generation, carbon products, aluminum sheet and light gauge products and operates four plants in Brazil. |
Adjustment to Eliminate Proportional Consolidation. The financial information for our segments includes the results of our non-consolidated affiliates on a proportionately consolidated basis, which is consistent with the way we manage our business segments. However, under GAAP, these non-consolidated affiliates are accounted for using the equity method of accounting. Therefore, in order to reconcile the financial information for the segments shown in the tables below to the GAAP-based measure, we must remove our proportional share of each line item that we included in the segment amounts. See Note 10 — Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for further information about these non-consolidated affiliates.
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tables below show selected segment financial information (in millions).
Selected Segment Financial Information
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Adjustment to
| | | | |
| | Reportable Segments | | | | | | Eliminate
| | | | |
Selected Operating Results
| | North
| | | | | | | | | South
| | | Corporate
| | | Proportional
| | | | |
Year Ended March 31, 2009 | | America | | | Europe | | | Asia | | | America | | | and Other | | | Consolidation | | | Total | |
(Successor) | | | | | | | | | | | | | | | | | | | | | |
|
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 | | | | 3 | | | | (78 | ) | | | 439 | |
Income tax provision (benefit) | | | (156 | ) | | | (13 | ) | | | (8 | ) | | | (62 | ) | | | 9 | | | | (16 | ) | | | (246 | ) |
Capital expenditures | | | 42 | | | | 76 | | | | 20 | | | | 25 | | | | 2 | | | | (20 | ) | | | 145 | |
Total assets as of March 31, 2009 | | $ | 2,973 | | | $ | 2,750 | | | $ | 732 | | | $ | 1,296 | | | $ | 50 | | | $ | (234 | ) | | $ | 7,567 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Adjustment to
| | | | |
| | Reportable Segments | | | | | | Eliminate
| | | | |
Selected Operating Results
| | North
| | | | | | | | | South
| | | Corporate
| | | Proportional
| | | | |
May 16, 2007 Through March 31, 2008 | | America | | | Europe | | | Asia | | | America | | | and Other | | | Consolidation | | | Total | |
(Successor) | | | | | | | | | | | | | | | | | | | | | |
|
Net sales | | $ | 3,655 | | | $ | 3,828 | | | $ | 1,602 | | | $ | 885 | | | $ | — | | | $ | (5 | ) | | $ | 9,965 | |
Write-off and amortization of fair value adjustments | | | 242 | | | | (8 | ) | | | (11 | ) | | | (9 | ) | | | 7 | | | | — | | | | 221 | |
Depreciation and amortization | | | 140 | | | | 176 | | | | 52 | | | | 62 | | | | 1 | | | | (56 | ) | | | 375 | |
Income tax provision (benefit) | | | 23 | | | | (70 | ) | | | 1 | | | | 69 | | | | 16 | | | | 34 | | | | 73 | |
Capital expenditures | | | 42 | | | | 98 | | | | 28 | | | | 28 | | | | 3 | | | | (14 | ) | | | 185 | |
Total assets as of March 31, 2008 | | $ | 3,957 | | | $ | 4,355 | | | $ | 1,080 | | | $ | 1,485 | | | $ | 59 | | | $ | (199 | ) | | $ | 10,737 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Adjustment to
| | | | |
| | Reportable Segments | | | | | | Eliminate
| | | | |
Selected Operating Results
| | North
| | | | | | | | | South
| | | Corporate
| | | Proportional
| | | | |
April 1, 2007 Through May 15, 2007 | | America | | | Europe | | | Asia | | | America | | | and Other | | | Consolidation | | | Total | |
(Predecessor) | | | | | | | | | | | | | | | | | | | | | |
|
Net sales | | $ | 446 | | | $ | 510 | | | $ | 216 | | | $ | 109 | | | $ | — | | | $ | — | | | $ | 1,281 | |
Depreciation and amortization | | | 7 | | | | 11 | | | | 7 | | | | 5 | | | | 1 | | | | (3 | ) | | | 28 | |
Income tax provision (benefit) | | | (19 | ) | | | 10 | | | | — | | | | 14 | | | | (1 | ) | | | — | | | | 4 | |
Capital expenditures | | | 4 | | | | 8 | | | | 4 | | | | 3 | | | | 1 | | | | (3 | ) | | | 17 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Adjustment to
| | | | |
| | Reportable Segments | | | | | | Eliminate
| | | | |
Selected Operating Results
| | North
| | | | | | | | | South
| | | Corporate
| | | Proportional
| | | | |
Three Months Ended March 31, 2007 | | America | | | Europe | | | Asia | | | America | | | and Other | | | Consolidation | | | Total | |
(Predecessor) | | | | | | | | | | | | | | | | | | | | | |
|
Net sales | | $ | 925 | | | $ | 1,057 | | | $ | 413 | | | $ | 235 | | | $ | — | | | $ | — | | | $ | 2,630 | |
Depreciation and amortization | | | 16 | | | | 24 | | | | 14 | | | | 11 | | | | 1 | | | | (8 | ) | | | 58 | |
Income tax provision (benefit) | | | (10 | ) | | | 6 | | | | — | | | | 11 | | | | — | | | | — | | | | 7 | |
Capital expenditures | | | 9 | | | | 11 | | | | 3 | | | | 4 | | | | 1 | | | | (4 | ) | | | 24 | |
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Adjustment to
| | | | |
| | Reportable Segments | | | | | | Eliminate
| | | | |
Selected Operating Results
| | North
| | | | | | | | | South
| | | Corporate
| | | Proportional
| | | | |
Year Ended December 31, 2006 | | America | | | Europe | | | Asia | | | America | | | and Other | | | Consolidation | | | Total | |
(Predecessor) | | | | | | | | | | | | | | | | | | | | | |
|
Net sales | | $ | 3,691 | | | $ | 3,620 | | | $ | 1,692 | | | $ | 863 | | | $ | — | | | $ | (17 | ) | | $ | 9,849 | |
Depreciation and amortization | | | 70 | | | | 92 | | | | 55 | | | | 44 | | | | 4 | | | | (32 | ) | | | 233 | |
Income tax provision (benefit) | | | (111 | ) | | | 29 | | | | 11 | | | | 63 | | | | 9 | | | | (5 | ) | | | (4 | ) |
Capital expenditures | | | 39 | | | | 45 | | | | 21 | | | | 26 | | | | 3 | | | | (18 | ) | | | 116 | |
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table shows the reconciliation from Incomeincome from reportable segments to Net loss attributable to our common shareholder (in millions).
| | | | | | | | | | | | | | | | | | | | | |
| | | | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | | |
| | Year Ended
| | | Through
| | | | Through
| | | Ended
| | | Year Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | December 31, 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Income from reportable segments: | | | | | | | | | | | | | | | | | | | | | |
North America | | $ | 82 | | | $ | 266 | | | | $ | (24 | ) | | $ | (17 | ) | | $ | 20 | |
Europe | | | 236 | | | | 241 | | | | | 32 | | | | 85 | | | | 245 | |
Asia | | | 86 | | | | 46 | | | | | 6 | | | | 16 | | | | 82 | |
South America | | | 139 | | | | 143 | | | | | 18 | | | | 57 | | | | 165 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 543 | | | | 696 | | | | | 32 | | | | 141 | | | | 512 | |
Corporate and other(A) | | | (55 | ) | | | (46 | ) | | | | (38 | ) | | | (29 | ) | | | (170 | ) |
Depreciation and amortization | | | (439 | ) | | | (375 | ) | | | | (28 | ) | | | (58 | ) | | | (233 | ) |
Interest expense and amortization of debt issuance costs | | | (182 | ) | | | (191 | ) | | | | (27 | ) | | | (54 | ) | | | (221 | ) |
Interest income | | | 14 | | | | 18 | | | | | 1 | | | | 4 | | | | 15 | |
Unrealized gains (losses) on change in fair value of derivative instruments, net(B) | | | (519 | ) | | | (8 | ) | | | | 5 | | | | (1 | ) | | | (151 | ) |
Impairment of goodwill | | | (1,340 | ) | | | — | | | | | — | | | | — | | | | — | |
Gain on extinguishment of debt | | | 122 | | | | — | | | | | — | | | | — | | | | — | |
Impairment charges on long-lived assets | | | (1 | ) | | | (1 | ) | | | | — | | | | (8 | ) | | | — | |
Adjustment to eliminate proportional consolidation(C) | | | (226 | ) | | | (36 | ) | | | | (7 | ) | | | (9 | ) | | | (35 | ) |
Restructuring charges, net | | | (95 | ) | | | (6 | ) | | | | (1 | ) | | | (9 | ) | | | (19 | ) |
Loss on disposals of assets, net | | | — | | | | — | | | | | — | | | | — | | | | (20 | ) |
Other costs, net(D) | | | 10 | | | | 6 | | | | | (31 | ) | | | (32 | ) | | | 44 | |
| | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (2,168 | ) | | | 57 | | | | | (94 | ) | | | (55 | ) | | | (278 | ) |
Income tax provision (benefit) | | | (246 | ) | | | 73 | | | | | 4 | | | | 7 | | | | (4 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Net loss | | | (1,922 | ) | | | (16 | ) | | | | (98 | ) | | | (62 | ) | | | (274 | ) |
Net income (loss) attributable to noncontrolling interests | | | (12 | ) | | | 4 | | | | | (1 | ) | | | 2 | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | |
Net loss attributable to our common shareholder | | $ | (1,910 | ) | | $ | (20 | ) | | | $ | (97 | ) | | $ | (64 | ) | | $ | (275 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | | |
| | Year Ended
| | | Through
| | | | Through
| | | Ended
| | | Year Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | December 31, 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
North America | | $ | 82 | | | $ | 266 | | | | $ | (24 | ) | | $ | (17 | ) | | $ | 20 | |
Europe | | | 236 | | | | 241 | | | | | 32 | | | | 85 | | | | 245 | |
Asia | | | 86 | | | | 46 | | | | | 6 | | | | 16 | | | | 82 | |
South America | | | 139 | | | | 143 | | | | | 18 | | | | 57 | | | | 165 | |
Corporate and other(A) | | | (55 | ) | | | (46 | ) | | | | (38 | ) | | | (29 | ) | | | (170 | ) |
Depreciation and amortization | | | (439 | ) | | | (375 | ) | | | | (28 | ) | | | (58 | ) | | | (233 | ) |
Interest expense and amortization of debt issuance costs | | | (182 | ) | | | (191 | ) | | | | (27 | ) | | | (54 | ) | | | (221 | ) |
Interest income | | | 14 | | | | 18 | | | | | 1 | | | | 4 | | | | 15 | |
Unrealized gains (losses) on change in fair value of derivative instruments, net(B) | | | (519 | ) | | | (8 | ) | | | | 5 | | | | (1 | ) | | | (151 | ) |
Impairment of goodwill | | | (1,340 | ) | | | — | | | | | — | | | | — | | | | — | |
Gain on extinguishment of debt | | | 122 | | | | — | | | | | — | | | | — | | | | — | |
Impairment charges on long-lived assets | | | (1 | ) | | | (1 | ) | | | | — | | | | (8 | ) | | | — | |
Adjustment to eliminate proportional consolidation(C) | | | (226 | ) | | | (36 | ) | | | | (7 | ) | | | (9 | ) | | | (35 | ) |
Restructuring charges, net | | | (95 | ) | | | (6 | ) | | | | (1 | ) | | | (9 | ) | | | (19 | ) |
Loss on disposals of assets, net | | | — | | | | — | | | | | — | | | | — | | | | (20 | ) |
Other costs, net(D) | | | 10 | | | | 6 | | | | | (31 | ) | | | (32 | ) | | | 44 | |
| | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (2,168 | ) | | | 57 | | | | | (94 | ) | | | (55 | ) | | | (278 | ) |
Income tax provision (benefit) | | | (246 | ) | | | 73 | | | | | 4 | | | | 7 | | | | (4 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Net loss | | | (1,922 | ) | | | (16 | ) | | | | (98 | ) | | | (62 | ) | | | (274 | ) |
Net income (loss) attributable to noncontrolling interests | | | (12 | ) | | | 4 | | | | | (1 | ) | | | 2 | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | |
Net loss attributable to our common shareholder | | $ | (1,910 | ) | | $ | (20 | ) | | | $ | (97 | ) | | $ | (64 | ) | | $ | (275 | ) |
| | | | | | | | | | | | | | | | | | | | | |
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | |
(A) | | Corporate and other includes functions that are managed directly from our corporate office, which focuses on strategy development and oversees governance, policy, legal compliance, human resources and finance matters. These expenses have not been allocated to the regions. It also includes realized gains (losses) on corporate derivative instruments. |
|
(B) | | Unrealized gains (losses) on change in fair value of derivative instruments, net represents the portion of gains (losses) that were not settled in cash during the period. Total realized and unrealized gains (losses) are shown in the table below and are included in the aggregate each period in (Gain) loss on change in fair value of derivative instruments, net on our consolidated statements of operations. |
| | |
(C) | | Our financial information for our segments (including Segment income) includes the results of ournon-consolidated affiliates on a proportionately consolidated basis, which is consistent with the way we manage our business segments. However, under GAAP, these non-consolidated affiliates are accounted for using the equity method of accounting. Therefore, in order to reconcile Income from reportable segments to Net loss, the proportional Segment income of these non-consolidated affiliates is removed from Income from reportable segments, net of our share of their net after-tax results, which is reported as Equity in net (income) loss of non-consolidated affiliates on our consolidated statements of operations. The adjustment to eliminate proportional consolidation for the year ended March 31, 2009 includes a $160 million impairment charge related to our investment in Norf. See Note 10 — Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for further information about these non-consolidated affiliates. |
| | |
(D) | | Other costs, net for the year ended March 31, 2009 include a $26 million non-cash gain on reversal of a legal accrual, as well as a $9 million charge for a tax settlement in Brazil. Sales transaction fees of $32 million were recorded in both the three months ended March 31, 2007 and the period April 1, 2007 through May 15, 2007. In the year ended December 31, 2006, Other costs, net includes a $15 million gain on sale of equity interest in non-consolidated affiliates and an $11 million gain on sale of rights to develop and operate hydroelectric power plants (see Note 18 — Other (Income) Expenses, net). |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | | |
| | Year Ended
| | | Through
| | | | Through
| | | Ended
| | | Year Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | December 31, 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
(Gains) losses on change in fair value of derivative instruments, net: | | | | | | | | | | | | | | | | | | | | | |
Realized and included in Segment income | | $ | 41 | | | $ | (14 | ) | | | $ | (18 | ) | | $ | (33 | ) | | $ | (249 | ) |
Realized on corporate derivative instruments | | | (4 | ) | | | (16 | ) | | | | 3 | | | | 2 | | | | 35 | |
Unrealized | | | 519 | | | | 8 | | | | | (5 | ) | | | 1 | | | | 151 | |
| | | | | | | | | | | | | | | | | | | | | |
(Gains) losses on change in fair value of derivative instruments, net | | $ | 556 | | | $ | (22 | ) | | | $ | (20 | ) | | $ | (30 | ) | | $ | (63 | ) |
| | | | | | | | | | | | | | | | | | | | | |
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Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Geographical Area Information
We had 32 operating facilities in 11 countries as of March 31, 2009. The tables below present Net sales and Long-lived assets by geographical area (in millions). Net sales are attributed to geographical areas based on the origin of the sale. Long-lived assets are attributed to geographical areas based on asset location and exclude investments in and advances to our non-consolidated affiliates.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | May 16, 2007
| | | | April 1, 2007
| | | Three Months
| | | | |
| | Year Ended
| | | Through
| | | | Through
| | | Ended
| | | Year Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | | May 15, 2007 | | | March 31, 2007 | | | December 31, 2006 | |
| | Successor | | | Successor | | | | Predecessor | | | Predecessor | | | Predecessor | |
Net sales: | | | | | | | | | | | | | | | | | | | | | |
United States | | $ | 3,685 | | | $ | 3,419 | | | | $ | 427 | | | $ | 870 | | | $ | 3,474 | |
Asia and Other Pacific | | | 1,536 | | | | 1,602 | | | | | 216 | | | | 413 | | | | 1,691 | |
Brazil | | | 1,006 | | | | 880 | | | | | 109 | | | | 235 | | | | 847 | |
Canada | | | 243 | | | | 236 | | | | | 19 | | | | 55 | | | | 217 | |
Germany | | | 2,439 | | | | 2,508 | | | | | 212 | | | | 651 | | | | 2,263 | |
United Kingdom | | | 347 | | | | 445 | | | | | 79 | | | | 136 | | | | 428 | |
Other Europe | | | 921 | | | | 875 | | | | | 219 | | | | 270 | | | | 929 | |
| | | | | | | | | | | | | | | | | | | | | |
Total Net sales | | $ | 10,177 | | | $ | 9,965 | | | | $ | 1,281 | | | $ | 2,630 | | | $ | 9,849 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | March 31, | |
| | 2009 | | | 2008 | |
| | Successor | | | Successor | |
|
Long-lived assets: | | | | | | | | |
United States | | $ | 1,902 | | | $ | 2,566 | |
Asia and Other Pacific | | | 384 | | | | 565 | |
Brazil | | | 768 | | | | 967 | |
Canada | | | 171 | | | | 514 | |
Germany | | | 415 | | | | 247 | |
United Kingdom | | | 51 | | | | 170 | |
Other Europe | | | 477 | | | | 1,146 | |
| | | | | | | | |
Total long-lived assets | | $ | 4,168 | | | $ | 6,175 | |
| | | | | | | | |
Major Customer Information
All of our operating segments had Net sales to Rexam Plc (Rexam), our largest customer. The table below shows our net sales to Rexam as a percentage of total Net sales.
| | | | | | | | | | | | | | | | | | | | |
| | | | | May 16, 2007
| | | April 1, 2007
| | | Three Months
| | | | |
| | Year Ended
| | | Through
| | | Through
| | | Ended
| | | Year Ended
| |
| | March 31, 2009 | | | March 31, 2008 | | | May 15, 2007 | | | March 31, 2007 | | | December 31, 2006 | |
| | Successor | | | Successor | | | Predecessor | | | Predecessor | | | Predecessor | |
|
Net sales to Rexam as a percentage of total net sales | | | 17 | % | | | 15 | % | | | 14 | % | | | 16 | % | | | 14 | % |
| | | | | | | | | | | | | | | | | | | | |
F-81
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
22. | SUPPLEMENTAL INFORMATION |
The following table shows non-cash investing and financing activities related to the Acquisition of Novelis Common Stock.
| | | | |
| | May 16, 2007
| |
| | Through
| |
| | March 31, 2008 | |
| | Successor | |
|
Supplemental schedule of non-cash investing and financing activities related to the Acquisition of Novelis Common Stock: | | | | |
Property, plant and equipment | | $ | (1,344 | ) |
Goodwill | | | (1,625 | ) |
Intangible assets | | | (893 | ) |
Investment in and advances to non-consolidated affiliates | | | (776 | ) |
Debt | | | 66 | |
Accumulated other comprehensive income (loss) (AOCI) consists of the following (in millions).
| | | | | | | | |
| | March 31,
| | | March 31,
| |
| | 2009 | | | 2008 | |
| | Successor | | | Successor | |
|
Currency translation adjustment | | $ | (62 | ) | | $ | 60 | |
Fair value of effective portion of hedges | | | (19 | ) | | | — | |
Pension and other benefits | | | (67 | ) | | | (14 | ) |
| | | | | | | | |
AOCI | | $ | (148 | ) | | $ | 46 | |
| | | | | | | | |
During the fourth quarter of fiscal 2009, we identified errors in our interim financial statements included in previously filed fiscal 2009Form 10-Qs. We deemed the correction of these errors to be both quantitatively and qualitatively immaterial after consideration of SEC Staff Accounting Bulleting (SAB) No. 99,Materiality, as well as SEC SAB No. 108,Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements (SAB 108). These adjustments will be reflected when the affected periods are presented in future interim reports. The following summarizes these immaterial errors:
| | |
| • | We identified that a customer sales contract included certain terms which, when elected by the customer, result in the recognition of a derivative under FASB 133. As changes in the valuation of the derivative associated with this arrangement were not previously recognized in our financial statements, the amounts previously reported in (Gain) loss on change in fair value of derivative instruments, net were misstated for the quarters ended June 30, 2008, September 30, 2008 and December 31, 2008 by $1 million, $(4) million and $(8) million, respectively. This error increased (decreased) previously reported net income (loss) attributable to our common shareholder by $(1) million, $2 million and $5 million for the quarters ended June 30, 2008, September 30, 2008 and December 31, 2008, respectively. |
|
| • | We determined that there was an error in our valuation of certain of our cross-currency swap derivative instruments. As a result, the amounts previously reported in (Gain) loss on change in fair value of derivative instruments, net were misstated for the quarters ended September 30, 2008 and December 31, 2008 by $4 million and $(1) million, respectively. This error increased (decreased) previously reported net income (loss) attributable to our common shareholder by $(3) million and $1 million for the quarters ended September 30, 2008 and December 31, 2008, respectively. |
F-82
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below presents select operating results (in millions) and dividends per common share information by period. Certain reclassifications of prior period quarterly amounts have been made to conform to the presentation adopted for the current year as discussed in Note 1. Also, the quarterly results below reflect the correction of the aforementioned errors.
| | | | | | | | | | | | | | | | |
| | (Unaudited)
| |
| | Quarter Ended | |
| | June 30,
| | | September 30,
| | | December 31,
| | | March 31,
| |
| | 2008(A) | | | 2008(A) | | | 2008(A) | | | 2009 | |
| | Successor | | | Successor | | | Successor | | | Successor | |
|
Net sales | | $ | 3,103 | | | $ | 2,959 | | | $ | 2,176 | | | $ | 1,939 | |
Cost of goods sold (exclusive of depreciation and amortization shown below) | | | 2,831 | | | | 2,791 | | | | 2,023 | | | | 1,606 | |
Selling, general and administrative expenses | | | 84 | | | | 89 | | | | 73 | | | | 73 | |
Depreciation and amortization | | | 116 | | | | 107 | | | | 107 | | | | 109 | |
Research and development expenses | | | 12 | | | | 10 | | | | 11 | | | | 8 | |
Interest expense and amortization of debt issuance costs | | | 45 | | | | 46 | | | | 47 | | | | 44 | |
Interest income | | | (5 | ) | | | (5 | ) | | | (3 | ) | | | (1 | ) |
(Gain) loss on change in fair value of derivative instruments, net | | | (65 | ) | | | 185 | | | | 396 | | | | 40 | |
Impairment of goodwill | | | — | | | | — | | | | 1,340 | | | | — | |
Gain on extinguishment of debt | | | — | | | | — | | | | — | | | | (122 | ) |
Restructuring charges, net | | | (1 | ) | | | — | | | | 15 | | | | 81 | |
Equity in net (income) loss of non-consolidated affiliates | | | 2 | | | | (2 | ) | | | 166 | | | | 6 | |
Other (income) expenses, net | | | 23 | | | | 10 | | | | 20 | | | | 33 | |
Income tax provision (benefit) | | | 35 | | | | (168 | ) | | | (196 | ) | | | 83 | |
| | | | | | | | | | | | | | | | |
Net income (loss) | | | 26 | | | | (104 | ) | | | (1,823 | ) | | | (21 | ) |
Net income (loss) attributable to noncontrolling interests | | | 2 | | | | — | | | | (9 | ) | | | (5 | ) |
| | | | | | | | | | | | | | | | |
Net income (loss) attributable to our common shareholder | | $ | 24 | | | $ | (104 | ) | | $ | (1,814 | ) | | $ | (16 | ) |
| | | | | | | | | | | | | | | | |
Dividends per common share | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | |
| | | | | | | | | | | | | | | | |
F-83
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | April 1. 2007
| | | | May 16, 2007
| | | Quarter Ended | |
| | Quarter Ended
| | | Through
| | | | Through
| | | September 30,
| | | December 31,
| | | March 31,
| |
| | March 31, 2007 | | | May 15, 2007 | | | | June 30, 2007(B) | | | 2007(B) | | | 2007(B) | | | 2008(B) | |
| | Predecessor | | | Predecessor | | | | Successor | | | Successor | | | Successor | | | Successor | |
Net sales | | $ | 2,630 | | | $ | 1,281 | | | | $ | 1,547 | | | $ | 2,821 | | | $ | 2,735 | | | $ | 2,862 | |
Cost of goods sold (exclusive of depreciation and amortization shown below) | | | 2,447 | | | | 1,205 | | | | | 1,436 | | | | 2,555 | | | | 2,474 | | | | 2,577 | |
Selling, general and administrative expenses | | | 99 | | | | 95 | | | | | 42 | | | | 88 | | | | 99 | | | | 90 | |
Depreciation and amortization | | | 58 | | | | 28 | | | | | 53 | | | | 103 | | | | 108 | | | | 111 | |
Research and development expenses | | | 8 | | | | 6 | | | | | 13 | | | | 10 | | | | 11 | | | | 12 | |
Interest expense and amortization of debt issuance costs | | | 54 | | | | 27 | | | | | 28 | | | | 60 | | | | 53 | | | | 50 | |
Interest income | | | (4 | ) | | | (1 | ) | | | | (3 | ) | | | (4 | ) | | | (6 | ) | | | (5 | ) |
(Gain) loss on change in fair value of derivative instruments , net | | | (30 | ) | | | (20 | ) | | | | (14 | ) | | | 30 | | | | 56 | | | | (94 | ) |
Restructuring charges, net | | | 9 | | | | 1 | | | | | 1 | | | | — | | | | 1 | | | | 4 | |
Equity in net (income) loss of non-consolidated affiliates | | | (3 | ) | | | (1 | ) | | | | 1 | | | | (20 | ) | | | 3 | | | | (9 | ) |
Other (income) expenses, net | | | 47 | | | | 35 | | | | | 10 | | | | (2 | ) | | | (17 | ) | | | 3 | |
Income tax provision | | | 7 | | | | 4 | | | | | 27 | | | | 20 | | | | 26 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | | (62 | ) | | | (98 | ) | | | | (47 | ) | | | (19 | ) | | | (73 | ) | | | 123 | |
Net income (loss) attributable to noncontrolling interests | | | 2 | | | | (1 | ) | | | | (2 | ) | | | — | | | | — | | | | 6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) attributable to our common shareholder | | $ | (64 | ) | | $ | (97 | ) | | | $ | (45 | ) | | $ | (19 | ) | | $ | (73 | ) | | $ | 117 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends per common share | | $ | 0.00 | | | $ | 0.00 | | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
24. | SUPPLEMENTAL GUARANTOR INFORMATION |
In connection with the issuance of our Senior Notes and the old notes, certain of our wholly-owned subsidiaries, which are “100% owned” within the meaning of Rule 3-10(h)(i) of Regulation S-X, provided guarantees of the Senior Notes.Notes and the old notes. The guarantors of the Senior Notes and the old notes are the same. These guarantees are full and unconditional as well as joint and several. The guarantor subsidiaries (the Guarantors) comprise the majority of our businesses in Canada, the U.S., the U.K., Brazil and Switzerland, as well as certain businesses in Germany. Certain Guarantors may be subject to restrictions on their ability to distribute earnings to Novelis Inc. (the Parent). The remaining subsidiaries (the Non-Guarantors) of the Parent are not guarantors of the Senior Notes.
The following information presents consolidating statements of operations, consolidating balance sheets and condensed consolidating 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.
F-84
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOVELIS INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended March 31, 2009 —Successor | |
| | | | | | | | 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 shown below) | | | 1,182 | | | | 7,679 | | | | 2,467 | | | | (2,077 | ) | | | 9,251 | |
Selling, general and administrative expenses | | | 9 | | | | 242 | | | | 68 | | | | — | | | | 319 | |
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 | ) |
(Gain) 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 | ) |
| | | | | | | | | | | | | | | | | | | | |
F-85
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOVELIS INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | May 16, 2007 Through March 31, 2008 —Successor | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
Net sales | | $ | 1,300 | | | $ | 8,266 | | | $ | 2,701 | | | $ | (2,302 | ) | | $ | 9,965 | |
| | | | | | | | | | | | | | | | | | | | |
Cost of goods sold (exclusive of depreciation and amortization shown below) | | | 1,294 | | | | 7,504 | | | | 2,546 | | | | (2,302 | ) | | | 9,042 | |
Selling, general and administrative expenses | | | 40 | | | | 210 | | | | 69 | | | | — | | | | 319 | |
Depreciation and amortization | | | 19 | | | | 294 | | | | 62 | | | | — | | | | 375 | |
Research and development expenses | | | 27 | | | | 17 | | | | 2 | | | | — | | | | 46 | |
Interest expense and amortization of debt issuance costs | | | 124 | | | | 135 | | | | 34 | | | | (102 | ) | | | 191 | |
Interest income | | | (90 | ) | | | (17 | ) | | | (13 | ) | | | 102 | | | | (18 | ) |
(Gain) loss on change in fair value of derivative instruments, net | | | 8 | | | | (13 | ) | | | (17 | ) | | | — | | | | (22 | ) |
Restructuring charges, net | | | — | | | | 2 | | | | 4 | | | | — | | | | 6 | |
Equity in net (income) loss of non-consolidated affiliates | | | (83 | ) | | | (25 | ) | | | — | | | | 83 | | | | (25 | ) |
Other (income) expenses, net | | | (33 | ) | | | 6 | | | | 21 | | | | — | | | | (6 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | 1,306 | | | | 8,113 | | | | 2,708 | | | | (2,219 | ) | | | 9,908 | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (6 | ) | | | 153 | | | | (7 | ) | | | (83 | ) | | | 57 | |
Income tax provision (benefit) | | | 14 | | | | 53 | | | | 6 | | | | — | | | | 73 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | | (20 | ) | | | 100 | | | | (13 | ) | | | (83 | ) | | | (16 | ) |
Net income attributable to noncontrolling interests | | | — | | | | — | | | | 4 | | | | — | | | | 4 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) attributable to our common shareholder | | $ | (20 | ) | | $ | 100 | | | $ | (17 | ) | | $ | (83 | ) | | $ | (20 | ) |
| | | | | | | | | | | | | | | | | | | | |
F-86
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOVELIS INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | April 1, 2007 Through May 15, 2007 —Predecessor | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
Net sales | | $ | 129 | | | $ | 1,020 | | | $ | 359 | | | $ | (227 | ) | | $ | 1,281 | |
| | | | | | | | | | | | | | | | | | | | |
Cost of goods sold (exclusive of depreciation and amortization shown below) | | | 131 | | | | 961 | | | | 340 | | | | (227 | ) | | | 1,205 | |
Selling, general and administrative expenses | | | 29 | | | | 51 | | | | 15 | | | | — | | | | 95 | |
Depreciation and amortization | | | 2 | | | | 18 | | | | 8 | | | | — | | | | 28 | |
Research and development expenses | | | 5 | | | | 1 | | | | — | | | | — | | | | 6 | |
Interest expense and amortization of debt issuance costs | | | 12 | | | | 21 | | | | 4 | | | | (10 | ) | | | 27 | |
Interest income | | | (9 | ) | | | (1 | ) | | | (1 | ) | | | 10 | | | | (1 | ) |
(Gain) loss on change in fair value of derivative instruments, net | | | (2 | ) | | | (19 | ) | | | 1 | | | | — | | | | (20 | ) |
Restructuring charges, net | | | — | | | | 1 | | | | — | | | | — | | | | 1 | |
Equity in net (income) loss of non-consolidated affiliates | | | 29 | | | | (1 | ) | | | — | | | | (29 | ) | | | (1 | ) |
Other (income) expenses, net | | | 29 | | | | 8 | | | | (2 | ) | | | — | | | | 35 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 226 | | | | 1,040 | | | | 365 | | | | (256 | ) | | | 1,375 | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (97 | ) | | | (20 | ) | | | (6 | ) | | | 29 | | | | (94 | ) |
Income tax provision (benefit) | | | — | | | | 3 | | | | 1 | | | | — | | | | 4 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | | (97 | ) | | | (23 | ) | | | (7 | ) | | | 29 | | | | (98 | ) |
Net loss attributable to noncontrolling interests | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net loss attributable to our common shareholder | | $ | (97 | ) | | $ | (23 | ) | | $ | (6 | ) | | $ | 29 | | | $ | (97 | ) |
| | | | | | | | | | | | | | | | | | | | |
F-87
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOVELIS INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2007 —Predecessor | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
Net sales | | $ | 378 | | | $ | 2,228 | | | $ | 723 | | | $ | (699 | ) | | $ | 2,630 | |
| | | | | | | | | | | | | | | | | | | | |
Cost of goods sold (exclusive of depreciation and amortization shown below) | | | 377 | | | | 2,094 | | | | 675 | | | | (699 | ) | | | 2,447 | |
Selling, general and administrative expenses | | | 10 | | | | 69 | | | | 20 | | | | — | | | | 99 | |
Depreciation and amortization | | | 3 | | | | 38 | | | | 17 | | | | — | | | | 58 | |
Research and development expenses | | | 5 | | | | 2 | | | | 1 | | | | — | | | | 8 | |
Interest expense and amortization of debt issuance costs | | | 32 | | | | 42 | | | | 7 | | | | (27 | ) | | | 54 | |
Interest income | | | (25 | ) | | | (3 | ) | | | (3 | ) | | | 27 | | | | (4 | ) |
(Gain) loss on change in fair value of derivative instruments , net | | | 2 | | | | (29 | ) | | | (3 | ) | | | — | | | | (30 | ) |
Restructuring charges, net | | | — | | | | 9 | | | | — | | | | — | | | | 9 | |
Equity in net (income) loss of non-consolidated affiliates | | | 11 | | | | (3 | ) | | | — | | | | (11 | ) | | | (3 | ) |
Other (income) expenses, net | | | 27 | | | | 17 | | | | 3 | | | | — | | | | 47 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 442 | | | | 2,236 | | | | 717 | | | | (710 | ) | | | 2,685 | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (64 | ) | | | (8 | ) | | | 6 | | | | 11 | | | | (55 | ) |
Income tax provision (benefit) | | | — | | | | 5 | | | | 2 | | | | — | | | | 7 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | | (64 | ) | | | (13 | ) | | | 4 | | | | 11 | | | | (62 | ) |
Net income attributable to noncontrolling interests | | | — | | | | — | | | | 2 | | | | — | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) attributable to our common shareholder | | $ | (64 | ) | | $ | (13 | ) | | $ | 2 | | | $ | 11 | | | $ | (64 | ) |
| | | | | | | | | | | | | | | | | | | | |
F-88
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOVELIS INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2006 —Predecessor | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
Net sales | | $ | 1,572 | | | $ | 8,340 | | | $ | 2,822 | | | $ | (2,885 | ) | | $ | 9,849 | |
| | | | | | | | | | | | | | | | | | | | |
Cost of goods sold (exclusive of depreciation and amortization shown below) | | | 1,522 | | | | 8,010 | | | | 2,670 | | | | (2,885 | ) | | | 9,317 | |
Selling, general and administrative expenses | | | 72 | | | | 269 | | | | 69 | | | | — | | | | 410 | |
Depreciation and amortization | | | 15 | | | | 153 | | | | 65 | | | | — | | | | 233 | |
Research and development expenses | | | 28 | | | | 12 | | | | — | | | | — | | | | 40 | |
Interest expense and amortization of debt issuance costs | | | 145 | | | | 152 | | | | 31 | | | | (107 | ) | | | 221 | |
Interest income | | | (97 | ) | | | (12 | ) | | | (13 | ) | | | 107 | | | | (15 | ) |
(Gain) loss on change in fair value of derivative instruments , net | | | 49 | | | | (128 | ) | | | 16 | | | | — | | | | (63 | ) |
Restructuring charges, net | | | — | | | | 16 | | | | 3 | | | | — | | | | 19 | |
Equity in net (income) loss of non-consolidated affiliates | | | 115 | | | | (16 | ) | | | — | | | | (115 | ) | | | (16 | ) |
Other (income) expenses, net | | | (11 | ) | | | 4 | | | | (12 | ) | | | — | | | | (19 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | 1,838 | | | | 8,460 | | | | 2,829 | | | | (3,000 | ) | | | 10,127 | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (266 | ) | | | (120 | ) | | | (7 | ) | | | 115 | | | | (278 | ) |
Income tax provision (benefit) | | | 9 | | | | (28 | ) | | | 15 | | | | — | | | | (4 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | | (275 | ) | | | (92 | ) | | | (22 | ) | | | 115 | | | | (274 | ) |
Net income attributable to noncontrolling interests | | | — | | | | — | | | | 1 | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) attributable to our common shareholder | | $ | (275 | ) | | $ | (92 | ) | | $ | (23 | ) | | $ | 115 | | | $ | (275 | ) |
| | | | | | | | | | | | | | | | | | | | |
F-89
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOVELIS INC.
CONSOLIDATING BALANCE SHEET
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2009 —Successor | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
ASSETS |
Current assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 3 | | | $ | 175 | | | $ | 70 | | | $ | — | | | $ | 248 | |
Accounts receivable, net of allowances | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 21 | | | | 761 | | | | 267 | | | | — | | | | 1,049 | |
— related parties | | | 411 | | | | 183 | | | | 32 | | | | (601 | ) | | | 25 | |
Inventories | | | 31 | | | | 523 | | | | 239 | | | | — | | | | 793 | |
Prepaid expenses and other current assets | | | 4 | | | | 31 | | | | 16 | | | | — | | | | 51 | |
Fair value of derivative instruments | | | — | | | | 145 | | | | 7 | | | | (33 | ) | | | 119 | |
Deferred income tax assets | | | — | | | | 192 | | | | 24 | | | | — | | | | 216 | |
| | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 470 | | | | 2,010 | | | | 655 | | | | (634 | ) | | | 2,501 | |
Property, plant and equipment, net | | | 162 | | | | 2,146 | | | | 491 | | | | — | | | | 2,799 | |
Goodwill | | | — | | | | 570 | | | | 12 | | | | — | | | | 582 | |
Intangible assets, net | | | — | | | | 787 | | | | — | | | | — | | | | 787 | |
Investments in and advances to non-consolidated affiliates | | | 1,647 | | | | 719 | | | | — | | | | (1,647 | ) | | | 719 | |
Fair value of derivative instruments, net of current portion | | | — | | | | 46 | | | | 28 | | | | (2 | ) | | | 72 | |
Deferred income tax assets | | | 1 | | | | 3 | | | | — | | | | — | | | | 4 | |
Other long-term assets | | | 1,028 | | | | 207 | | | | 96 | | | | (1,228 | ) | | | 103 | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 3,308 | | | $ | 6,488 | | | $ | 1,282 | | | $ | (3,511 | ) | | $ | 7,567 | |
| | | | | | | | | | | | | | | | | | | | |
|
LIABILITIES AND SHAREHOLDER’S EQUITY |
Current liabilities | | | | | | | | | | | | | | | | | | | | |
Current portion of long-term debt | | $ | 3 | | | $ | 4 | | | $ | 44 | | | $ | — | | | $ | 51 | |
Short-term borrowings | | | | | | | | | | | | | | | | | | | | |
— third parties | | | — | | | | 231 | | | | 33 | | | | — | | | | 264 | |
— related parties | | | 7 | | | | 330 | | | | 22 | | | | (359 | ) | | | — | |
Accounts payable | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 33 | | | | 458 | | | | 234 | | | | — | | | | 725 | |
— related parties | | | 41 | | | | 157 | | | | 90 | | | | (240 | ) | | | 48 | |
Fair value of derivative instruments | | | 7 | | | | 540 | | | | 126 | | | | (33 | ) | | | 640 | |
Accrued expenses and other current liabilities | | | 34 | | | | 395 | | | | 90 | | | | (3 | ) | | | 516 | |
Deferred income tax liabilities | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 125 | | | | 2,115 | | | | 639 | | | | (635 | ) | | | 2,244 | |
Long-term debt, net of current portion | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 1,464 | | | | 852 | | | | 101 | | | | — | | | | 2,417 | |
— related parties | | | 223 | | | | 976 | | | | 120 | | | | (1,228 | ) | | | 91 | |
Deferred income tax liabilities | | | — | | | | 459 | | | | 10 | | | | — | | | | 469 | |
Accrued postretirement benefits | | | 27 | | | | 346 | | | | 122 | | | | — | | | | 495 | |
Other long-term liabilities | | | 50 | | | | 288 | | | | 5 | | | | (1 | ) | | | 342 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 1,889 | | | | 5,036 | | | | 997 | | | | (1,864 | ) | | | 6,058 | |
| | | | | | | | | | | | | | | | | | | | |
Commitments and contingencies | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Shareholder’s equity | | | | | | | | | | | | | | | | | | | | |
Common stock | | | — | | | | — | | | | — | | | | — | | | | — | |
Additional paid-in capital | | | 3,497 | | | | — | | | | — | | | | — | | | | 3,497 | |
Retained earnings (accumulated deficit) | | | (1,930 | ) | | | 1,533 | | | | 325 | | | | (1,858 | ) | | | (1,930 | ) |
Accumulated other comprehensive income (loss) | | | (148 | ) | | | (81 | ) | | | (130 | ) | | | 211 | | | | (148 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total equity of our common shareholder | | | 1,419 | | | | 1,452 | | | | 195 | | | | (1,647 | ) | | | 1,419 | |
Noncontrolling interests | | | — | | | | — | | | | 90 | | | | — | | | | 90 | |
| | | | | | | | | | | | | | | | | | | | |
Total equity | | | 1,419 | | | | 1,452 | | | | 285 | | | | (1,647 | ) | | | 1,509 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities and equity | | $ | 3,308 | | | $ | 6,488 | | | $ | 1,282 | | | $ | (3,511 | ) | | $ | 7,567 | |
| | | | | | | | | | | | | | | | | | | | |
F-90
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOVELIS INC.
CONSOLIDATING BALANCE SHEET
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2008 —Successor | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
ASSETS |
Current assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 12 | | | $ | 177 | | | $ | 137 | | | $ | — | | | $ | 326 | |
Accounts receivable, net of allowances | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 38 | | | | 819 | | | | 391 | | | | — | | | | 1,248 | |
— related parties | | | 519 | | | | 288 | | | | 34 | | | | (810 | ) | | | 31 | |
Inventories | | | 58 | | | | 992 | | | | 405 | | | | — | | | | 1,455 | |
Prepaid expenses and other current assets | | | 4 | | | | 34 | | | | 20 | | | | — | | | | 58 | |
Fair value of derivative instruments | | | — | | | | 187 | | | | 29 | | | | (13 | ) | | | 203 | |
Deferred income tax assets | | | — | | | | 121 | | | | 4 | | | | — | | | | 125 | |
| | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 631 | | | | 2,618 | | | | 1,020 | | | | (823 | ) | | | 3,446 | |
Property, plant and equipment, net | | | 178 | | | | 2,455 | | | | 724 | | | | — | | | | 3,357 | |
Goodwill | | | — | | | | 1,741 | | | | 189 | | | | — | | | | 1,930 | |
Intangible assets, net | | | — | | | | 888 | | | | — | | | | — | | | | 888 | |
Investments in and advances to non-consolidated affiliates | | | 3,629 | | | | 945 | | | | 1 | | | | (3,629 | ) | | | 946 | |
Fair value of derivative instruments, net of current portion | | | — | | | | 18 | | | | 3 | | | | — | | | | 21 | |
Deferred income tax assets | | | 4 | | | | — | | | | 2 | | | | — | | | | 6 | |
Other long-term assets | | | 1,329 | | | | 159 | | | | 135 | | | | (1,480 | ) | | | 143 | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 5,771 | | | $ | 8,824 | | | $ | 2,074 | | | $ | (5,932 | ) | | $ | 10,737 | |
| | | | | | | | | | | | | | | | | | | | |
|
LIABILITIES AND SHAREHOLDER’S EQUITY |
Current liabilities | | | | | | | | | | | | | | | | | | | | |
Current portion of long-term debt | | $ | 3 | | | $ | 11 | | | $ | 1 | | | $ | — | | | $ | 15 | |
Short-term borrowings | | | | | | | | | | | | | | | | | | | | |
— third parties | | | — | | | | 70 | | | | 45 | | | | — | | | | 115 | |
— related parties | | | 5 | | | | 370 | | | | 25 | | | | (400 | ) | | | — | |
Accounts payable | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 84 | | | | 925 | | | | 573 | | | | — | | | | 1,582 | |
— related parties | | | 109 | | | | 234 | | | | 88 | | | | (376 | ) | | | 55 | |
Fair value of derivative instruments | | | — | | | | 146 | | | | 15 | | | | (13 | ) | | | 148 | |
Accrued expenses and other current liabilities | | | 40 | | | | 555 | | | | 113 | | | | (4 | ) | | | 704 | |
Deferred income tax liabilities | | | — | | | | 39 | | | | — | | | | — | | | | 39 | |
| | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 241 | | | | 2,350 | | | | 860 | | | | (793 | ) | | | 2,658 | |
Long-term debt, net of current portion | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 1,761 | | | | 698 | | | | 101 | | | | — | | | | 2,560 | |
— related parties | | | — | | | | 1,206 | | | | 304 | | | | (1,510 | ) | | | — | |
Deferred income tax liabilities | | | 1 | | | | 733 | | | | 20 | | | | — | | | | 754 | |
Accrued postretirement benefits | | | 23 | | | | 297 | | | | 101 | | | | — | | | | 421 | |
Other long-term liabilities | | | 222 | | | | 431 | | | | 19 | | | | — | | | | 672 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2,248 | | | | 5,715 | | | | 1,405 | | | | (2,303 | ) | | | 7,065 | |
| | | | | | | | | | | | | | | | | | | | |
Commitments and contingencies | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Shareholder’s equity | | | | | | | | | | | | | | | | | | | | |
Common stock | | | — | | | | — | | | | — | | | | — | | | | — | |
Additional paid-in capital | | | 3,497 | | | | — | | | | — | | | | — | | | | 3,497 | |
Retained earnings (accumulated deficit) | | | (20 | ) | | | 3,075 | | | | 564 | | | | (3,639 | ) | | | (20 | ) |
Accumulated other comprehensive income (loss) | | | 46 | | | | 34 | | | | (44 | ) | | | 10 | | | | 46 | |
| | | | | | | | | | | | | | | | | | | | |
Total equity of our common shareholder | | | 3,523 | | | | 3,109 | | | | 520 | | | | (3,629 | ) | | | 3,523 | |
Noncontrolling interests | | | — | | | | — | | | | 149 | | | | — | | | | 149 | |
| | | | | | | | | | | | | | | | | | | | |
Total equity | | | 3,523 | | | | 3,109 | | | | 669 | | | | (3,629 | ) | | | 3,672 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities and equity | | $ | 5,771 | | | $ | 8,824 | | | $ | 2,074 | | | $ | (5,932 | ) | | $ | 10,737 | |
| | | | | | | | | | | | | | | | | | | | |
F-91
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOVELIS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended March 31, 2009 —Successor | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | 87 | | | $ | (139 | ) | | $ | 39 | | | $ | (223 | ) | | $ | (236 | ) |
| | | | | | | | | | | | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (8 | ) | | | (100 | ) | | | (37 | ) | | | — | | | | (145 | ) |
Proceeds from sales of assets | | | 2 | | | | 2 | | | | 1 | | | | — | | | | 5 | |
Changes to investment in and advances to non-consolidated affiliates | | | — | | | | 20 | | | | — | | | | — | | | | 20 | |
Proceeds from loans receivable, net — related parties | | | — | | | | 17 | | | | — | | | | — | | | | 17 | |
Net proceeds from settlement of derivative instruments | | | 2 | | | | (77 | ) | | | 67 | | | | — | | | | (8 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (4 | ) | | | (138 | ) | | | 31 | | | | — | | | | (111 | ) |
| | | | | | | | | | | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Proceeds from issuance of debt | | | | | | | | | | | | | | | | | | | | |
— third parties | | | — | | | | 220 | | | | 43 | | | | — | | | | 263 | |
— related parties | | | 91 | | | | — | | | | — | | | | — | | | | 91 | |
Principal repayments | | | | | | | | | | | | | | | | | | | | |
— third parties | | | (223 | ) | | | (11 | ) | | | (1 | ) | | | — | | | | (235 | ) |
— related parties | | | 41 | | | | (89 | ) | | | (152 | ) | | | 200 | | | | — | |
Short-term borrowings, net | | | | | | | | | | | | | | | | | | | | |
— third parties | | | — | | | | 185 | | | | (9 | ) | | | — | | | | 176 | |
— related parties | | | 2 | | | | (25 | ) | | | — | | | | 23 | | | | — | |
Dividends | | | | | | | | | | | | | | | | | | | | |
— noncontrolling interests | | | — | | | | — | | | | (6 | ) | | | — | | | | (6 | ) |
Debt issuance costs | | | (3 | ) | | | — | | | | — | | | | — | | | | (3 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (92 | ) | | | 280 | | | | (125 | ) | | | 223 | | | | 286 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase in cash and cash equivalents | | | (9 | ) | | | 3 | | | | (55 | ) | | | — | | | | (61 | ) |
Effect of exchange rate changes on cash balances held in foreign currencies | | | — | | | | (5 | ) | | | (12 | ) | | | — | | | | (17 | ) |
Cash and cash equivalents — beginning of period | | | 12 | | | | 177 | | | | 137 | | | | — | | | | 326 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents — end of period | | $ | 3 | | | $ | 175 | | | $ | 70 | | | $ | — | | | $ | 248 | |
| | | | | | | | | | | | | | | | | | | | |
F-92
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOVELIS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | May 16, 2007 Through March 31, 2008 —Successor | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | 88 | | | $ | 363 | | | $ | 144 | | | $ | (190 | ) | | $ | 405 | |
| | | | | | | | | | | | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (11 | ) | | | (143 | ) | | | (31 | ) | | | — | | | | (185 | ) |
Proceeds from sales of assets | | | 5 | | | | 2 | | | | 1 | | | | — | | | | 8 | |
Changes to investment in and advances to non-consolidated affiliates | | | (40 | ) | | | 25 | | | | (1 | ) | | | 40 | | | | 24 | |
Proceeds from loans receivable, net — related parties | | | — | | | | 18 | | | | — | | | | — | | | | 18 | |
Net proceeds from settlement of derivative instruments | | | 12 | | | | 32 | | | | (7 | ) | | | — | | | | 37 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (34 | ) | | | (66 | ) | | | (38 | ) | | | 40 | | | | (98 | ) |
| | | | | | | | | | | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Proceeds from issuance of common stock | | | 92 | | | | 40 | | | | — | | | | (40 | ) | | | 92 | |
Proceeds from issuance of debt | | | 300 | | | | 659 | | | | 141 | | | | — | | | | 1,100 | |
Principal repayments | | | | | | | | | | | | | | | | | | | | |
— third parties | | | (261 | ) | | | (608 | ) | | | (140 | ) | | | — | | | | (1,009 | ) |
— related parties | | | — | | | | (189 | ) | | | 31 | | | | 158 | | | | — | |
Short-term borrowings, net | | | | | | | | | | | | | | | | | | | | |
— third parties | | | (45 | ) | | | (188 | ) | | | (8 | ) | | | — | | | | (241 | ) |
— related parties | | | (99 | ) | | | 81 | | | | (14 | ) | | | 32 | | | | — | |
Dividends | | | | | | | | | | | | | | | | | | | | |
— noncontrolling interests | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) |
Debt issuance costs | | | (37 | ) | | | — | | | | — | | | | — | | | | (37 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (50 | ) | | | (205 | ) | | | 9 | | | | 150 | | | | (96 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase in cash and cash equivalents | | | 4 | | | | 92 | | | | 115 | | | | — | | | | 211 | |
Effect of exchange rate changes on cash balances held in foreign currencies | | | — | | | | 11 | | | | 2 | | | | — | | | | 13 | |
Cash and cash equivalents — beginning of period | | | 8 | | | | 74 | | | | 20 | | | | — | | | | 102 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents — end of period | | $ | 12 | | | $ | 177 | | | $ | 137 | | | $ | — | | | $ | 326 | |
| | | | | | | | | | | | | | | | | | | | |
F-93
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOVELIS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | April 1, 2007 Through May 15, 2007 —Predecessor | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Net cash used in operating activities | | $ | (21 | ) | | $ | (181 | ) | | $ | (28 | ) | | $ | — | | | $ | (230 | ) |
INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (1 | ) | | | (10 | ) | | | (6 | ) | | | — | | | | (17 | ) |
Changes to investment in and advances to non-consolidated affiliates | | | — | | | | 1 | | | | — | | | | — | | | | 1 | |
Net proceeds from settlement of derivative instruments | | | (5 | ) | | | 23 | | | | — | | | | — | | | | 18 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (6 | ) | | | 14 | | | | (6 | ) | | | — | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Proceeds from issuance of debt | | | — | | | | 150 | | | | — | | | | — | | | | 150 | |
Principal repayments | | | — | | | | (1 | ) | | | — | | | | — | | | | (1 | ) |
Short-term borrowings, net | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 45 | | | | 9 | | | | 6 | | | | — | | | | 60 | |
— related parties | | | (15 | ) | | | 11 | | | | 4 | | | | — | | | | — | |
Dividends | | | | | | | | | | | | | | | | | | | | |
— noncontrolling interests | | | — | | | | — | | | | (7 | ) | | | — | | | | (7 | ) |
Debt issuance costs | | | (2 | ) | | | — | | | | — | | | | — | | | | (2 | ) |
Proceeds from the exercise of stock options | | | 1 | | | | — | | | | — | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by financing activities | | | 29 | | | | 169 | | | | 3 | | | | — | | | | 201 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 2 | | | | 2 | | | | (31 | ) | | | — | | | | (27 | ) |
Effect of exchange rate changes on cash balances held in foreign currencies | | | — | | | | 1 | | | | — | | | | — | | | | 1 | |
Cash and cash equivalents — beginning of period | | | 6 | | | | 71 | | | | 51 | | | | — | | | | 128 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents — end of period | | $ | 8 | | | $ | 74 | | | $ | 20 | | | $ | — | | | $ | 102 | |
| | | | | | | | | | | | | | | | | | | | |
F-94
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOVELIS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2007 —Predecessor | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | (30 | ) | | $ | (55 | ) | | $ | 50 | | | $ | (52 | ) | | $ | (87 | ) |
| | | | | | | | | | | | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (2 | ) | | | (16 | ) | | | (6 | ) | | | — | | | | (24 | ) |
Changes to investment in and advances to non-consolidated affiliates | | | — | | | | 1 | | | | — | | | | — | | | | 1 | |
Proceeds from loans receivable, net — related parties | | | — | | | | 1 | | | | — | | | | — | | | | 1 | |
Net proceeds from settlement of derivative instruments | | | — | | | | 24 | | | | — | | | | — | | | | 24 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (2 | ) | | | 10 | | | | (6 | ) | | | — | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Principal repayments | | | — | | | | (1 | ) | | | — | | | | — | | | | (1 | ) |
Short-term borrowings, net | | | | | | | | | | | | | | | | | | | | |
— third parties | | | — | | | | 113 | | | | — | | | | — | | | | 113 | |
— related parties | | | 7 | | | | 5 | | | | (12 | ) | | | — | | | | — | |
Dividends | | | | | | | | | | | | | | | | | | | | |
— common shareholders | | | — | | | | (38 | ) | | | (14 | ) | | | 52 | | | | — | |
Proceeds from the exercise of employee stock options | | | 27 | | | | — | | | | — | | | | — | | | | 27 | |
Windfall tax benefit on share-based compensation | | | 1 | | | | — | | | | — | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 35 | | | | 79 | | | | (26 | ) | | | 52 | | | | 140 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase in cash and cash equivalents | | | 3 | | | | 34 | | | | 18 | | | | — | | | | 55 | |
Cash and cash equivalents — beginning of period | | | 3 | | | | 37 | | | | 33 | | | | — | | | | 73 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents — end of period | | $ | 6 | | | $ | 71 | | | $ | 51 | | | $ | — | | | $ | 128 | |
| | | | | | | | | | | | | | | | | | | | |
F-95
Novelis Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOVELIS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2006 —Predecessor | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | 104 | | | $ | (9 | ) | | $ | 87 | | | $ | (166 | ) | | $ | 16 | |
| | | | | | | | | | | | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (8 | ) | | | (72 | ) | | | (36 | ) | | | — | | | | (116 | ) |
Disposal of business, net | | | (7 | ) | | | — | | | | — | | | | — | | | | (7 | ) |
Proceeds from sales of assets | | | — | | | | 38 | | | | — | | | | — | | | | 38 | |
Changes to investment in and advances to non-consolidated affiliates | | | — | | | | 3 | | | | — | | | | — | | | | 3 | |
Proceeds from (advances on) loans receivable, net — related parties | | | 48 | | | | (60 | ) | | | (28 | ) | | | 77 | | | | 37 | |
Premiums paid to purchase derivative instruments | | | — | | | | (4 | ) | | | — | | | | — | | | | (4 | ) |
Net proceeds from settlement of derivative instruments | | | (34 | ) | | | 283 | | | | (7 | ) | | | — | | | | 242 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (1 | ) | | | 188 | | | | (71 | ) | | | 77 | | | | 193 | |
| | | | | | | | | | | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Proceeds from issuance of debt | | | | | | | | | | | | | | | | | | | | |
— third parties | | | — | | | | — | | | | 41 | | | | — | | | | 41 | |
— related parties | | | — | | | | 1,300 | | | | 460 | | | | (1,760 | ) | | | — | |
Principal repayments | | | | | | | | | | | | | | | | | | | | |
— third parties | | | (83 | ) | | | (147 | ) | | | (123 | ) | | | — | | | | (353 | ) |
— related parties | | | — | | | | (1,247 | ) | | | (397 | ) | | | 1,644 | | | | — | |
Short-term borrowings, net | | | | | | | | | | | | | | | | | | | | |
— third parties | | | — | | | | 103 | | | | — | | | | — | | | | 103 | |
Dividends | | | | | | | | | | | | | | | | | | | | |
— preference shares | | | — | | | | (12 | ) | | | — | | | | 12 | | | | — | |
— common shareholders | | | (15 | ) | | | (175 | ) | | | (18 | ) | | | 193 | | | | (15 | ) |
— noncontrolling interests | | | — | | | | — | | | | (15 | ) | | | — | | | | (15 | ) |
Net receipts from Alcan | | | 5 | | | | — | | | | — | | | | — | | | | 5 | |
Debt issuance costs | | | (11 | ) | | | — | | | | — | | | | — | | | | (11 | ) |
Proceeds from the exercise of stock options | | | 2 | | | | — | | | | — | | | | — | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash used in financing activities | | | (102 | ) | | | (178 | ) | | | (52 | ) | | | 89 | | | | (243 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 1 | | | | 1 | | | | (36 | ) | | | — | | | | (34 | ) |
Effect of exchange rate changes on cash balances held in foreign currencies | | | — | | | | 2 | | | | 5 | | | | — | | | | 7 | |
Cash and cash equivalents — beginning of period | | | 2 | | | | 34 | | | | 64 | | | | — | | | | 100 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents — end of period | | $ | 3 | | | $ | 37 | | | $ | 33 | | | $ | — | | | $ | 73 | |
| | | | | | | | | | | | | | | | | | | | |
F-96
Novelis Inc.
(In millions)
| | | | | | | | |
| | Three Months Ended
| |
| | June 30, | |
| | 2009 | | | 2008 | |
|
Net sales | | $ | 1,960 | | | $ | 3,103 | |
| | | | | | | | |
Cost of goods sold (exclusive of depreciation and amortization shown below) | | | 1,533 | | | | 2,831 | |
Selling, general and administrative expenses | | | 78 | | | | 84 | |
Depreciation and amortization | | | 100 | | | | 116 | |
Research and development expenses | | | 8 | | | | 12 | |
Interest expense and amortization of debt issuance costs | | | 43 | | | | 45 | |
Interest income | | | (3 | ) | | | (5 | ) |
Gain on change in fair value of derivative instruments, net | | | (72 | ) | | | (65 | ) |
Restructuring charges, net | | | 3 | | | | (1 | ) |
Equity in net loss of non-consolidated affiliates | | | 10 | | | | 2 | |
Other (income) expenses, net | | | (13 | ) | | | 23 | |
| | | | | | | | |
| | | 1,687 | | | | 3,042 | |
| | | | | | | | |
Income before income taxes | | | 273 | | | | 61 | |
Income tax provision | | | 112 | | | | 35 | |
| | | | | | | | |
Net income | | | 161 | | | | 26 | |
Net income attributable to noncontrolling interests | | | 18 | | | | 2 | |
| | | | | | | | |
Net income attributable to our common shareholder | | $ | 143 | | | $ | 24 | |
| | | | | | | | |
| | | | | | | | |
| | Six Months
| |
| | Ended
| |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Net sales | | $ | 4,141 | | | $ | 6,062 | |
| | | | | | | | |
Cost of goods sold (exclusive of depreciation and amortization shown below) | | | 3,261 | | | | 5,622 | |
Selling, general and administrative expenses | | | 161 | | | | 173 | |
Depreciation and amortization | | | 192 | | | | 223 | |
Research and development expenses | | | 17 | | | | 22 | |
Interest expense and amortization of debt issuance costs | | | 87 | | | | 91 | |
Interest income | | | (6 | ) | | | (10 | ) |
(Gain) loss on change in fair value of derivative instruments, net | | | (152 | ) | | | 120 | |
Restructuring charges, net | | | 6 | | | | (1 | ) |
Equity in net (income) loss of non-consolidated affiliates | | | 20 | | | | — | |
Other (income) expenses, net | | | (19 | ) | | | 33 | |
| | | | | | | | |
| | | 3,567 | | | | 6,273 | |
| | | | | | | | |
Income (loss) before income taxes | | | 574 | | | | (211 | ) |
Income tax provision (benefit) | | | 199 | | | | (133 | ) |
| | | | | | | | |
Net income (loss) | | | 375 | | | | (78 | ) |
Net income attributable to noncontrolling interests | | | 37 | | | | 2 | |
| | | | | | | | |
Net income (loss) attributable to our common shareholder | | $ | 338 | | | $ | (80 | ) |
| | | | | | | | |
See accompanying notes to the condensed consolidated financial statements.
F-97
Novelis Inc.
(In millions, except number of shares)
| | | | | | | | |
| | June 30,
| | | March 31,
| |
| | 2009 | | | 2009 | |
|
ASSETS |
Current assets | | | | | | | | |
Cash and cash equivalents | | $ | 237 | | | $ | 248 | |
Accounts receivable (net of allowances of $3 and $2 as of June 30, 2009 and March 31, 2009) | | | | | | | | |
— third parties | | | 1,154 | | | | 1,049 | |
— related parties | | | 19 | | | | 25 | |
Inventories | | | 813 | | | | 793 | |
Prepaid expenses and other current assets | | | 50 | | | | 51 | |
Fair value of derivative instruments | | | 111 | | | | 119 | |
Deferred income tax assets | | | 125 | | | | 216 | |
| | | | | | | | |
Total current assets | | | 2,509 | | | | 2,501 | |
Property, plant and equipment, net | | | 2,795 | | | | 2,799 | |
Goodwill | | | 582 | | | | 582 | |
Intangible assets, net | | | 781 | | | | 787 | |
Investment in and advances to non-consolidated affiliates | | | 740 | | | | 719 | |
Fair value of derivative instruments, net of current portion | | | 58 | | | | 72 | |
Deferred income tax assets | | | 5 | | | | 4 | |
Other long-term assets | | | | | | | | |
— third parties | | | 87 | | | | 80 | |
— related parties | | | 23 | | | | 23 | |
| | | | | | | | |
Total assets | | $ | 7,580 | | | $ | 7,567 | |
| | | | | | | | |
|
LIABILITIES AND SHAREHOLDER’S EQUITY |
Current liabilities | | | | | | | | |
Current portion of long-term debt | | $ | 45 | | | $ | 51 | |
Short-term borrowings | | | 237 | | | | 264 | |
Accounts payable | | | | | | | | |
— third parties | | | 785 | | | | 725 | |
— related parties | | | 52 | | | | 48 | |
Fair value of derivative instruments | | | 338 | | | | 640 | |
Accrued expenses and other current liabilities | | | 507 | | | | 516 | |
Deferred income tax liabilities | | | — | | | | — | |
| | | | | | | | |
Total current liabilities | | | 1,964 | | | | 2,244 | |
Long-term debt, net of current portion | | | | | | | | |
— third parties | | | 2,416 | | | | 2,417 | |
— related parties | | | 94 | | | | 91 | |
Deferred income tax liabilities | | | 495 | | | | 469 | |
Accrued postretirement benefits | | | 517 | | | | 495 | |
Other long-term liabilities | | | 356 | | | | 342 | |
| | | | | | | | |
Total liabilities | | | 5,842 | | | | 6,058 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
Shareholder’s equity | | | | | | | | |
Common stock, no par value; unlimited number of shares authorized; 77,459,658 shares issued and outstanding as of June 30, 2009 and March 31, 2009 | | | — | | | | — | |
Additional paid-in capital | | | 3,497 | | | | 3,497 | |
Accumulated deficit | | | (1,787 | ) | | | (1,930 | ) |
Accumulated other comprehensive loss | | | (86 | ) | | | (148 | ) |
| | | | | | | | |
Total equity of our common shareholder | | | 1,624 | | | | 1,419 | |
Noncontrolling interests | | | 114 | | | | 90 | |
| | | | | | | | |
Total equity | | | 1,738 | | | | 1,509 | |
| | | | | | | | |
Total liabilities and equity | | $ | 7,580 | | | $ | 7,567 | |
| | | | | | | | |
| | | | | | | | |
| | September 30,
| | | March 31,
| |
| | 2009 | | | 2009 | |
|
ASSETS |
Current assets | | | | | | | | |
Cash and cash equivalents | | $ | 246 | | | $ | 248 | |
Accounts receivable (net of allowances of $4 and $2 as of September 30, 2009 and March 31, 2009, respectively) | | | | | | | | |
— third parties | | | 1,206 | | | | 1,049 | |
— related parties | | | 13 | | | | 25 | |
Inventories | | | 929 | | | | 793 | |
Prepaid expenses and other current assets | | | 50 | | | | 51 | |
Fair value of derivative instruments | | | 171 | | | | 119 | |
Deferred income tax assets | | | 37 | | | | 216 | |
| | | | | | | | |
Total current assets | | | 2,652 | | | | 2,501 | |
Property, plant and equipment, net | | | 2,769 | | | | 2,799 | |
Goodwill | | | 611 | | | | 582 | |
Intangible assets, net | | | 786 | | | | 787 | |
Investment in and advances to non-consolidated affiliates | | | 764 | | | | 719 | |
Fair value of derivative instruments, net of current portion | | | 48 | | | | 72 | |
Deferred income tax assets | | | 5 | | | | 4 | |
Other long-term assets | | | | | | | | |
— third parties | | | 95 | | | | 80 | |
— related parties | | | 24 | | | | 23 | |
| | | | | | | | |
Total assets | | $ | 7,754 | | | $ | 7,567 | |
| | | | | | | | |
|
LIABILITIES AND SHAREHOLDER’S EQUITY |
Current liabilities | | | | | | | | |
Current portion of long-term debt | | $ | 49 | | | $ | 51 | |
Short-term borrowings | | | 177 | | | | 264 | |
Accounts payable | | | | | | | | |
— third parties | | | 881 | | | | 725 | |
— related parties | | | 55 | | | | 48 | |
Fair value of derivative instruments | | | 145 | | | | 640 | |
Accrued expenses and other current liabilities | | | 428 | | | | 516 | |
Deferred income tax liabilities | | | 12 | | | | — | |
| | | | | | | | |
Total current liabilities | | | 1,747 | | | | 2,244 | |
Long-term debt, net of current portion | | | | | | | | |
— third parties | | | 2,596 | | | | 2,417 | |
— related parties | | | — | | | | 91 | |
Deferred income tax liabilities | | | 518 | | | | 469 | |
Accrued postretirement benefits | | | 528 | | | | 495 | |
Other long-term liabilities | | | 354 | | | | 342 | |
| | | | | | | | |
Total liabilities | | | 5,743 | | | | 6,058 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
Shareholder’s equity | | | | | | | | |
Common stock, no par value; unlimited number of shares authorized; 77,459,658 shares issued and outstanding as of September 30, 2009 and March 31, 2009 | | | — | | | | — | |
Additional paid-in capital | | | 3,497 | | | | 3,497 | |
Accumulated deficit | | | (1,592 | ) | | | (1,930 | ) |
Accumulated other comprehensive loss | | | (22 | ) | | | (148 | ) |
| | | | | | | | |
Total Novelis shareholder’s equity | | | 1,883 | | | | 1,419 | |
Noncontrolling interests | | | 128 | | | | 90 | |
| | | | | | | | |
Total equity | | | 2,011 | | | | 1,509 | |
| | | | | | | | |
Total liabilities and shareholder’s equity | | $ | 7,754 | | | $ | 7,567 | |
| | | | | | | | |
See accompanying notes to the condensed consolidated financial statements.
F-98
Novelis Inc.
(In millions)
| | | | | | | | |
| | Three Months Ended
| |
| | June 30, | |
| | 2009 | | | 2008 | |
|
OPERATING ACTIVITIES | | | | | | | | |
Net income | | $ | 161 | | | $ | 26 | |
Adjustments to determine net cash provided by (used in) operating activities: | | | | | | | | |
Depreciation and amortization | | | 100 | | | | 116 | |
Gain on change in fair value of derivative instruments, net | | | (72 | ) | | | (65 | ) |
Deferred income taxes | | | 98 | | | | 10 | |
Write-off and amortization of fair value adjustments, net | | | (51 | ) | | | (64 | ) |
Equity in net loss of non-consolidated affiliates | | | 10 | | | | 2 | |
Foreign exchange remeasurement of debt | | | (7 | ) | | | — | |
Other, net | | | 2 | | | | 1 | |
Changes in assets and liabilities: | | | | | | | | |
Accounts receivable | | | (80 | ) | | | (339 | ) |
Inventories | | | 11 | | | | (129 | ) |
Accounts payable | | | 31 | | | | 74 | |
Other current assets | | | 3 | | | | (29 | ) |
Other current liabilities | | | 29 | | | | (5 | ) |
Other noncurrent assets | | | (9 | ) | | | 8 | |
Other noncurrent liabilities | | | 32 | | | | 43 | |
| | | | | | | | |
Net cash provided by (used in) operating activities | | | 258 | | | | (351 | ) |
| | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | |
Capital expenditures | | | (24 | ) | | | (33 | ) |
Proceeds from sales of assets | | | 3 | | | | 1 | |
Changes to investment in and advances to non-consolidated affiliates | | | 3 | | | | 6 | |
Proceeds from related party loans receivable, net | | | 6 | | | | 8 | |
Net proceeds (outflows) from settlement of derivative instruments | | | (223 | ) | | | 34 | |
| | | | | | | | |
Net cash provided by (used in) investing activities | | | (235 | ) | | | 16 | |
| | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | |
Proceeds from issuance of debt, related parties | | | 3 | | | | — | |
Principal payments | | | (12 | ) | | | (4 | ) |
Short-term borrowings, net | | | (33 | ) | | | 313 | |
Dividends, noncontrolling interest | | | (1 | ) | | | — | |
| | | | | | | | |
Net cash provided by (used in) financing activities | | | (43 | ) | | | 309 | |
| | | | | | | | |
Net decrease in cash and cash equivalents | | | (20 | ) | | | (26 | ) |
Effect of exchange rate changes on cash balances held in foreign currencies | | | 9 | | | | (4 | ) |
Cash and cash equivalents — beginning of period | | | 248 | | | | 326 | |
| | | | | | | | |
Cash and cash equivalents — end of period | | $ | 237 | | | $ | 296 | |
| | | | | | | | |
Supplemental disclosures of cash flow information: | | | | | | | | |
Interest paid | | $ | 18 | | | $ | 17 | |
Income taxes paid (refunded) | | $ | (7 | ) | | $ | 55 | |
| | | | | | | | |
| | Six Months Ended
| |
| | September 30, | |
| | 2009 | | | 2008 | |
|
OPERATING ACTIVITIES | | | | | | | | |
Net income (loss) | | $ | 375 | | | $ | (78 | ) |
Adjustments to determine net cash provided by (used in) operating activities: | | | | | | | | |
Depreciation and amortization | | | 192 | | | | 223 | |
(Gain) loss on change in fair value of derivative instruments, net | | | (152 | ) | | | 120 | |
Deferred income taxes | | | 196 | | | | (183 | ) |
Write-off and amortization of fair value adjustments, net | | | (98 | ) | | | (124 | ) |
Equity in net (income) loss of non-consolidated affiliates | | | 20 | | | | — | |
Foreign exchange remeasurement of debt | | | (15 | ) | | | 17 | |
Gain on reversal of accrued legal claim | | | — | | | | (26 | ) |
Other, net | | | 5 | | | | 3 | |
Changes in assets and liabilities: | | | | | | | | |
Accounts receivable | | | (97 | ) | | | (183 | ) |
Inventories | | | (84 | ) | | | (71 | ) |
Accounts payable | | | 109 | | | | (24 | ) |
Other current assets | | | 4 | | | | (25 | ) |
Other current liabilities | | | (4 | ) | | | (74 | ) |
Other noncurrent assets | | | (14 | ) | | | 9 | |
Other noncurrent liabilities | | | 27 | | | | 26 | |
| | | | | | | | |
Net cash provided by (used in) operating activities | | | 464 | | | | (390 | ) |
| | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | |
Capital expenditures | | | (46 | ) | | | (70 | ) |
Proceeds from sales of assets | | | 4 | | | | 2 | |
Changes to investment in and advances to non-consolidated affiliates | | | 2 | | | | 13 | |
Proceeds from related party loans receivable, net | | | 14 | | | | 13 | |
Net proceeds (outflow) from settlement of derivative instruments | | | (416 | ) | | | 94 | |
| | | | | | | | |
Net cash provided by (used in) investing activities | | | (442 | ) | | | 52 | |
| | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | |
Proceeds from issuance of debt, third parties | | | 177 | | | | — | |
Proceeds from issuance of debt, related parties | | | 3 | | | | — | |
Principal payments, third parties | | | (16 | ) | | | (7 | ) |
Principal payments, related parties | | | (94 | ) | | | — | |
Short-term borrowings, net | | | (96 | ) | | | 263 | |
Dividends, noncontrolling interest | | | (13 | ) | | | (5 | ) |
| | | | | | | | |
Net cash provided by (used in) financing activities | | | (39 | ) | | | 251 | |
| | | | | | | | |
Net decrease in cash and cash equivalents | | | (17 | ) | | | (87 | ) |
Effect of exchange rate changes on cash balances held in foreign currencies | | | 15 | | | | (20 | ) |
Cash and cash equivalents — beginning of period | | | 248 | | | | 326 | |
| | | | | | | | |
Cash and cash equivalents — end of period | | $ | 246 | | | $ | 219 | |
| | | | | | | | |
See accompanying notes to the condensed consolidated financial statements.
F-99
Novelis Inc.
(In millions, except number of shares)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Equity of our common shareholder | | | | | | | |
| | | | | | | | | | | Retained
| | | Accumulated
| | | | | | | |
| | | | | | | | Additional
| | | Earnings
| | | Other
| | | Non-
| | | | |
| | Common Stock | | | Paid-in
| | | (Accumulated
| | | Comprehensive
| | | controlling
| | | Total
| |
| | Shares | | | Amount | | | Capital | | | Deficit) | | | Income (Loss) (AOCI) | | | Interests | | | Equity | |
|
Balance as of March 31, 2009 | | | 77,459,658 | | | $ | — | | | $ | 3,497 | | | $ | (1,930 | ) | | $ | (148 | ) | | $ | 90 | | | $ | 1,509 | |
Net income attributable to our common shareholder | | | — | | | | — | | | | — | | | | 143 | | | | — | | | | — | | | | 143 | |
Net income attributable to noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | 18 | | | | 18 | |
Currency translation adjustment, net of tax provision of $3 included in AOCI | | | — | | | | — | | | | — | | | | — | | | | 53 | | | | 7 | | | | 60 | |
Change in fair value of effective portion of hedges, net of tax provision of $4 included in AOCI | | | — | | | | — | | | | — | | | | — | | | | 7 | | | | — | | | | 7 | |
Postretirement benefit plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in pension and other benefits, net of tax provision of $1 included in AOCI | | | — | | | | — | | | | — | | | | — | | | | 2 | | | | — | | | | 2 | |
Noncontrolling interests cash dividends | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | (1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2009 | | | 77,459,658 | | | $ | — | | | $ | 3,497 | | | $ | (1,787 | ) | | $ | (86 | ) | | $ | 114 | | | $ | 1,738 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Novelis Inc. 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, 2009 | | | 77,459,658 | | | $ | — | | | $ | 3,497 | | | $ | (1,930 | ) | | $ | (148 | ) | | $ | 90 | | | $ | 1,509 | |
Net income attributable to our common shareholder | | | — | | | | — | | | | — | | | | 338 | | | | — | | | | — | | | | 338 | |
Net income attributable to noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | 37 | | | | 37 | |
Currency translation adjustment, net of tax provision of $6 included in AOCI | | | — | | | | — | | | | — | | | | — | | | | 124 | | | | 14 | | | | 138 | |
Change in fair value of effective portion of hedges, net of tax benefit of $2 included in AOCI | | | — | | | | — | | | | — | | | | — | | | | (2 | ) | | | — | | | | (2 | ) |
Postretirement benefit plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in pension and other benefits, net of tax provision of $2 included in AOCI | | | — | | | | — | | | | — | | | | — | | | | 4 | | | | — | | | | 4 | |
Noncontrolling interests’ cash dividends | | | — | | | | — | | | | — | | | | — | | | | — | | | | (13 | ) | | | (13 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2009 | | | 77,459,658 | | | $ | — | | | $ | 3,497 | | | $ | (1,592 | ) | | $ | (22 | ) | | $ | 128 | | | $ | 2,011 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the condensed consolidated financial statements.
F-100
Novelis Inc.
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
| | Three Months Ended
| | | Six Months Ended
| | Six Months Ended
| |
| | June 30, 2009 | | June 30, 2008 | | | September 30, 2009 | | September 30, 2008 | |
| | Attributable to
| | Attributable to
| | | | Attributable to
| | Attributable to
| | | | | Attributable to
| | Attributable to
| | | | Attributable to
| | Attributable to
| | | |
| | Our Common
| | Noncontrolling
| | | | Our Common
| | Noncontrolling
| | | | | Our Common
| | Noncontrolling
| | | | Our Common
| | Noncontrolling
| | | |
| | Shareholder | | Interests | | Total | | Shareholder | | Interests | | Total | | | Shareholder | | Interests | | Total | | Shareholder | | Interests | | Total | |
|
Net income | | $ | 143 | | | $ | 18 | | | $ | 161 | | | $ | 24 | | | $ | 2 | | | $ | 26 | | | $ | 338 | | | $ | 37 | | | $ | 375 | | | $ | (80 | ) | | $ | 2 | | | $ | (78 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Currency translation adjustment | | | 56 | | | | 7 | | | | 63 | | | | 10 | | | | (2 | ) | | | 8 | | | | 130 | | | | 14 | | | | 144 | | | | (63 | ) | | | (23 | ) | | | (86 | ) |
Change in fair value of effective portion of hedges, net | | | 11 | | | | — | | | | 11 | | | | 19 | | | | — | | | | 19 | | | | (4 | ) | | | — | | | | (4 | ) | | | 3 | | | | — | | | | 3 | |
Postretirement benefit plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in pension and other benefits | | | 3 | | | | — | | | | 3 | | | | — | | | | — | | | | — | | | | 6 | | | | — | | | | 6 | | | | 2 | | | | — | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss) before income tax effect | | | 70 | | | | 7 | | | | 77 | | | | 29 | | | | (2 | ) | | | 27 | | | | 132 | | | | 14 | | | | 146 | | | | (58 | ) | | | (23 | ) | | | (81 | ) |
Income tax provision related to items of other comprehensive income (loss) | | | 8 | | | | — | | | | 8 | | | | 8 | | | | — | | | | 8 | | | | 6 | | | | — | | | | 6 | | | | 2 | | | | — | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | 62 | | | | 7 | | | | 69 | | | | 21 | | | | (2 | ) | | | 19 | | | | 126 | | | | 14 | | | | 140 | | | | (60 | ) | | | (23 | ) | | | (83 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | $ | 205 | | | $ | 25 | | | $ | 230 | | | $ | 45 | | | $ | — | | | $ | 45 | | | $ | 464 | | | $ | 51 | | | $ | 515 | | | $ | (140 | ) | | $ | (21 | ) | | $ | (161 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the condensed consolidated financial statements.
F-101
Novelis Inc.
| |
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 “Rio Tinto Alcan” refer to Rio Tinto Alcan Inc.
Description of Business and Basis of Presentation
Novelis Inc., formed in Canada on September 21, 2004, and its subsidiaries, is the world’s leading aluminum rolled products producer based on shipment volume. We produce aluminum sheet and light gauge products where the end-use destination of the products includes the beverage and food can, transportation, construction and industrial, and foil products markets. As of JuneSeptember 30, 2009, we had operations on four continents: North America; Europe; Asia and South America, through 31 operating plants, one research facility and several market-focused innovation centers in 11 countries. In addition to aluminum rolled products plants, our South American businesses include bauxite mining, primary aluminum smelting and power generation facilities that supply our rolling plants in Brazil.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes in our Annual Report onForm 10-K for the year ended March 31, 2009 filed with the United States Securities and Exchange Commission (SEC) on June 29, 2009.2009, and updated onForm 8-K filed August 5, 2009 to reflect the revised presentation of noncontrolling interests. Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented. Further, in connection with the preparation of the condensed consolidated financial statements, and in accordance with the recently issued FASB Statement No. 165 “Subsequent Events” (FASB 165), the Company evaluated subsequent events after the balance sheet date of JuneSeptember 30, 2009 through AugustNovember 3, 2009, the date these financial statements were issued.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The principal areas of judgment relate to (1) the fair value of derivative financial instruments; (2) impairment of goodwill; (3) impairments of long lived assets, intangible assets and equity investments; (4) actuarial assumptions related to pension and other postretirement benefit plans; (5) income tax reserves and valuation allowances and (6) assessment of loss contingencies, including environmental and litigation reserves.
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.
Recently Adopted Accounting StandardsConsolidation Policy
The following accounting standards have been adopted by us during the three months ended June 30, 2009.
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 adopted FASB Statement No. 160,Noncontrolling Interests in Consolidated Financial Statements(FASB 160). FASB 160 establishes accountingeliminate all significant intercompany accounts and reporting standards that require: (i) the ownership interesttransactions from our financial statements.
F-102
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
In August 2009, we announced the formation of a joint venture entity, Evermore Recycling LLC (Evermore), to procure used beverage cans in North America. We own 55.8% of this limited liability corporation and have consolidated the results effective August 11, 2009. The results of Evermore were immaterial for the three and six months ended September 30, 2009.
Reclassifications and Adjustment
Certain reclassifications of prior period amounts and presentation have been made to conform to the presentation adopted for the current period.
During the second quarter of fiscal 2010, we identified an immaterial error in our consolidated annual and interim financial statements included in previously filedForms 10-Q andForms 10-K for fiscal 2008 and 2009. The error relates to deferred income taxes recorded in connection with purchase accounting in South America. We believe the correction of this error to be both quantitatively and qualitatively immaterial to our projected annual results for fiscal 2010 or to any of our previously issued financial statements. As a result, we did not adjust any prior period amounts. There was no impact to income (loss) before income taxes and noncontrolling interest share or cash flows from operating activities for any periods. We have reflected the correction of this error in the interim financial statements for the second quarter of 2010. As of and for the quarter ended September 30, 2009, the impact of the correction was an increase to goodwill of $29 million, an increase to deferred tax liabilities of $25 million and a reduction of our income tax expense of $4 million. Due to the fact that our South American subsidiaries are US dollar functional, the deferred tax liabilities fluctuate with changes in the exchange rate and are recorded as increases or decreases to income tax expense.
Recently Adopted Accounting Standards
The following accounting standards have been adopted by us during the six months ended September 30, 2009.
In June 2009, the Financial Accounting Standards Board (FASB) approved its Accounting Standards Codification (ASC) (Codification) as the single source of authoritative United States accounting and reporting standards applicable for all non-governmental entities, with the exception of the SEC and its staff. The Codification which changes the referencing of financial standards is effective for interim or annual periods ending after September 15, 2009. As the codification is not intended to change or alter existing US GAAP, this standard had no impact on the Company’s financial position or results of operations.
We adopted the authoritative guidance in ASC 855,Subsequent Events, (prior authoritative literature: FASB Statement No. 165,Subsequent Events) which establishes general standards of accounting and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This accounting standard requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This standard had no impact on our consolidated financial position, results of operations and cash flows.
We adopted the authoritative guidance in ASC 810,Consolidation, (prior authoritative literature: FASB Statement No. 160,Noncontrolling Interests in Consolidated Financial Statements) which 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 condensed consolidated balance sheet within shareholder’s equity, but separate from the parent’s equity; (ii) the amount of condensed consolidated net income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face of the condensed 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. We adopted FASB 160this accounting standard effective April 1, 2009, and applied this standard prospectively, except for the presentation and disclosure requirements, which have been applied retrospectively. The adoption of FASB 160 did not have a significant impact on our condensed consolidated financial statements.
F-103
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
We adopted the authoritative guidance in ASC 350,Intangibles — Goodwill and Other, (prior authoritative literature: FASB Staff PositionNo. FAS 142-3,Determination of Useful Life of Intangible Assets(FSPFAS 142-3). FSPFAS 142-3) which amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB 142. FSPFAS 142-3asset. The accounting standard also requires expanded disclosure related to the determination of intangible asset useful lives. This standard will have no impact on our consolidated financial position, results of operations and cash flows.
We adopted FASB Staff PositionNo. 107-1 (FSPFAS 107-1) and APB Opinion28-1 (APB28-1),Interim Disclosures about Fair Value of Financial Instruments. FSPFAS 107-1 and APB28-1 amends FASB 107 and APB Opinion No. 28,Interim Financial Reporting, to require disclosures about the fair value of financial instruments for interim reporting periods. This standard had no impact on our consolidated financial position, results of operations and cash flows.
We adopted the authoritative guidance in ASC 820,Fair Value Measurements and Disclosures, (prior authoritative literature: FASB Staff PositionNo. 107-1 and APB Opinion28-1,Interim Disclosures about Fair Value of Financial Instruments;FASB Staff PositionNo. 157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly(FSPFAS 157-4). FSPFAS 157-4) which requires disclosures about the fair value of financial instruments for interim reporting periods. This codification also provides additional guidance in accordance with FASB No. 157,Fair Value Measurements,determining fair value when the volume and level of activity for the asset or liability has significantly decreased. This standard had no impact on our consolidated financial position, results of operations and cash flows.
We adopted the authoritative guidance in ASC 320,Investments —Debt and Equity Securities, (prior authoritative literature: FASB Staff PositionNo. 115-2 (FSPFAS 115-2) and FASB Staff PositionNo. 124-2, (FSPFAS 124-2),Recognition ofOther-than-Temporary-Impairments.Other-than-Temporary-ImpairmentsFSPFAS No. 115-2 and FSPFAS No. 124-2) which amends theother-than-temporary impairment guidance in GAAP for debt and equity securities. This standard had no impact on our consolidated financial position, results of operations and cash flows.
We adopted the authoritative guidance in ASC 805,Business Combinations, (prior authoritative literature: FASB Statement No. 141 (Revised),Business CombinationsCombinations;(FASB Staff Position No. 141(R)-1,Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies) (ASC 805) which establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FASB 141(R)This standard also requires acquirers to estimate the acquisition-date fair value of any contingent consideration and to recognize any subsequent changes in the fair value of contingent consideration in earnings. ASC 805 also clarifies the initial and subsequent recognition, subsequent accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This standard requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value, if the acquisition-date fair value can be reasonably estimated. We will apply this new standardASC 805 prospectively to business combinations occurring after March 31, 2009, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. FASB 141(R)This standard amends certain provisions of FASB 109preexisting tax guidance such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of FASB 141(R)this business combination guidance would also apply the provisions of FASB 141(R).this standard. This standard had no impact on our consolidated financial position, results of operations and cash flows.
We adopted FASB Staff Position No. 141(R)-1,Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies(FSP FAS No. 141(R)-1). This pronouncement amends FASB 141(R) to clarify the initial and subsequent recognition, subsequent accounting, and disclosure
F-103
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
of assets and liabilities arising from contingencies in a business combination. FSP SFAS No. 141(R)-1 requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value, as determined in accordance with FASB 157, if the acquisition-date fair value can be reasonably estimated. If the acquisition-date fair value of an asset or liability cannot be reasonably estimated, the asset or liability would be measured at the amount that would be recognized in accordance with FASB Statement No. 5,Accounting for Contingencies,and FASB Interpretation No. 14,Reasonable Estimation of the Amount of a Loss. As the provisions of FSP FAS No. 141(R)-1 are applied prospectively to business combinations with an acquisition date on or after the guidance became effective, the impact on condensed consolidated financial position, results of operations and cash flows cannot be determined until the transactions occur.
We adopted the authoritative guidance in ASC 323,Investments — Equity Method and Joint Ventures, (prior authoritative literature: Emerging Issues Task Force (EITF) IssueNo. 08-06,Equity Method Investment Accounting ConsiderationsConsiderations)(EITF 08-06).EITF 08-6 addresswhich addresses questions that have arisen about the application of the equity method of accounting for investments acquired after the effective date of both FASB 141(R)newly issued business combination standards and FASB Statement No. 160,Non-controlling Interests in Consolidated Financial Statements.EITF 08-06non-controlling interest standards. This accounting standard clarifies how to account for certain transactions involving equity method investments.EITF 08-6investments, and is effective on a prospective basis. This standard had no impact on our consolidated financial position, results of operations and cash flows.
F-104
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
Recently Issued Accounting Standards
The following new accounting standards have been issued, but have not yet been adopted by us as of JuneSeptember 30, 2009, as adoption is not required until future reporting periods.
In June 2009, the FASB issued statement No. 167,Amendments to FASB Interpretation No. 46(R) (FASB 167). FASB 167 has not been incorporated by the FASB into the Codification as the guidance is not yet effective and early adoption is prohibited. FASB 167 is intended (1) to (1) address the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003),Consolidationthe accounting standard dealing with consolidation of Variable Interest Entities(FIN 46(R)),variable interest entities, as a result of the elimination of the qualifying special-purpose entity concept in FASB Statement No. 166,Accounting for Transfers of Financial Assets, and (2) to clarify questions about the application of certain key provisions related to consolidation of FIN 46(R),variable interest entities, including those in which the accounting and disclosures under FIN 46(R) do not always provided timely and useful information about an enterprise’s involvement in a variable interest entity. FASB 167 will be effective for fiscal years ending after November 15, 2009. We do not anticipate this standard will have any impact on our consolidated financial position, results of operations and cash flows.
In December 2008, the FASB issued ASC 715,Compensation — Retirement Benefits, (prior authoritative literature: FASB issued FSP No. 132(R)-1,Employers’ Disclosures about Pensions and Other Postretirement Benefits(FSP No. 132(R)-1). FSP No. 132(R)-1) which requires that an employer disclose the following information about the fair value of plan assets: (1) how investment allocation decisions are made, including the factors that are pertinent to understanding of investment policies and strategies; (2) the major categories of plan assets; (3) the inputs and valuation techniques used to measure the fair value of plan assets; (4) the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period; and (5) significant concentrations of risk within plan assets. FSP No. 132(R)-1This pronouncement will be effective for fiscal years ending after December 15, 2009, with early application permitted. At initial adoption, application of FSP No. 132(R)-1this standard would not be required for earlier periods that are presented for comparative purposes. This standard will have no impact on our consolidated financial position, results of operations and cash flows.
We have determined that all other recently issued accounting standards will not have a material impact on our consolidated financial position, results of operations or cash flows, or do not apply to our operations.
| |
2. | RESTRUCTURING PROGRAMS |
There were no new restructuring actions initiated during fiscal 2010. Restructuring charges of $6 million on the condensed consolidated statement of operations for the six months ended September 30, 2009, consisted of the following: (1) $3 million in costs related to our Rogerstone facility, (2) $1 million in additional severance costs related to our Rugles facility and (3) $2 million in other items at other European facilities.
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, 2009 | | $ | 61 | | | $ | 16 | | | $ | — | | | $ | 2 | | | $ | 1 | | | $ | 80 | |
Provisions (recoveries), net | | | 3 | | | | — | | | | — | | | | — | | | | — | | | | 3 | |
Cash payments | | | (33 | ) | | | (6 | ) | | | — | | | | (2 | ) | | | (1 | ) | | | (42 | ) |
Impact of exchange rate changes | | | 7 | | | | — | | | | — | | | | 1 | | | | — | | | | 8 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2009 | | $ | 38 | | | $ | 10 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 49 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
F-104F-105
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
| |
2. | RESTRUCTURING PROGRAMS |
Europe
There were no new restructuring actions initiated during the three months ended June 30, 2009. Restructuring charges netin the table above includes $1 million in additional severance costs at our Rugles facility, $1 million of $3environmental costs at our Borgo Franco plant and $1 million onof other costs related primarily to the condensed consolidated statementRogerstone plant closure and the exit of operations for the three months ended June 30, 2009 consisted ofcertain activities at our Rugles and Ohle plants.
We made the following (1)payments relating to preexisting restructuring programs in Europe: $24 million in severance payments, $7 million in payments for environmental remediation and $2 million of other payments related primarily to contract terminations.
At our Rogerstone facility, we also incurred a $2 million charge related to the write down of parts and supplies related to our Rogerstone facility and (2) approximately $1 million in other items at other European facilities.of on-going maintenance expense related to the shut-down. The $2 million write down is not included in the table belowabove as it was reflected as a reduction to the appropriate balance sheet accounts. 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, 2009 | | $ | 61 | | | $ | 16 | | | $ | — | | | $ | 2 | | | $ | 1 | | | $ | 80 | |
Three Months Ended June 30, 2009 Activity: | | | | | | | | | | | | | | | | | | | | | | | | |
Provisions (recoveries), net | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | 1 | |
Cash payments | | | (13 | ) | | | (3 | ) | | | — | | | | (1 | ) | | | — | | | | (17 | ) |
Adjustments — other(A) | | | 7 | | | | — | | | | — | | | | — | | | | — | | | | 7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2009 | | $ | 56 | | | $ | 13 | | | $ | — | | | $ | 1 | | | $ | 1 | | | $ | 71 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | |
(A) | | Consists of the impact of exchange rates on restructuring balances. |
Europe
Restructuring charges for the three months ended June 30, 2009 consist ofWe expect to incur approximately $1 million in additional severance and other exit costs formaintenance expenses at our plants in Rogerstone Rugles and Ohle plants. Forfacility through the quarter ended June 30, 2009, we made $8 million in severance payments, $4 million in payments for environmental remediation and approximately $1 millionend of other payments related primarily to contract terminations.fiscal 2010.
North America
For the quarter ended June 30, 2009, we
We made $3$6 million in severance payments related to the voluntary and involuntary separation programs initiated in the third quarter of fiscal 2009.
South America
For the quarter ended June 30, 2009, we
We made $1 million in severance payments.payments and $1 million in payments related to other exit costs.
Inventories consist of the following (in millions).
| | | | | | | | |
| | June 30,
| | | March 31,
| |
| | 2009 | | | 2009 | |
|
Finished goods | | $ | 203 | | | $ | 215 | |
Work in process | | | 326 | | | | 296 | |
Raw materials | | | 199 | | | | 207 | |
Supplies | | | 88 | | | | 79 | |
| | | | | | | | |
| | | 816 | | | | 797 | |
Allowances | | | (3 | ) | | | (4 | ) |
| | | | | | | | |
Inventories | | $ | 813 | | | $ | 793 | |
| | | | | | | | |
F-105
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
| | | | | | | | |
| | September 30,
| | | March 31,
| |
| | 2009 | | | 2009 | |
|
Finished goods | | $ | 226 | | | $ | 215 | |
Work in process | | | 375 | | | | 296 | |
Raw materials | | | 242 | | | | 207 | |
Supplies | | | 91 | | | | 79 | |
| | | | | | | | |
| | | 934 | | | | 797 | |
Allowances | | | (5 | ) | | | (4 | ) |
| | | | | | | | |
Inventories | | $ | 929 | | | $ | 793 | |
| | | | | | | | |
| |
4. | CONSOLIDATION OF VARIABLE INTEREST ENTITIES |
We have a variable interest in the Logan Aluminum, Inc. (Logan). Based upon a previous restructuring program, Novelis acquired the right to use the excess capacity at Logan. To utilize this capacity, we installed and have sole ownership of a cold mill at the Logan facility which enabled us to have the ability to take the majority share of production and costs. These facts qualify Novelis as Logan’s primary beneficiary. As a result,beneficiary and this entity is consolidated pursuant to FASB Interpretation No. 46 (Revised),Consolidation of Variable Interest Entities(FIN 46(R)) infor all periods presented. All significant intercompany transactions and balances have been eliminated.
F-106
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
The following table summarizes the carrying value and classification on our condensed consolidated balance sheets of assets and liabilities owned by the Logan joint venture and consolidated under FIN 46(R)on 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.
| | | | | | | | |
| | June 30,
| | | March 31,
| |
| | 2009 | | | 2009 | |
|
Current assets | | $ | 66 | | | $ | 64 | |
Total assets | | $ | 126 | | | $ | 124 | |
Current liabilities | | $ | (34 | ) | | $ | (35 | ) |
Total liabilities | | $ | (137 | ) | | $ | (135 | ) |
Net carrying value | | $ | (11 | ) | | $ | (11 | ) |
| | | | | | | | |
| | September 30,
| | March 31,
|
| | 2009 | | 2009 |
|
Current assets | | $ | 70 | | | $ | 64 | |
Total assets | | $ | 132 | | | $ | 124 | |
Current liabilities | | $ | (40 | ) | | $ | (35 | ) |
Total liabilities | | $ | (142 | ) | | $ | (135 | ) |
Net carrying value | | $ | (10 | ) | | $ | (11 | ) |
| |
5. | INVESTMENT IN AND ADVANCES TO NON-CONSOLIDATED AFFILIATES AND RELATED PARTY TRANSACTIONS |
The following table summarizes the condensed results of operations of our equity method affiliates (on a 100% basis, in millions) on a historical basis of accounting. These results do not include the incremental depreciation and amortization expense that we record in our equity method accounting, which arises as a result of the amortization of fair value adjustments we made to our investments in non-consolidated affiliates due to the Arrangement.
| | | | | | | | |
| | Three Months Ended
| |
| | June 30, | |
| | 2009 | | | 2008 | |
|
Net sales | | $ | 113 | | | $ | 157 | |
Costs, expenses and provisions for taxes on income | | | 116 | | | | 142 | |
| | | | | | | | |
Net income (loss) | | $ | (3 | ) | | $ | 15 | |
| | | | | | | | |
| | | | | | | | |
| | Six Months Ended
| |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Net sales | | $ | 241 | | | $ | 324 | |
Costs, expenses and provisions for taxes on income | | | 247 | | | | 288 | |
| | | | | | | | |
Net income (loss) | | $ | (6 | ) | | $ | 36 | |
| | | | | | | | |
We recognized $8 million and $9 million ofThe table below summarizes our incremental depreciation and amortization expense net of tax on our equity method investments due to the Arrangement for the three months ended June 30, 2009 and 2008, respectively. We recorded a tax benefit of $4 million and $5 million associated with the incremental depreciation and amortization for the three months ended June 30, 2009 and 2008, respectively.Arrangement.
| | | | | | | | |
| | Six Months Ended
| |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Incremental depreciation and amortization expense | | $ | 24 | | | $ | 27 | |
Tax benefit | | | (7 | ) | | | (9 | ) |
| | | | | | | | |
Incremental depreciation and amortization expense, net | | $ | 17 | | | $ | 18 | |
| | | | | | | | |
Included in the accompanying condensed consolidated financial statements are transactions and balances arising from business we conduct with these non-consolidated affiliates, which we classify as related party transactions and balances. We earned less than $1 million of interest income on a loan due from Aluminium
F-106F-107
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
Norf GmbH during each of the periods presented in the table below. The following table describes the nature and amounts of significant transactions that we had with these non-consolidated affiliates (in millions).
| | | | | | | | |
| | Three Months Ended
| |
| | June 30, | |
| | 2009 | | | 2008 | |
|
Purchases of tolling services and electricity | | | | | | | | |
Aluminium Norf GmbH(A) | | $ | 56 | | | $ | 74 | |
Consorcio Candonga(B) | | | 1 | | | | 3 | |
| | | | | | | | |
Total purchases from related parties | | $ | 57 | | | $ | 77 | |
| | | | | | | | |
| | | | | | | | |
| | Six Months Ended
| |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Purchases of tolling services and electricity | | | | | | | | |
Aluminium Norf GmbH(A) | | $ | 120 | | | $ | 147 | |
Consorcio Candonga(B) | | | 1 | | | | 13 | |
| | | | | | | | |
Total purchases from related parties | | $ | 121 | | | $ | 160 | |
| | | | | | | | |
| | |
(A) | | We purchase tolling services from Aluminium Norf GmbH. |
| | |
(B) | | We obtain electricity from Consorcio Candonga for our operations in South America. |
The following table describes the period-end account balances that we have with these non-consolidated affiliates, shown as related party balances in the accompanying condensed consolidated balance sheets (in millions). We have no other material related party balances with these non-consolidated affiliates.
| | | | | | | | |
| | June 30,
| | | March 31,
| |
| | 2009 | | | 2009 | |
|
Accounts receivable(A) | | $ | 19 | | | $ | 25 | |
Other long-term receivables(A) | | $ | 23 | | | $ | 23 | |
Accounts payable(B) | | $ | 52 | | | $ | 48 | |
| | | | | | | | |
| | September 30,
| | | March 31,
| |
| | 2009 | | | 2009 | |
|
Accounts receivable(A) | | $ | 13 | | | $ | 25 | |
Other long-term receivables(A) | | $ | 24 | | | $ | 23 | |
Accounts payable(B) | | $ | 55 | | | $ | 48 | |
| | |
(A) | | The balances represent current and non-current portions of a loan due from Aluminium Norf GmbH. |
| | |
(B) | | We purchase tolling services from Aluminium Norf GmbH and electricity from Consorcio Candonga. |
F-107F-108
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
Debt consists of the following (in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2009 | | | March 31, 2009 | |
| | | | | | | | 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 | | | 2.81 | % | | $ | 237 | | | $ | — | | | $ | 237 | | | $ | 264 | | | $ | — | | | $ | 264 | |
Novelis Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
7.25% Senior Notes, due February 2015 | | | 7.25 | % | | | 1,124 | | | | 45 | | | | 1,169 | | | | 1,124 | | | | 47 | | | | 1,171 | |
Floating rate Term Loan Facility, due July 2014 | | | 2.60 | %(C) | | | 294 | | | | — | | | | 294 | | | | 295 | | | | — | | | | 295 | |
Novelis Corporation | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Floating rate Term Loan Facility, due July 2014 | | | 2.60 | %(C) | | | 865 | | | | (52 | ) | | | 813 | | | | 867 | | | | (54 | ) | | | 813 | |
Novelis Switzerland S.A. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Capital lease obligation, due December 2019 (Swiss francs (CHF) 50 million) | | | 7.50 | % | | | 46 | | | | (3 | ) | | | 43 | | | | 45 | | | | (3 | ) | | | 42 | |
Capital lease obligation, due August 2011 (CHF 2 million) | | | 2.49 | % | | | 2 | | | | — | | | | 2 | | | | 2 | | | | — | | | | 2 | |
Novelis Korea Limited | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bank loan, due October 2010 | | | 4.09 | % | | | 100 | | | | — | | | | 100 | | | | 100 | | | | — | | | | 100 | |
Bank loan, due February 2010 (Korean won (KRW) 50 billion) | | | 3.76 | % | | | 39 | | | | — | | | | 39 | | | | 37 | | | | — | | | | 37 | |
Bank loan, due May 2009 (KRW 10 billion) | | | 7.47 | % | | | — | | | | — | | | | — | | | | 7 | | | | — | | | | 7 | |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other debt, due December 2011 through December 2012 | | | 1.00 | % | | | 1 | | | | — | | | | 1 | | | | 1 | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total debt — third parties | | | | | | | 2,708 | | | | (10 | ) | | | 2,698 | | | | 2,742 | | | | (10 | ) | | | 2,732 | |
Less: Short term borrowings | | | | | | | (237 | ) | | | — | | | | (237 | ) | | | (264 | ) | | | — | | | | (264 | ) |
Current portion of long tern debt | | | | | | | (54 | ) | | | 9 | | | | (45 | ) | | | (59 | ) | | | 8 | | | | (51 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt, net of current portion — third parties: | | | | | | $ | 2,417 | | | $ | (1 | ) | | $ | 2,416 | | | $ | 2,419 | | | $ | (2 | ) | | $ | 2,417 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Related party debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Novelis Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unsecured credit facility — related party, due January 2015 | | | 13.00 | % | | $ | 94 | | | $ | — | | | $ | 94 | | | $ | 91 | | | $ | — | | | $ | 91 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2009 | | | March 31, 2009 | |
| | | | | | | | 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 | | | 2.09 | % | | $ | 177 | | | $ | — | | | $ | 177 | | | $ | 264 | | | $ | — | | | $ | 264 | |
Novelis Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
11.5% Senior Notes, due February 2015 | | | 11.50 | % | | | 185 | | | | (4 | ) | | | 181 | | | | — | | | | — | | | | — | |
7.25% Senior Notes, due February 2015 | | | 7.25 | % | | | 1,124 | | | | 44 | | | | 1,168 | | | | 1,124 | | | | 47 | | | | 1,171 | |
Floating rate Term Loan Facility, due July 2014 | | | 2.25 | %(C) | | | 293 | | | | — | | | | 293 | | | | 295 | | | | — | | | | 295 | |
Novelis Corporation | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Floating rate Term Loan Facility, due July 2014 | | | 2.27 | %(C) | | | 864 | | | | (50 | ) | | | 814 | | | | 867 | | | | (54 | ) | | | 813 | |
Novelis Switzerland S.A. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Capital lease obligation, due December 2019 (Swiss francs (CHF) 50 million) | | | 7.50 | % | | | 47 | | | | (3 | ) | | | 44 | | | | 45 | | | | (3 | ) | | | 42 | |
Capital lease obligation, due August 2011 (CHF 2 million) | | | 2.49 | % | | | 2 | | | | — | | | | 2 | | | | 2 | | | | — | | | | 2 | |
Novelis Korea Limited | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bank loan, due October 2010 | | | 3.00 | %(C) | | | 100 | | | | — | | | | 100 | | | | 100 | | | | — | | | | 100 | |
Bank loan, due February 2010 (Korean won (KRW) 50 billion) | | | 3.81 | % | | | 42 | | | | — | | | | 42 | | | | 37 | | | | — | | | | 37 | |
Bank loan, due May 2009 (KRW 10 billion) | | | 7.47 | % | | | — | | | | — | | | | — | | | | 7 | | | | — | | | | 7 | |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other debt, due December 2011 through December 2012 | | | 1.00 | % | | | 1 | | | | — | | | | 1 | | | | 1 | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total debt — third parties | | | | | | | 2,835 | | | | (13 | ) | | | 2,822 | | | | 2,742 | | | | (10 | ) | | | 2,732 | |
Less: Short term borrowings | | | | | | | (177 | ) | | | — | | | | (177 | ) | | | (264 | ) | | | — | | | | (264 | ) |
Current portion of long term debt | | | | | | | (58 | ) | | | 9 | | | | (49 | ) | | | (59 | ) | | | 8 | | | | (51 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt, net of current portion — third parties: | | | | | | $ | 2,600 | | | $ | (4 | ) | | $ | 2,596 | | | $ | 2,419 | | | $ | (2 | ) | | $ | 2,417 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Related party debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Novelis Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unsecured credit facility — related party, due January 2015 | | | 13.00 | % | | $ | — | | | $ | — | | | $ | — | | | $ | 91 | | | $ | — | | | $ | 91 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
(A) | | Interest rates are as of JuneSeptember 30, 2009 and exclude the effects of accretion/amortization of fair value adjustments as a result of the Arrangement and the debt exchange completed in the fourth quarter of fiscal 2009. |
| | |
(B) | | Debt existing at the time of the Arrangement was recorded at fair value. Additional floating rate Term Loan with a face value of $220 million issued in March 2009 was recorded at a fair value of $165 million. Additional 11.5% Senior Note with a face value of $185 million issued in August 2009 was recorded at fair value of $181 million (see11.5% Senior Notesbelow). |
| | |
(C) | | Excludes the effect of related interest rate swaps and the effect of accretion of fair value. |
F-108F-109
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
Principal repayment requirements for our total debt over the next five years and thereafter (excluding unamortized fair value adjustments and using rates of exchange as of September 30, 2009 for our debt denominated in foreign currencies) are as follows (in millions).
| | | | |
As of September 30, 2009 | | Amount | |
|
Within one year | | $ | 58 | |
2 years | | | 116 | |
3 years | | | 16 | |
4 years | | | 16 | |
5 years | | | 1,114 | |
Thereafter | | | 1,338 | |
| | | | |
Total | | $ | 2,658 | |
| | | | |
11.5% Senior Notes
On August 11, 2009, Novelis Inc. issued $185 million aggregate principal face amount of 11.5% senior unsecured notes at an effective rate of 12.0% (11.5% Senior Notes). The 11.5% Senior Notes were issued at a discount resulting in gross proceeds of $181 million. The net proceeds of this offering were used to repay a portion of the ABL Facility and $96 million outstanding under the unsecured credit facility from an affiliate of the Aditya Birla Group.
The 11.5% Senior Notes rank equally with all of our existing and future unsecured senior indebtedness, and are guaranteed, jointly and severally, on a senior unsecured basis, by the following:
| | |
| • | all of our existing and future Canadian and U.S. restricted subsidiaries, |
| | |
| • | certain of our existing foreign restricted subsidiaries and |
| | |
| • | our other restricted subsidiaries that guarantee debt in the future under any credit facilities, provided that the borrower of such debt is our company or a Canadian or a U.S. subsidiary. |
The 11.5% Senior Notes contain certain covenants and events of default, including limitations on certain restricted payments, the incurrence of additional indebtedness and the sale of certain assets. As of September 30, 2009, we are compliant with these covenants. Interest on the 11.5% Senior Notes is payable on February 15 and August 15 of each year, commencing on February 15, 2010. The notes will mature on February 15, 2015.
Senior Secured Credit Facilities
Our senior secured credit facilities consist of (1) a $1.16 billion seven year term loan facility maturing July 2014 (Term Loan facility) and (2) aan $800 million five-year multi-currency asset-backed revolving credit line and letter of credit facility (ABL Facility). The senior secured credit facilities include customarycertain affirmative and negative covenants. Under the ABL Facility, if our excess availability, as defined under the borrowing, is less than $80 million, we are required to maintain a minimum fixed charge coverage ratio of 1 to 1. As of JuneSeptember 30, 2009, our fixed charge coverage ratio is less than 1 to 1, resulting in a reduction of availability under the ABL Facility of $80 million. Substantially all of our assets are pledged as collateral under the senior secured credit facilities.
Short-Term Borrowings and Lines of Credit
As of JuneSeptember 30, 2009, our short-term borrowings were $237$177 million consisting of (1) $226$166 million of short-term loans under the ABL Facility, (2) a $7$4 million short-term loan in Italy and (3) $4$7 million in bank
F-110
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
overdrafts. As of JuneSeptember 30, 2009, $31 million of the ABL Facility was utilized for letters of credit and we had $299$400 million in remaining availability under the ABL Facility before covenant related restrictions. The weighted average interest rate on our total short-term borrowings was 2.81%2.09% and 2.75% as of JuneSeptember 30, 2009 and March 31, 2009, respectively.
As of JuneSeptember 30, 2009, we had an additional $71$122 million outstanding under letters of credit in Korea not included in the ABL Facility.
Interest Rate Swaps
As of JuneSeptember 30, 2009, we have interest rate swaps to fix the variable LIBOR interest rate on $920 million of our floating rate Term Loan facility. We are still obligated to pay any applicable margin, as defined in our senior secured credit facilities. Interest ratesrate swaps related to $400 million at an effective weighted average interest rate of 4.0% expire March 31, 2010. In January 2009, we entered into two interest rate swaps to fix the variable LIBOR interest rate on an additional $300 million of our floating Term Loan facility at a rate of 1.49%, plus any applicable margin. These interest rate swaps are effective from March 31, 2009 through March 31, 2011. In April 2009, we entered into an additional $220 million interest rate swap at a rate of 1.97%, which is effective through April 30, 2012.
As of June 30, 2009, we
We have ana cross-currency interest rate swap in Korea onto convert our $100 million variable rate bank loan through a 5.44% fixed rateto KRW 92 billion ($92 million) loan.at a fixed rate of 5.44%. The interest rate swap expires in October 2010.2010, concurrent with the maturity of the loan.
As of JuneSeptember 30, 2009 approximately 79%84% of our debt was fixed rate and approximately 21%16% was variable rate.
| |
7. | SHARE-BASED COMPENSATION |
Total compensation expense related to share-based awards was less than $1 million for both the three months ended June 30, 2009respective periods is presented in the table below (in millions). These amounts are included in Selling, general and 2008.administrative expenses in our condensed consolidated statements of operations.
| | | | | | | | |
| | Six Months Ended
| |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Novelis Long-Tem Incentive Plan 2009 | | $ | 1 | | | $ | — | |
Novelis Long-Tem Incentive Plan 2010 | | | 1 | | | | — | |
| | | | | | | | |
Total compensation expense | | $ | 2 | | | $ | — | |
| | | | | | | | |
Novelis Long-Term Incentive Plan
In June 2009, our board of directors authorized the Novelis Long-Term Incentive Plan FY 2010 — FY 2013 (2010 LTIP) covering the performance period from April 1, 2009 through March 31, 2013. The terms of the 2010 LTIP are the same as the Novelis Long-Term Incentive Plan FY 2009 — FY 2012 (2009 LTIP) approved in June 2008. Under the 2010 LTIP, phantom stock appreciation rights (SARs) are to be granted to certain of our executive officers and key employees. The SARs will vest at the rate of 25% per year, subject to performance criteria (see below) and expire seven years from their grant date. Each SAR is to be settled in
F-109
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
cash based on the difference between the market value of one Hindalco share on the date of grant compared toand the market value on the date of exercise, converted fromwhere market values are denominated in Indian rupees and converted to U.S. dollarsthe participant’s payroll currency at the time of exercise. The amount of cash paid would beis limited to (i) 2.5 times the target payout if exercised within one year of vesting or (ii) 3 times the target payout if exercised after one
F-111
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
year of vesting. The SARs do not transfer any shareholder rights in Hindalco to a participant. As of June 30, 2009, noThe SARs have been awarded underare classified as liability awards and are remeasured at fair value each reporting period until the 2010 LTIP.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. Accordingly, each of the four tranches associated with the 2010 LTIP and 2009 LTIP is deemed granted when the earnings target is determined.
The tables below show the SARs activity under our 2010 LTIP and 2009 LTIP.
| | | | | | | | | | | | | | | | |
| | | | | Weighted
| | | Weighted Average
| | | Aggregate
| |
| | | | | Average
| | | Remaining
| | | Intrinsic
| |
| | Number of
| | | Exercise Price
| | | Contractual Term
| | | Value (USD
| |
2010 LTIP | | SARs | | | (in Indian Rupees) | | | (In years) | | | in millions) | |
|
SARs outstanding as of March 31, 2009 | | | — | | | | — | | | | — | | | | (B | ) |
Granted | | | 13,459,711 | (A) | | | 85.79 | | | | | | | | | |
Exercised | | | — | | | | — | | | | | | | | — | |
Forfeited/Cancelled | | | — | | | | — | | | | | | | | | |
Expired | | | — | | | | — | | | | | | | | | |
| | | | | | | | | | | | | | | | |
SARs outstanding as of September 30, 2009 | | | 13,459,711 | | | | 85.79 | | | | 6.74 | | | $ | 12 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | Weighted
| | | Weighted Average
| | | Aggregate
| |
| | | | | Average
| | | Remaining
| | | Intrinsic
| |
| | Number of
| | | Exercise Price
| | | Contractual Term
| | | Value (USD
| |
2009 LTIP | | SARs | | | (in Indian Rupees) | | | (In years) | | | in millions) | |
|
SARs outstanding as of March 31, 2009 | | | 20,606,906 | (A) | | | 60.05 | | | | 6.22 | | | | (B | ) |
Granted | | | — | | | | — | | | | | | | | | |
Exercised | | | — | | | | — | | | | | | | | | |
Forfeited/Cancelled | | | (9,041,795 | ) | | | — | | | | | | | | | |
Expired | | | — | | | | — | | | | | | | | | |
| | | | | | | | | | | | | | | | |
SARs outstanding as of September 30, 2009 | | | 11,565,111 | | | | 60.05 | | | | 5.72 | | | $ | 17 | |
| | | | | | | | | | | | | | | | |
| | |
(A) | | Represents total SARs approved by the Board of Directors for grant. As noted above, due to the performance criterion based on a future earnings target, the amount deemed granted for accounting purposes is limited to the individual tranches subject to an established earnings target, which includes the current and prior fiscal years. |
| | |
(B) | | The aggregate intrinsic value is zero as the market value of a share of Hindalco stock was less than the SAR exercise price. |
The fair value of each SAR is based on the difference between the fair value of a long call and a short call option. The fair value of each of these call options was determined using the Black-Scholes valuation method. We used historical stock price volatility data of Hindalco on the Bombay Stock Exchange to
F-112
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
determine expected volatility assumptions. The fair value of each SAR under the 2010 LTIP and 2009 LTIP was estimated as of September 30, 2009 using the following assumptions:
| | | | |
| | 2010 LTIP | | 2009 LTIP |
|
Expected volatility | | 49.9 — 56.4% | | 54.0 — 57.1% |
Weighted average volatility | | 53.0% | | 55.9% |
Dividend yield | | 1.05% | | 1.05% |
Risk-free interest rate | | 6.8 — 7.1% | | 6.61 — 6.93% |
Expected life | | 3.7 — 5.2 years | | 3.2 — 4.2 years |
The fair value of the SARs is being recognized over the requisite performance and service period of each tranche, subject to the achievement of any performance criterion. Since the performance criteria for fiscal years 2011 through 2013 have not yet been established and therefore, measurement periods for SARs relating to those periods have not yet commenced, no compensation expense for those tranches has been recorded for the nine months ended September 30, 2009. No SARs were exercisable at September 30, 2009.
Unrecognized compensation expense related to the non-vested SARs (assuming all future performance criteria are met) is $14 million which is expected to be realized over a weighted average period of 4.16 years.
| |
8. | POSTRETIREMENT BENEFIT PLANS |
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 (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.
Components of net periodic benefit cost for all of our significant postretirement benefit plans are shown in the tables below (in millions).
| | | | | | | | | | | | | | | | |
| | Pension Benefit Plans | | | Other Benefits | |
| | Three Months Ended
| | | Three Months Ended
| |
| | June 30, | | | June 30, | |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
Service cost | | $ | 8 | | | $ | 10 | | | $ | 2 | | | $ | 2 | |
Interest cost | | | 14 | | | | 15 | | | | 3 | | | | 3 | |
Expected return on assets | | | (10 | ) | | | (13 | ) | | | — | | | | — | |
Amortization — (gains) losses | | | 3 | | | | — | | | | — | | | | — | |
Curtailment/settlement losses | | | — | | | | 1 | | | | — | | | | (2 | ) |
| | | | | | | | | | | | | | | | |
Net periodic benefit cost | | $ | 15 | | | $ | 13 | | | $ | 5 | | | $ | 3 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | |
| | Pension Benefit Plans | |
| | Six Months Ended
| |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Service cost | | $ | 16 | | | $ | 21 | |
Interest cost | | | 28 | | | | 30 | |
Expected return on assets | | | (20 | ) | | | (26 | ) |
Amortization — (gains) losses | | | 6 | | | | (1 | ) |
Curtailment/settlement losses | | | — | | | | 1 | |
| | | | | | | | |
Net periodic benefit cost | | $ | 30 | | | $ | 25 | |
| | | | | | | | |
| | | | | | | | |
| | Other Benefits | |
| | Six Months Ended
| |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Service cost | | $ | 3 | | | $ | 3 | |
Interest cost | | | 6 | | | | 5 | |
Amortization — (gains) losses | | | — | | | | 1 | |
Curtailment/settlement losses | | | — | | | | (2 | ) |
| | | | | | | | |
Net periodic benefit cost | | $ | 9 | | | $ | 7 | |
| | | | | | | | |
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Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
The expected long-term rate of return on plan assets is 6.7% in fiscal 2010.
Employer Contributions to Plans
For pension plans, our policy is to fund an amount required to provide for contractual benefits attributed to service to date, and amortize unfunded actuarial liabilities typically over periods of 15 years or less. We also participate in savings plans in Canada and the U.S., as well as defined contribution pension plans in the U.S., U.K., Canada, Germany, Italy, Switzerland, Malaysia and Brazil. We contributed the following amounts to all plans, including the Rio Tinto Alcan plans, that cover our employees (in millions).
| | | | | | | | |
| | Three Months Ended
| |
| | June 30, | |
| | 2009 | | | 2008 | |
|
Funded pension plans | | $ | 3 | | | $ | 4 | |
Unfunded pension plans | | | 4 | | | | 4 | |
Savings and defined contribution pension plans | | | 3 | | | | 5 | |
| | | | | | | | |
Total contributions | | $ | 10 | | | $ | 13 | |
| | | | | | | | |
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Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
| | | | | | | | |
| | Six Months Ended
| |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Funded pension plans | | $ | 12 | | | $ | 11 | |
Unfunded pension plans | | | 8 | | | | 8 | |
Savings and defined contribution pension plans | | | 7 | | | | 9 | |
| | | | | | | | |
Total contributions | | $ | 27 | | | $ | 28 | |
| | | | | | | | |
During the remainder of fiscal 2010, we expect to contribute an additional $42$33 million to our funded pension plans, $10$6 million to our unfunded pension plans and $12$9 million to our savings and defined contribution plans.
| |
9. | CURRENCY (GAINS) LOSSES |
The following currency (gains) losses are included in the accompanying condensed consolidated statements of operations (in millions).
| | | | | | | | |
| | Three Months Ended
| |
| | June 30, | |
| | 2009 | | | 2008 | |
|
Net gain on change in fair value of currency derivative instruments(A) | | $ | (22 | ) | | $ | (32 | ) |
Net (gain) loss on remeasurement of monetary assets and liabilities(B) | | | (4 | ) | | | 20 | |
| | | | | | | | |
| | $ | (26 | ) | | $ | (12 | ) |
| | | | | | | | |
| | | | | | | | |
| | Six Months Ended
| |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Net (gain) loss on change in fair value of currency derivative instruments(A) | | $ | (51 | ) | | $ | (39 | ) |
Net (gain) loss on remeasurement of monetary assets and liabilities(B) | | | (7 | ) | | | 56 | |
| | | | | | | | |
| | $ | (58 | ) | | $ | 17 | |
| | | | | | | | |
| | |
(A) | | Included in (Gain) loss on change in fair value of derivative instruments, net. |
| | |
(B) | | Included in Other (income) expenses, net. |
The following currency gains (losses) are included in Accumulated other comprehensive income (loss) (AOCI), net of tax. (in millions).
| | | | | | | | |
| | Three Months Ended
| | | Year Ended
| |
| | June 30, 2009 | | | March 31, 2009 | |
|
Cumulative currency translation adjustment — beginning of period | | $ | (78 | ) | | $ | 85 | |
Effect of changes in exchange rates | | | 60 | | | | (163 | ) |
| | | | | | | | |
Cumulative currency translation adjustment — end of period | | $ | (18 | ) | | $ | (78 | ) |
| | | | | | | | |
| | | | | | | | |
| | Six Months Ended
| | | Year Ended
| |
| | September 30, 2009 | | | March 31,2009 | |
|
Cumulative currency translation adjustment — beginning of period | | $ | (78 | ) | | $ | 85 | |
Effect of changes in exchange rates | | | 138 | | | | (163 | ) |
| | | | | | | | |
Cumulative currency translation adjustment — end of period | | $ | 60 | | | $ | (78 | ) |
| | | | | | | | |
F-111F-114
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
| |
10. | FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS |
The fair values of our financial instruments and commodity contracts as of JuneSeptember 30, 2009 and March 31, 2009 are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | June 30, 2009 | |
| | Assets | | | Liabilities | | | Net Fair Value
| |
| | Current | | | Noncurrent | | | Current | | | Noncurrent(A) | | | Assets/(Liabilities) | |
|
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
Currency exchange contracts | | $ | — | | | $ | — | | | $ | (1 | ) | | $ | (23 | ) | | $ | (24 | ) |
Interest rate swaps | | | — | | | | 3 | | | | (14 | ) | | | — | | | | (11 | ) |
Electricity swap | | | — | | | | — | | | | (4 | ) | | | (2 | ) | | | (6 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total derivatives designated as hedging instruments | | | — | | | | 3 | | | | (19 | ) | | | (25 | ) | | | (41 | ) |
| | | | | | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
Aluminum forward contracts | | | 86 | | | | 27 | | | | (268 | ) | | | (7 | ) | | | (162 | ) |
Currency exchange contracts | | | 25 | | | | 28 | | | | (44 | ) | | | (4 | ) | | | 5 | |
Energy contracts | | | — | | | | — | | | | (7 | ) | | | — | | | | (7 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total derivatives not designated as hedging instruments | | | 111 | | | | 55 | | | | (319 | ) | | | (11 | ) | | | (164 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total derivative fair value | | $ | 111 | | | $ | 58 | | | $ | (338 | ) | | $ | (36 | ) | | $ | (205 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2009 | |
| | Assets | | | Liabilities | | | Net Fair Value
| |
| | Current | | | Noncurrent | | | Current | | | Noncurrent(A) | | | Assets/(Liabilities) | |
|
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
Currency exchange contracts | | $ | — | | | $ | — | | | $ | (1 | ) | | $ | (27 | ) | | $ | (28 | ) |
Interest rate swaps | | | — | | | | 1 | | | | (13 | ) | | | — | | | | (12 | ) |
Electricity swap | | | — | | | | — | | | | (6 | ) | | | (15 | ) | | | (21 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total derivatives designated as hedging instruments | | | — | | | | 1 | | | | (20 | ) | | | (42 | ) | | | (61 | ) |
| | | | | | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
Aluminum contracts | | | 130 | | | | 19 | | | | (84 | ) | | | (3 | ) | | | 62 | |
Currency exchange contracts | | | 40 | | | | 27 | | | | (37 | ) | | | (7 | ) | | | 23 | |
Energy contracts | | | 1 | | | | 1 | | | | (4 | ) | | | — | | | | (2 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total derivatives not designated as hedging instruments | | | 171 | | | | 47 | | | | (125 | ) | | | (10 | ) | | | 83 | |
| | | | | | | | | | | | | | | | | | | | |
Total derivative fair value | | $ | 171 | | | $ | 48 | | | $ | (145 | ) | | $ | (52 | ) | | $ | 22 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2009 | |
| | Assets | | | Liabilities | | | Net Fair Value
| |
| | Current | | | Noncurrent | | | Current | | | Noncurrent(A) | | | Assets/(Liabilities) | |
|
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
Currency exchange contracts | | $ | — | | | $ | — | | | $ | — | | | $ | (11 | ) | | $ | (11 | ) |
Interest rate swaps | | | — | | | | — | | | | (13 | ) | | | — | | | | (13 | ) |
Electricity swap | | | — | | | | — | | | | (6 | ) | | | (12 | ) | | | (18 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total derivatives designated as hedging instruments | | | — | | | | — | | | | (19 | ) | | | (23 | ) | | | (42 | ) |
| | | | | | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | | |
Aluminum contracts | | | 99 | | | | 41 | | | | (532 | ) | | | (13 | ) | | | (405 | ) |
Currency exchange contracts | | | 20 | | | | 31 | | | | (77 | ) | | | (12 | ) | | | (38 | ) |
Energy contracts | | | — | | | | — | | | | (12 | ) | | | — | | | | (12 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total derivatives not designated as hedging instruments | | | 119 | | | | 72 | | | | (621 | ) | | | (25 | ) | | | (455 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total derivative fair value | | $ | 119 | | | $ | 72 | | | $ | (640 | ) | | $ | (48 | ) | | $ | (497 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | |
(A) | | The noncurrent portions of derivative liabilities are included in Other long-term liabilities in the accompanying condensed consolidated balance sheets. |
F-112F-115
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
Net Investment Hedges
We use cross-currency swaps to manage our exposure to fluctuating exchange rates arising from our loans to and investments in our European operations. We had cross-currency swaps of Euro 135 million as of September 30, 2009 and March 31, 2009, designated as net investment hedges. The effective portion of gain or loss on the change in fair value of the derivative is included in Other comprehensive income (loss) (OCI). The effective portion, as a part of the derivatives is included in Currency translation adjustments. The ineffective portion of gain or loss on derivatives is included in (Gain) loss on change in fair value of derivative instruments, net. We had cross-currency swaps of Euro 135 million against the U.S. dollar outstanding as of both June 30, 2009 and March 31, 2009.
We recognized a $16 million loss and a $28 million gain in OCI for the three months ended June 30, 2009 and 2008, respectively, forFor our currency exchange contracts designated as net investment hedges.hedges, we recognized a $5 million loss and a $21 million loss in OCI for the three months and six months ended September 30, 2009, respectively. We recognized gains of $81 and $120 million in OCI for the three and six months ended September 30, 2008, respectively.
Cash Flow Hedges
We own an interest in an electricity swap which we have designated as a cash flow hedge againstof our exposure to fluctuating electricity prices. The effective portion of gain or loss on the derivative is included in OCI and reclassified when settled into (Gain) loss on change in fair value of derivatives, net in our accompanying condensed consolidated statements of operations. As of JuneSeptember 30, 2009, the outstanding portion of this swap includes 1.91.8 million megawatt hours through 2017.
We use interest rate swaps to manage our exposure to changes in the benchmark LIBOR interest rate arising from our variable-rate debt. We have designated these as cash flow hedges. The effective portion of gain or loss on the derivative is included in OCI and reclassified when settled into Interest expense and amortization of debt issuance costs in our accompanying condensed consolidated statements of operations. We had $910 million and $690 million of outstanding interest rate swaps designated as cash flow hedges as of JuneSeptember 30, 2009 and March 31, 2009, respectively.
For all derivatives designated as cash flow hedges, gains or losses representing hedge ineffectiveness are recognized in (Gain) loss on change in fair value of derivative instruments, net in our current period earnings. If at any time during the life of a cash flow hedge relationship we determine that the relationship is no longer effective, the derivative will be no longer be designated as a cash flow hedge. This could occur if the underlying hedged exposure is determined to no longer be probable, or if our ongoing assessment of hedge effectiveness determines that the hedge relationship no longer meets the measures we have established at the inception of the hedge. Gains or losses recognized to date in AOCI would be immediately reclassified into current period earnings, as would any subsequent changes in the fair value of any such derivative.
During the next twelve months we expect to realize $11$23 million in effective net losses from our cash flow hedges. The maximum period over which we have hedged our exposure to cash flow variability is through 2017.
F-116
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
The following table summarizes the impact on AOCI and earnings of derivative instruments designated as cash flow hedges (in millions).
| | | | | | | | | | | | |
| | | | | | | | Gain or (Loss)
| |
| | | | | | | | Recognized in Income
| |
| | | | | Gain (Loss)
| | | (Ineffective Portion and Amount
| |
| | Gain (Loss)
| | | Reclassified from
| | | Excluded from
| |
| | Recognized in OCI | | | AOCI into Income | | | Effectiveness Testing) | |
| | Three Months Ended
| | | Three Months Ended
| | | Three Months Ended
| |
| | June 30, 2009 | | | June 30, 2009 | | | June 30, 2009 | |
|
Energy contracts | | $ | 9 | | | $ | (1 | ) | | $ | 2 | |
Interest rate swaps | | $ | 1 | | | $ | — | | | $ | — | |
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Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Amount of Gain or (Loss)
|
| | | | Amount of Gain or (Loss)
| | Recognized in Income on
|
| | Amount of Gain or (Loss)
| | Reclassified from Accumulated
| | Derivative (Ineffective Portion
|
| | Recognized in OCI on Derivative
| | OCI into Income
| | and Amount Excluded from
|
| | (Effective Portion) | | (Effective Portion) | | Effectiveness Testing) |
| | Six Months
| | Six Months
| | Six Months
| | Six Months
| | Six Months
| | Six Months
|
| | Ended
| | Ended
| | Ended
| | Ended
| | Ended
| | Ended
|
| | September 30,
| | September 30,
| | September 30,
| | September 30,
| | September 30,
| | September 30,
|
| | 2009 | | 2008 | | 2009 | | 2008 | | 2009 | | 2008 |
|
Electricity swap | | $ | (3 | ) | | $ | — | | | $ | 2 | | | $ | 8 | | | $ | 2 | | | $ | — | |
Interest rate swaps | | $ | 1 | | | $ | 11 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | |
| | | | | | | | Gain or (Loss)
| |
| | | | | | | | Recognized in Income
| |
| | | | | Gain (Loss)
| | | (Ineffective Portion and Amount
| |
| | Gain (Loss)
| | | Reclassified from
| | | Excluded from
| |
| | Recognized in OCI | | | AOCI into Income | | | Effectiveness Testing) | |
| | Three Months Ended
| | | Three Months Ended
| | | Three Months Ended
| |
| | June 30, 2008 | | | June 30, 2008 | | | June 30, 2008 | |
|
Energy contracts | | $ | 10 | | | $ | (3 | ) | | $ | — | |
Interest rate swaps | | $ | 6 | | | $ | — | | | $ | — | |
Derivative Instruments Not Designated as Hedges
While each of these derivatives is intended to be effective in helping us manage risk, they have not been designated as hedging instruments under FASB 133.instruments. The change in fair value of these derivative instruments is included in (Gain) loss on change in fair value of derivative instruments, net in the accompanying condensed consolidated statement of operations.
We use aluminum forward contracts and options to hedge our exposure to changes in the London Metal Exchange (LME) price of aluminum. These exposures arise from firm commitments to sell aluminum in future periods at fixed or capped prices, the forecasted output of our smelter operations in South America and the forecasted metal price lag associated with firm commitments to sell aluminum in future periods at prices based on the LME. In addition, transactions with certain customers meet the definition of a derivative under FASB 133US GAAP and are recognized as assets or liabilities at fair value on the accompanying condensed consolidated balance sheets. As of JuneSeptember 30, 2009 and March 31, 2009, we had 362225 kilotonnes (kt) and 294 kt, respectively, of outstanding aluminum contracts not designated as hedges.
We recognize a derivative position which arises from a contractual relationship with a customer that entitles us to pass-through the economic effect of trading positions that we take with other third parties on our customers’ behalf.
We use foreign exchange forward contracts and cross-currency swaps to manage our exposure to changes in exchange rates. These exposures arise from recorded assets and liabilities, firm commitments and forecasted cash flows denominated in currencies other than the functional currency of certain of our operations. As of JuneSeptember 30, 2009 and March 31, 2009, we had outstanding currency exchange contracts with a total notional amount of $1.3$1.5 billion and $1.4 billion, respectively, not designated as hedges.
We use interest rate swaps to manage our exposure to fluctuating interest rates associated with variable-rate debt. As of JuneSeptember 30, 2009 and March 31, 2009, we had $10$11 million and $10 million, respectively, of outstanding interest rate swaps that were not designated as hedges.
We use heating oil swaps and natural gas swaps to manage our exposure to fluctuating energy prices in North America. As of JuneSeptember 30, 2009 and March 31, 2009, we had 3.32.4 million gallons and 3.4 million gallons, respectively, of heating oil swaps and 2.84.3 million MMBTUs and 3.8 million MMBTUs, respectively, of natural gas that were not designated as hedges. One MMBTU is the equivalent of one decatherm, or one million British Thermal Units.
F-114
F-117
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
The following table summarizes the gains (losses) recognized in current period earnings (in millions).
| | | | | | | | |
| | Three Months Ended
| |
| | June 30, | |
| | 2009 | | | 2008 | |
|
Derivative Instruments Not Designated as Hedges | | | | | | | | |
Aluminum contracts | | $ | 48 | | | $ | 22 | |
Currency exchange contracts | | | 22 | | | | 32 | |
Energy contracts | | | — | | | | 7 | |
| | | | | | | | |
Gain (loss) recognized | | | 70 | | | | 61 | |
Derivative Instruments Designated as Cash Flow Hedges | | | | | | | | |
Interest rate swaps | | | — | | | | — | |
Electricity swap | | | 2 | | | | 4 | |
| | | | | | | | |
Gain (loss) on change in fair value of derivative instruments, net | | $ | 72 | | | $ | 65 | |
| | | | | | | | |
| | | | | | | | |
| | Six Months Ended
| |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Derivative Instruments Not Designated as Hedges | | | | | | | | |
Aluminum contracts | | $ | 97 | | | $ | (159 | ) |
Currency exchange contracts | | | 51 | | | | 39 | |
Energy contracts | | | — | | | | (9 | ) |
| | | | | | | | |
Gain (loss) recognized | | | 148 | | | | (129 | ) |
Derivative Instruments Designated as Cash Flow Hedges | | | | | | | | |
Interest rate swaps | | | — | | | | — | |
Electricity swap | | | 4 | | | | 9 | |
| | | | | | | | |
Gain (loss) on change in fair value of derivative instruments, net | | $ | 152 | | | $ | (120 | ) |
| | | | | | | | |
| |
11. | FAIR VALUE MEASUREMENTS |
The following is a description of valuation methodologies used for
We record certain assets and liabilities, recordedprimarily derivative instruments, on our balance sheet at fair valuevalue. We also disclose the fair values of certain financial instruments, including debt and for estimating fair value for financial instrumentsloans receivable, that are not recorded at fair value. Our objective in measuring fair value under FASB 107,Disclosure about Fair Valueis to estimate an exit price 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 used. We grade the level of Financial Instruments (FASB 107).the inputs and assumptions used according to a three-tier hierarchy:
FASB 157 InstrumentsLevel 1 — Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that we have the ability to access at the measurement date.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 — Unobservable inputs for which there is little or no market data, which require us to develop our own assumptions based on the best information available as what market participants would use in pricing the asset or liability.
The following table presents our assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of June 30, 2009 and March 31, 2009 (in millions).
| | | | | | | | | | | | | | | | |
| | June 30, 2009 | |
| | Fair Value Measurements Using | |
| | Level 1(A) | | | Level 2(B) | | | Level 3(C) | | | Total | |
|
Assets — Derivative instruments | | $ | — | | | $ | 169 | | | $ | — | | | $ | 169 | |
Liabilities — Derivative instruments | | $ | — | | | $ | (347 | ) | | $ | (27 | ) | | $ | (374 | ) |
| | | | | | | | | | | | | | | | |
| | March 31, 2009 | |
| | Fair Value Measurements Using | |
| | Level 1(A) | | | Level 2(B) | | | Level 3(C) | | | Total | |
|
Assets — Derivative instruments | | $ | — | | | $ | 191 | | | $ | — | | | $ | 191 | |
Liabilities — Derivative instruments | | $ | — | | | $ | (644 | ) | | $ | (44 | ) | | $ | (688 | ) |
| | | | | | | | | | | | | | | | |
| | September 30, 2009 |
| | Fair Value Measurements Using |
| | Level 1(A) | | Level 2(B) | | Level 3(C) | | Total |
|
Assets — Derivative instruments | | $ | — | | | $ | 219 | | | $ | — | | | $ | 219 | |
Liabilities — Derivative instruments | | $ | — | | | $ | (166 | ) | | $ | (31 | ) | | $ | (197 | ) |
| | |
(A) | | 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. |
|
(B) | | Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
|
(C) | | Level 3 — Unobservable inputs for which there is little or no market data, which require us to develop our own assumptions based on the best information available as what market participants would use in pricing the asset or liability. |
For certain of our derivative contracts whose fair values are based upon trades in liquid markets, such as aluminum forward contracts and options, valuation model inputs can generally be verified and valuation
| | | | | | | | | | | | | | | | |
| | March 31, 2009 |
| | Fair Value Measurements Using |
| | Level 1(A) | | Level 2(B) | | Level 3(C) | | Total |
|
Assets — Derivative instruments | | $ | — | | | $ | 191 | | | $ | — | | | $ | 191 | |
Liabilities — Derivative instruments | | $ | — | | | $ | (644 | ) | | $ | (44 | ) | | $ | (688 | ) |
F-115F-118
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
techniques do not involve significant judgment. The fair values of such financial instruments are generally classified within Level 2 of
We measure the fair value hierarchy.
Theof the majority of our derivative contracts are valued using industry-standard models that use observable market inputs as their basis, such as time value, forward interest rates, volatility factors, and current (spot) and forward market prices for foreign exchange rates. We generally classify these instruments within Level 2 of the valuation hierarchy. Such derivatives include interest rate swaps, cross-currency swaps, foreign currency forward contracts and certain energy-related forward contracts, (e.g.,including natural gas).gas and heating oil contracts.
We classify the following derivative contracts that are valued based on models with significant unobservable market inputs asinstruments in Level 3 of the valuation hierarchy. These derivatives include certainWe have a highly customized electricity contract in a geographic region for which no active market exists. We value this contract using the observable market prices of our energy-related forwardsimilar contracts (e.g., electricity)for nearby regions. We adjust these prices to account for geographical differences and certain foreign currency forward contracts. Models for these fair value measurements include inputs based on estimated future prices for periods beyondstructural differences in the termterms of the quoted prices.
FASB 157 requires that for Level 2 and 3 of the fair value hierarchy, where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit considerations (nonperformance risk).
Financial instruments classifiedcontract. We also classify as Level 3 in the fair value hierarchy represent derivative contracts (primarily energy-related and certain foreign currencyexchange forward contracts) incontracts between the USD and the BRL, and the USD and the KRW, for which at least one significant unobservable input is used in the valuation model. remaining time to maturity on the forward contract extends beyond the terms of quoted market prices.
We incurred unrealized losses of $26$5 million related to Level 3 financial instruments that were still held as of JuneSeptember 30, 2009. These unrealized losses are included in (Gain) loss on change in fair value of derivative instruments, net.
The following table presents a reconciliation of fair value activity for Level 3 derivative contracts on a net basis (in millions).
| | | | |
| | Level 3
| |
| | Derivative
| |
| | Instruments(A) | |
|
Balance as of March 31, 2009 | | $ | (44 | ) |
Net realized/unrealized gains included in earnings(B) | | | 10 | |
Net realized/unrealized gains included in Other comprehensive income(C) | | | 5 | |
Net purchases, issuances and settlements | | | 2 | |
Net transfers in and/or (out) of Level 3 | | | — | |
| | | | |
Balance as of June 30, 2009 | | $ | (27 | ) |
| | | | |
| | | | |
| | Level 3
| |
| | Derivative
| |
| | Instruments(A) | |
|
Balance as of March 31, 2009 | | $ | (44 | ) |
Net realized/unrealized gains included in earnings(B) | | | 15 | |
Net realized/unrealized gains included in Other comprehensive income(C) | | | (9 | ) |
Net purchases, issuances and settlements | | | 7 | |
Net transfers in and/or (out) of Level 3 | | | — | |
| | | | |
Balance as of September 30, 2009 | | $ | (31 | ) |
| | | | |
| | |
(A) | | Represents derivative assets net of derivative liabilities. |
| | |
(B) | | Included in (Gain) loss on change in fair value of derivative instruments, net. |
| | |
(C) | | Included in Change in fair value of effective portion of hedges, net. |
FASB 107 Instruments
Our estimates of fair value are based on (1) quoted market price (applicable to our 7.25% Senior Notes) and (2) discounted cash flow model with a discount rate commensurate with the risk inherent in the projected cash flows and reflects the rate of return required by an investor in the current economic situation (applicable to our Floating rate Term Loan facility, unsecured credit facility, capital lease obligations and Novelis Korea Limited Bank loans). We determined that carrying amounts for our long-term receivables from related parties and our other debt approximates fair value. The fair value of our letters of credit is based on the availability under such credit agreements.
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Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
Financial Instruments Not Recorded at Fair Value
The table below is a summary ofpresents the estimated fair value estimates as of June 30, 2009 and March 31, 2009, forcertain financial instruments as defined by FASB 107, excluding short-term financial assets and liabilities, for which carrying amounts approximate fair value, and excluding financial instrumentsthat are not recorded at fair value on a recurring basis (FASB 157 instruments) (in millions). The table excludes short-term financial assets and liabilities for which we believe carrying value approximates fair value. The fair value of our letters of credit is based on the availability under such credit agreements.
| | | | | | | | | | | | | | | | |
| | June 30, 2009 | | | March 31, 2009 | |
| | Carrying
| | | Fair
| | | Carrying
| | | Fair
| |
| | Value | | | Value | | | Value | | | Value | |
|
Assets | | | | | | | | | | | | | | | | |
Long-term receivables from related parties | | $ | 23 | | | $ | 22 | | | $ | 23 | | | $ | 21 | |
Liabilities | | | | | | | | | | | | | | | | |
Long-term debt | | | | | | | | | | | | | | | | |
Novelis Inc. | | | | | | | | | | | | | | | | |
7.25% Senior Notes, due February 2015 | | | 1,169 | | | | 859 | | | | 1,171 | | | | 454 | |
Floating rate Term Loan facility, due July 2014 | | | 294 | | | | 243 | | | | 295 | | | | 200 | |
Unsecured credit facility — related party, due January 2015 | | | 94 | | | | 107 | | | | 91 | | | | 93 | |
Novelis Corporation | | | | | | | | | | | | | | | | |
Floating rate Term Loan facility, due July 2014 | | | 813 | | | | 710 | | | | 813 | | | | 584 | |
Novelis Switzerland S.A. | | | | | | | | | | | | | | | | |
Capital lease obligation, due December 2019 (CHF 50 million) | | | 43 | | | | 40 | | | | 42 | | | | 36 | |
Capital lease obligation, due August 2011 (CHF 2 million) | | | 2 | | | | 2 | | | | 2 | | | | 2 | |
Novelis Korea Limited | | | | | | | | | | | | | | | | |
Bank loan, due October 2010 | | | 100 | | | | 90 | | | | 100 | | | | 83 | |
Bank loan, due February 2010 (KRW 50 billion) | | | 39 | | | | 37 | | | | 37 | | | | 33 | |
Bank loan, due May 2009 (KRW 10 billion) | | | — | | | | — | | | | 7 | | | | 7 | |
Other | | | | | | | | | | | | | | | | |
Other debt, due April 2009 through December 2012 | | | 1 | | | | 1 | | | | 1 | | | | 1 | |
Financial commitments | | | | | | | | | | | | | | | | |
Letters of credit | | | — | | | | 102 | | | | — | | | | 134 | |
| | | | | | | | | | | | | | | | |
| | September 30 ,2009 | | March 31, 2009 |
| | Carrying
| | Fair
| | Carrying
| | Fair
|
| | Value | | Value | | Value | | Value |
|
Assets | | | | | | | | | | | | | | | | |
Long-term receivables from related parties | | $ | 24 | | | $ | 22 | | | $ | 23 | | | $ | 21 | |
Liabilities | | | | | | | | | | | | | | | | |
Long-term debt | | | | | | | | | | | | | | | | |
Novelis Inc. | | | | | | | | | | | | | | | | |
11.50% Senior Notes, due February 2015 | | | 181 | | | | 192 | | | | — | | | | — | |
7.25% Senior Notes, due February 2015 | | | 1,168 | | | | 981 | | | | 1,171 | | | | 454 | |
Floating rate Term Loan facility, due July 2014 | | | 293 | | | | 228 | | | | 295 | | | | 200 | |
Unsecured credit facility — related party, due January 2015 | | | — | | | | — | | | | 91 | | | | 93 | |
Novelis Corporation | | | | | | | | | | | | | | | | |
Floating rate Term Loan facility, due July 2014 | | | 814 | | | | 668 | | | | 813 | | | | 584 | |
Novelis Switzerland S.A. | | | | | | | | | | | | | | | | |
Capital lease obligation, due December 2019 (CHF 50 million) | | | 44 | | | | 39 | | | | 42 | | | | 36 | |
Capital lease obligation, due August 2011 (CHF 2 million) | | | 2 | | | | 1 | | | | 2 | | | | 2 | |
Novelis Korea Limited | | | | | | | | | | | | | | | | |
Bank loan, due October 2010 | | | 100 | | | | 92 | | | | 100 | | | | 83 | |
Bank loan, due February 2010 (KRW 50 billion) | | | 42 | | | | 41 | | | | 37 | | | | 33 | |
Bank loan, due May 2009 (KRW 10 billion) | | | — | | | | — | | | | 7 | | | | 7 | |
Other | | | | | | | | | | | | | | | | |
Other debt, due December 2011 through December 2012 | | | 1 | | | | 1 | | | | 1 | | | | 1 | |
Financial commitments | | | | | | | | | | | | | | | | |
Letters of credit | | | — | | | | 153 | | | | — | | | | 134 | |
| |
12. | OTHER (INCOME) EXPENSES, NET |
Other (income) expenses, net is comprised of the following (in millions).
| | | | | | | | |
| | Three Months Ended
| |
| | June 30, | |
| | 2009 | | | 2008 | |
|
Exchange (gains) losses, net | | $ | (4 | ) | | $ | 20 | |
Impairment charges on long-lived assets | | | — | | | | 1 | |
Gain on disposal of property, plant and equipment, net | | | (1 | ) | | | (1 | ) |
Gain on tax litigation settlement in Brazil | | | (6 | ) | | | — | |
Other, net | | | (2 | ) | | | 3 | |
| | | | | | | | |
Other (income) expenses, net | | $ | (13 | ) | | $ | 23 | |
| | | | | | | | |
| | | | | | | | |
| | Six Months Ended
| |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Exchange (gains) losses, net | | $ | (7 | ) | | $ | 56 | |
(Gain) loss on reversal of accrued legal claim | | | — | | | | (26 | ) |
Gain on disposal of property, plant and equipment, net | | | (1 | ) | | | (2 | ) |
Gain on tax litigation settlement in Brazil | | | (6 | ) | | | — | |
Other, net | | | (5 | ) | | | 5 | |
| | | | | | | | |
Other (income) expenses, net | | $ | (19 | ) | | $ | 33 | |
| | | | | | | | |
F-117F-120
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
A reconciliation of the Canadian statutory tax rates to our effective tax rates is as follows (in millions, except percentages).
| | | | | | | | |
| | Three Months Ended
| |
| | June 30, | |
| | 2009 | | | 2008 | |
|
Pre-tax income before equity in net loss of non-consolidated affiliates | | $ | 283 | | | $ | 63 | |
| | | | | | | | |
Canadian statutory tax rate | | | 30 | % | | | 31 | % |
| | | | | | | | |
Provision at the Canadian statutory rate | | | 85 | | | | 20 | |
Increase (decrease) for taxes on income (loss) resulting from: | | | | | | | | |
Exchange translation items | | | 12 | | | | 9 | |
Exchange remeasurement of deferred income taxes | | | 23 | | | | 20 | |
Change in valuation allowances | | | 1 | | | | 3 | |
Expense (income) items not subject to tax | | | 1 | | | | (4 | ) |
Tax rate differences on foreign earnings | | | (11 | ) | | | (14 | ) |
Uncertain tax positions | | | 1 | | | | 1 | |
| | | | | | | | |
Provision | | $ | 112 | | | $ | 35 | |
| | | | | | | | |
Effective tax rate | | | 40 | % | | | 56 | % |
| | | | | | | | |
| | | | | | | | |
| | Six Months Ended
| |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Pre-tax income before equity in net loss of non-consolidated affiliates and noncontrolling interests | | $ | 594 | | | $ | (211 | ) |
| | | | | | | | |
Canadian statutory tax rate | | | 30 | % | | | 31 | % |
| | | | | | | | |
Provision at the Canadian statutory rate | | | 178 | | | | (65 | ) |
Increase (decrease) for taxes on income (loss) resulting from: | | | | | | | | |
Exchange translation items | | | 20 | | | | (13 | ) |
Exchange remeasurement of deferred income taxes | | | 36 | | | | (21 | ) |
Change in valuation allowances | | | 3 | | | | 18 | |
Expense (income) items not subject to tax | | | (4 | ) | | | 6 | |
Enacted statutory tax rate changes | | | — | | | | 2 | |
Tax rate differences on foreign earnings | | | (9 | ) | | | (68 | ) |
Uncertain tax positions, net | | | (25 | ) | | | 1 | |
Other — net | | | — | | | | 7 | |
| | | | | | | | |
Provision | | $ | 199 | | | $ | (133 | ) |
| | | | | | | | |
Effective tax rate | | | 34 | % | | | 63 | % |
| | | | | | | | |
As of JuneSeptember 30, 2009, we had a net deferred tax liability of $365$488 million, including deferred tax assets of approximately $417$403 million for net operating loss and tax credit carryforwards. The carryforwards begin expiring in 2010 with some amounts being carried forward indefinitely. As of JuneSeptember 30, 2009, valuation allowances of $142$111 million had been recorded against net operating loss carryforwards and tax credit carryforwards, where it appeared more likely than not that such benefits will not be realized. Realization is dependent on generating sufficient taxable income prior to expiration of the tax attribute carryforwards. 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.
During the six months ended September 30, 2009, the statute of limitations lapsed with respect to unrecognized tax benefits related to potential withholding taxes and cross-border intercompany pricing of services. As a result, we recognized a reduction in unrecognized tax benefits of $28 million, including a decrease in accrued interest of $5 million, recorded as a reduction to the income tax provision in the condensed consolidated statement of operations.
| |
14. | COMMITMENTS AND CONTINGENCIES |
Legal Proceedings
Coca-Cola Lawsuit. A lawsuit was commenced against Novelis Corporation on February 15, 2007 byCoca-Cola Bottler’s Sales and Services Company LLC (CCBSS) in Georgia state court. CCBSS is a consortium ofCoca-Cola bottlers across the United States, includingCoca-Cola Enterprises Inc. CCBSS alleges that Novelis Corporation breached an aluminum can stock supplya soft toll agreement between the parties relating to the supply of aluminum can stock, and seeks monetary damages in an amount to be determined at trial and a declaration of
F-121
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
its rights under the agreement. The agreement includes a “most favored nations” provision regarding certain pricing matters. CCBSS alleges that Novelis Corporation breached the terms of the “most favored nations” provision. The dispute will likely turn on the facts that are presented to the court by the parties and the court’s finding as to how certain provisions of the agreement ought to be interpreted. If CCBSS were to prevail in this litigation, the amount of damages would likely be material. However, we have concluded that a loss from the CCBSS litigation is not probable and therefore have not recorded an accrual. In addition, we do not believe that there is a reasonable possibility of a loss from the lawsuit based on information available at this time. Novelis Corporation has filed its answer and the parties are proceeding with discovery.
F-118
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
Environmental Matters
The following describes certain environmental matters relating to our business.
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 are, from time to time, subject to environmental reviews and investigations by relevant governmental authorities.
As described further in the following paragraph, we have established procedures for regularly evaluating environmental loss contingencies, including those arising from such environmental reviews and investigations and any other environmental remediation or compliance matters. We believe we have a reasonable basis for evaluating these environmental loss contingencies, and we believe we have made reasonable estimates of the costs that are likely to be borne by us for these environmental loss contingencies. Accordingly, we have established reserves based on our reasonable estimates for the currently anticipated costs associated with these environmental matters. We estimate that the undiscounted remainingclean-up costs related to all of our known environmental matters as of JuneSeptember 30, 2009 will be approximately $52$49 million. Of this amount, $40$31 million is included in Other long-term liabilities, with the remaining $12$18 million included in Accrued expenses and other current liabilities in our condensed consolidated balance sheet as of JuneSeptember 30, 2009. Management has reviewed the environmental matters, including those for which we assumed liability as a result of our spin-off from Rio Tinto Alcan. As a result of this review, management has determined that the currently anticipated costs associated with these environmental matters will not, individually or in the aggregate, materially impair our operations or materially adversely affect our financial condition, results of operations or liquidity.
With respect to environmental loss contingencies, we record a loss contingency 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.
F-122
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
Brazil Tax Matters
Primarily as a result of legal proceedings with Brazil’s Ministry of Treasury regarding certain taxes in South America, as of JuneSeptember 30, 2009 and March 31, 2009, we had cash deposits aggregating approximately $38$44 million and $30 million, respectively, in judicial depository accounts pending finalization of the related cases. The depository accounts are in the name of the Brazilian government and will be expended towards these legal proceedings or released to us, depending on the outcome of the legal cases. These deposits are included in Other long-term assets — third parties in our accompanying condensed consolidated balance sheets. In addition, we are involved in several disputes with Brazil’s Ministry of Treasury about various forms of manufacturing taxes and social security contributions, for which we have made no judicial deposits but for which we have established reserves ranging from $7$8 million to $108$121 million as of JuneSeptember 30, 2009. In total, these reserves approximate $128$142 million as of JuneSeptember 30, 2009 and are included in Other long-term liabilities in our accompanying condensed consolidated balance sheet.
F-119
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
On May 28, 2009, the Brazilian government passed a law allowing taxpayers to settle certain federal tax disputes with the Brazilian tax authorities, including disputes relating to a Brazilian national tax on manufactured products, through an installment program. Pursuant to the installment plan, companies can elect to (a) pay the principal amount of the disputed tax amounts over a near-term period (e.g., 1-60 monthly installments) and receive a35-45% discount on the interest and80-100% discount on the penalties owed, (b) pay the principal and interest over a medium-term period (e.g.,60-120 monthly installments) and receive a30-35% discount on the interest and70-80% discount on the penalties owed, or (c) pay the full amount of the disputed tax amounts, including interest and penalties, over a longer-term period (e.g.,120-180 monthly installments) and receive a25-30% discount on the interest and60-70% discount on the penalties owed. Novelis has already joined the installment plan. The Ministry of Treasury enacted final installment plan regulations on July 23, 2009. The term for joining the installment plan will begin on August 17, 2009 and end onnow has until November 30, 2009. When we formally join the installment plan, we will elect (a) the amount of2009 to choose, in addition to IPI repayment terms, the tax disputes that it will be settled and (b) the number of installments elected.elect to settle.
Guarantees of Indebtedness
We have issued guarantees on behalf of certain of our subsidiaries and non-consolidated affiliates, including certain of our wholly-owned subsidiaries and Aluminium Norf GmbH, which is a fifty percent (50%) owned joint venture that does not meet the requirements for consolidation under FIN 46(R).consolidation.
In the case of our wholly-owned subsidiaries, the indebtedness guaranteed is for trade accounts payable to third parties. Some of the guarantees have annual terms while others have no expiration and have termination notice requirements. Neither we nor any of our subsidiaries or non-consolidated affiliates holds any assets of any third parties as collateral to offset the potential settlement of these guarantees.
Since we consolidate wholly-owned and majority-owned subsidiaries in our condensed consolidated financial statements, all liabilities associated with trade payables and short-term debt facilities for these entities are already included in our condensed consolidated balance sheets.
The following table discloses information about our obligations under guarantees of indebtedness of others as of JuneSeptember 30, 2009 (in millions). We did not have any obligations under guarantees of indebtedness related to our majority-owned subsidiaries as of JuneSeptember 30, 2009.
| | | | | | | | |
| | Maximum
| | | Liability
| |
| | Potential
| | | Carrying
| |
Type of Entity | | Future Payment | | | Value | |
|
Wholly-owned subsidiaries | | $ | 45 | | | $ | 7 | |
Aluminium Norf GmbH | | $ | 14 | | | $ | — | |
| | | | | | | | |
| | Maximum
| | | Liability
| |
| | Potential
| | | Carrying
| |
Type of Entity | | Future Payment | | | Value | |
|
Wholly-owned subsidiaries | | $ | 43 | | | $ | 5 | |
Aluminium Norf GmbH | | $ | 15 | | | $ | — | |
We have no retained or contingent interest in assets transferred to an unconsolidated entity or similar entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets.
F-123
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
| |
15. | SEGMENT, 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. Corporate and Other includes functions that are managed directly from our corporate office, which focuses on strategy development and oversees governance, policy, legal compliance, human resources and finance matters. These expenses have not been allocated to the regions. It also includes consolidating and other elimination accounts.
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Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
Adjustment to Eliminate Proportional Consolidation. The financial information for our segments includes the results of our non-consolidated affiliates on a proportionately consolidated basis, which is consistent with the way we manage our business segments. However, under GAAP, these non-consolidated affiliates are accounted for using the equity method of accounting. Therefore, in order to reconcile the financial information for the segments shown in the tables below to the relevant GAAP-based measures, we must remove our proportional share of each line item that we included in the segment amounts. See Note 5 — Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactions for further information about these non-consolidated affiliates.
We measure the profitability and financial performance of our operating segments based on Segment income, in accordance with FASB Statement No. 131,Disclosure About the Segments of an Enterprise and Related Information.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 as earnings before (a) depreciation and amortization; (b) interest expense and amortization of debt issuance costs; (c) interest income; (d) unrealized gains (losses) on change in fair value of derivative instruments, net; (e) impairment of goodwill; (f) impairment charges on long-lived assets (other than goodwill); (g) gain on extinguishment of debt; (h) noncontrolling interests’ share; (i) adjustments to reconcile our proportional share of Segment income from non-consolidated affiliates to income as determined on the equity method of accounting; (k) restructuring charges, net; (k) gains or losses on disposals of property, plant and equipment and businesses, net; (l) other costs, net; (m) litigation settlement, net of insurance recoveries; (n) sale transaction fees; (o) provision or benefit for taxes on income (loss) and (p) cumulative effect of accounting change, net of tax.
The tables below show selected segment financial information (in millions).
Selected Segment Financial Information
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Adjustment to
| | | | |
| | | | | | | | | | | | | | | | | Eliminate
| | | | |
| | North
| | | | | | | | | South
| | | Corporate
| | | Proportional
| | | | |
Total Assets | | America | | | Europe | | | Asia | | | America | | | and Other | | | Consolidation | | | Total | |
|
June 30, 2009 | | $ | 2,808 | | | $ | 2,793 | | | $ | 817 | | | $ | 1,341 | | | $ | 38 | | | $ | (217 | ) | | $ | 7,580 | |
March 31, 2009 | | $ | 2,973 | | | $ | 2,750 | | | $ | 732 | | | $ | 1,296 | | | $ | 50 | | | $ | (234 | ) | | $ | 7,567 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Adjustment to
| | | | |
| | | | | | | | | | | | | | | | | Eliminate
| | | | |
| | North
| | | | | | | | | South
| | | Corporate
| | | Proportional
| | | | |
Total Assets | | America | | | Europe | | | Asia | | | America | | | and Other | | | Consolidation | | | Total | |
|
September 30, 2009 | | $ | 2,714 | | | $ | 2,997 | | | $ | 881 | | | $ | 1,422 | | | $ | 39 | | | $ | (308 | ) | | $ | 7,745 | |
March 31, 2009 | | $ | 2,973 | | | $ | 2,750 | | | $ | 732 | | | $ | 1,296 | | | $ | 50 | | | $ | (234 | ) | | $ | 7,567 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Adjustment to
| | | | |
| | | | | | | | | | | | | | | | | Eliminate
| | | | |
Selected Operating Results
| | North
| | | | | | | | | South
| | | Corporate
| | | Proportional
| | | | |
Three Months Ended June 30, 2009 | | America | | | Europe | | | Asia | | | America | | | and Other | | | Consolidation | | | Total | |
|
Net sales | | $ | 767 | | | $ | 665 | | | $ | 326 | | | $ | 204 | | | $ | — | | | $ | (2 | ) | | $ | 1,960 | |
Segment income | | | 57 | | | | 33 | | | | 38 | | | | 11 | | | | (15 | ) | | | — | | | | 124 | |
Depreciation and amortization | | | 41 | | | | 48 | | | | 11 | | | | 18 | | | | 1 | | | | (19 | ) | | | 100 | |
Capital expenditures | | | 6 | | | | 11 | | | | 3 | | | | 7 | | | | — | | | | (3 | ) | | | 24 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Adjustment to
| | | | |
| | | | | | | | | | | | | | | | | Eliminate
| | | | |
Selected Operating Results
| | North
| | | | | | | | | South
| | | Corporate
| | | Proportional
| | | | |
Six Months Ended September 30, 2009 | | America | | | Europe | | | Asia | | | America | | | and Other | | | Consolidation | | | Total | |
|
Net sales | | $ | 1,589 | | | $ | 1,400 | | | $ | 708 | | | $ | 456 | | | $ | — | | | $ | (12 | ) | | $ | 4,141 | |
Depreciation and amortization | | | 80 | | | | 94 | | | | 23 | | | | 33 | | | | 2 | | | | (40 | ) | | | 192 | |
Capital expenditures | | | 13 | | | | 22 | | | | 5 | | | | 12 | | | | — | | | | (6 | ) | | | 46 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Adjustment to
| | | | |
| | | | | | | | | | | | | | | | | Eliminate
| | | | |
Selected Operating Results
| | North
| | | | | | | | | South
| | | Corporate
| | | Proportional
| | | | |
Three Months Ended June 30, 2008 | | America | | | Europe | | | Asia | | | America | | | and Other | | | Consolidation | | | Total | |
|
Net sales | | $ | 1,083 | | | $ | 1,219 | | | $ | 511 | | | $ | 295 | | | $ | — | | | $ | (5 | ) | | $ | 3,103 | |
Segment income | | | 42 | | | | 111 | | | | 31 | | | | 47 | | | | (13 | ) | | | — | | | | 218 | |
Depreciation and amortization | | | 42 | | | | 63 | | | | 15 | | | | 17 | | | | 1 | | | | (22 | ) | | | 116 | |
Capital expenditures | | | 7 | | | | 19 | | | | 5 | | | | 6 | | | | — | | | | (4 | ) | | | 33 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Adjustment to
| | | | |
| | | | | | | | | | | | | | | | | Eliminate
| | | | |
Selected Operating Results
| | North
| | | | | | | | | South
| | | Corporate
| | | Proportional
| | | | |
Six Months Ended September 30, 2008 | | America | | | Europe | | | Asia | | | America | | | and Other | | | Consolidation | | | Total | |
|
Net sales | | $ | 2,194 | | | $ | 2,315 | | | $ | 968 | | | $ | 595 | | | $ | — | | | $ | (10 | ) | | $ | 6,062 | |
Depreciation and amortization | | | 83 | | | | 117 | | | | 28 | | | | 36 | | | | 1 | | | | (42 | ) | | | 223 | |
Capital expenditures | | | 17 | | | | 36 | | | | 11 | | | | 15 | | | | 1 | | | | (10 | ) | | | 70 | |
F-121F-124
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
The following table shows the reconciliation from Incomeincome from reportable segments to Net income attributable to our common shareholder (in millions).
| | | | | | | | | | | | | | | | |
| | Three Months Ended
| | | Six Months Ended
| |
| | June 30, | | | September 30, | |
(In millions) | | 2009 | | 2008 | | |
| | 2009 | | 2008 | |
Income from reportable segments: | | | | | | | | | |
| |
North America | | $ | 57 | | | $ | 42 | | | $ | 132 | | | $ | 44 | |
Europe | | | 33 | | | | 111 | | | | 93 | | | | 173 | |
Asia | | | 38 | | | | 31 | | | | 86 | | | | 28 | |
South America | | | 11 | | | | 47 | | | | 47 | | | | 95 | |
| | | | | | |
| | | 139 | | | | 231 | | |
Corporate and other(A) | | | (15 | ) | | | (13 | ) | | | (34 | ) | | | (33 | ) |
Depreciation and amortization | | | (100 | ) | | | (116 | ) | | | (192 | ) | | | (223 | ) |
Interest expense and amortization of debt issuance costs | | | (43 | ) | | | (45 | ) | | | (87 | ) | | | (91 | ) |
Interest income | | | 3 | | | | 5 | | | | 6 | | | | 10 | |
Unrealized gains on change in fair value of derivative instruments, net(B) | | | 299 | | | | 20 | | |
Impairment charges on long-lived assets | | | — | | | | (1 | ) | |
Unrealized gains (losses) on change in fair value of derivative instruments, net(B) | | | | 553 | | | | (201 | ) |
Adjustment to eliminate proportional consolidation | | | (16 | ) | | | (18 | ) | | | (33 | ) | | | (36 | ) |
Restructuring recoveries (charges), net | | | (3 | ) | | | 1 | | | | (6 | ) | | | 1 | |
Other costs, net | | | 9 | | | | (3 | ) | | | 9 | | | | 22 | |
| | | | | | | | | | |
Income before income taxes | | | 273 | | | | 61 | | |
Income tax benefit | | | (112 | ) | | | (35 | ) | |
Income (loss) before income taxes | | | | 574 | | | | (211 | ) |
Income tax provision (benefit) | | | | 199 | | | | (133 | ) |
| | | | | | | | | | |
Net income | | | 161 | | | | 26 | | |
Net income (loss) | | | | 375 | | | | (78 | ) |
Net income attributable to noncontrolling interests | | | (18 | ) | | | (2 | ) | | | 37 | | | | 2 | |
| | | | | | | | | | |
Net income attributable to our common shareholder | | $ | 143 | | | $ | 24 | | |
Net income (loss) attributable to our common shareholder | | | $ | 338 | | | $ | (80 | ) |
| | | | | | | | | | |
| | |
(A) | | Corporate and other includes functions that are managed directly from our corporate office, which focuses on strategy development and oversees governance, policy, legal compliance, human resources and finance matters. These expenses have not been allocated to the regions. It also includes realized gains (losses) on corporate derivative instruments. |
| | |
(B) | | Unrealized gains (losses) on change in fair value of derivative instruments, net represents the portion of gains (losses) that were not settled in cash during the period. Total realized and unrealized gains (losses) are shown in the table below and are included in the aggregate each period in (Gain) loss on change in fair value of derivative instruments, net on our condensed consolidated statements of operations. |
| | | | | | | | |
| | Three Months Ended
| |
| | June 30, | |
| | 2009 | | | 2008 | |
|
Gains (losses) on change in fair value of derivative instruments, net: | | | | | | | | |
Realized gains (losses) included in Segment income | | $ | (228 | ) | | $ | 45 | |
Realized gains on corporate derivative instruments | | | 1 | | | | — | |
Unrealized gains | | | 299 | | | | 20 | |
| | | | | | | | |
Gains on change in fair value of derivative instruments, net | | $ | 72 | | | $ | 65 | |
| | | | | | | | |
Gain (loss) on change in fair value of derivative instruments, net is as follows (in millions):
| | | | | | | | |
| | Six Months Ended
| |
| | September 30, | |
| | 2009 | | | 2008 | |
|
Realized gains (losses) included in segment income | | $ | (402 | ) | | $ | 81 | |
Realized gains (losses) on corporate derivative instruments | | | 1 | | | | — | |
Unrealized gains (losses) | | | 553 | | | | (201 | ) |
| | | | | | | | |
Gains (losses) on change in fair value of derivative instruments, net | | $ | 152 | | | $ | (120 | ) |
| | | | | | | | |
F-122F-125
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
Information about Major Customers and Primary Supplier
The table below shows our net sales to Rexam Plc (Rexam) and Anheuser-Busch Companies (Anheuser-Busch), our two largest customers, as a percentage of total Net sales.
| | | | | | | | |
| | Three Months Ended
| |
| | June 30, | |
| | 2009 | | | 2008 | |
|
Rexam | | | 20 | % | | | 16 | % |
Anheuser-Busch | | | 12 | % | | | 7 | % |
| | | | | | | | |
| | Six Months Ended
|
| | September 30, |
| | 2009 | | 2008 |
|
Rexam | | | 18 | % | | | 16 | % |
Anheuser-Busch | | | 11 | % | | | 7 | % |
Rio Tinto Alcan is our primary supplier of metal inputs, including prime and sheet ingot. During the three months ended June 30, 2009 and 2008,The table shows our purchases from Rio Tinto Alcan as a percentage of our total combined prime and sheet ingot purchases (in kt) was 43% and 35%, respectively, in each period.primary metal purchases.
| | | | | | | | |
| | Six Months Ended
|
| | September 30, |
| | 2009 | | 2008 |
|
Purchases from Rio Tinto Alcan as a percentage of total | | | 41 | % | | | 35 | % |
| |
16. | SUPPLEMENTAL INFORMATION |
Accumulated other comprehensive income (loss) (AOCI) consists of the following (in millions).
| | | | | | | | | | | | | | | | |
| | June 30,
| | March 31,
| | | September 30,
| | March 31,
| |
| | 2009 | | 2009 | | | 2009 | | 2009 | |
|
Currency translation adjustment | | $ | (9 | ) | | $ | (62 | ) | | $ | 62 | | | $ | (62 | ) |
Fair value of effective portion of hedges | | | (12 | ) | | | (19 | ) | | | (21 | ) | | | (19 | ) |
Pension and other benefits | | | (65 | ) | | | (67 | ) | | | (63 | ) | | | (67 | ) |
| | | | | | | | | | |
AOCI | | $ | (86 | ) | | $ | (148 | ) | |
Accumulated other comprehensive income (loss) | | | $ | (22 | ) | | $ | (148 | ) |
| | | | | | | | | | |
Supplemental cash flow information (in millions):
| | | | | | | | |
| | Six Months Ended
|
| | September 30, |
| | 2009 | | 2008 |
|
Interest paid | | $ | 78 | | | $ | 82 | |
Income taxes paid | | $ | 13 | | | $ | 67 | |
| |
17. | SUPPLEMENTAL GUARANTOR INFORMATION |
In connection with the issuance of our 7.25% Senior Notes and the old notes, certain of our wholly-owned subsidiaries, which are “100% owned”100% owned within the meaning ofRule 3-10(h)(1) ofRegulationS-X, provided guarantees of the Senior Notes.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. Certain Guarantors may be subject to restrictions on their ability to distribute earnings to Novelis Inc. (the Parent). The remaining subsidiaries (the Non-Guarantors) of the Parent are not guarantors of the 7.25% Senior Notes.Notes or the old 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.
F-123F-126
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
NOVELIS INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2009 | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
Net sales | | $ | 168 | | | $ | 1,534 | | | $ | 551 | | | $ | (293 | ) | | $ | 1,960 | |
| | | | | | | | | | | | | | | | | | | | |
Cost of goods sold (exclusive of depreciation and amortization shown below) | | | 156 | | | | 1,214 | | | | 456 | | | | (293 | ) | | | 1,533 | |
Selling, general and administrative expenses | | | 10 | | | | 56 | | | | 12 | | | | — | | | | 78 | |
Depreciation and amortization | | | 1 | | | | 78 | | | | 21 | | | | — | | | | 100 | |
Research and development expenses | | | 5 | | | | 3 | | | | — | | | | — | | | | 8 | |
Interest expense and amortization of debt issuance costs | | | 26 | | | | 30 | | | | 3 | | | | (16 | ) | | | 43 | |
Interest income | | | (15 | ) | | | (3 | ) | | | (1 | ) | | | 16 | | | | (3 | ) |
(Gain) loss on change in fair value of derivative instruments, net | | | (2 | ) | | | (61 | ) | | | (9 | ) | | | — | | | | (72 | ) |
Restructuring charges, net | | | — | | | | 3 | | | | — | | | | — | | | | 3 | |
Equity in net (income) loss of non-consolidated affiliates | | | (147 | ) | | | 10 | | | | — | | | | 147 | | | | 10 | |
Other (income) expenses, net | | | (7 | ) | | | 7 | | | | (13 | ) | | | — | | | | (13 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | 27 | | | | 1,337 | | | | 469 | | | | (146 | ) | | | 1,687 | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | 141 | | | | 197 | | | | 82 | | | | (147 | ) | | | 273 | |
Income tax provision (benefit) | | | (2 | ) | | | 101 | | | | 13 | | | | — | | | | 112 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | | 143 | | | | 96 | | | | 69 | | | | (147 | ) | | | 161 | |
Net income attributable to noncontrolling interests | | | — | | | | — | | | | 18 | | | | — | | | | 18 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) attributable to our common shareholder | | $ | 143 | | | $ | 96 | | | $ | 51 | | | $ | (147 | ) | | $ | 143 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended September 30, 2009 | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
Net sales | | $ | 386 | | | $ | 3,277 | | | $ | 1,157 | | | $ | (679 | ) | | $ | 4,141 | |
| | | | | | | | | | | | | | | | | | | | |
Cost of goods sold (exclusive of depreciation and amortization shown below) | | | 349 | | | | 2,622 | | | | 969 | | | | (679 | ) | | | 3,261 | |
Selling, general and administrative expenses | | | 19 | | | | 115 | | | | 27 | | | | — | | | | 161 | |
Depreciation and amortization | | | 2 | | | | 145 | | | | 45 | | | | — | | | | 192 | |
Research and development expenses | | | 11 | | | | 5 | | | | 1 | | | | — | | | | 17 | |
Interest expense and amortization of debt issuance costs | | | 55 | | | | 59 | | | | 5 | | | | (32 | ) | | | 87 | |
Interest income | | | (32 | ) | | | (5 | ) | | | (1 | ) | | | 32 | | | | (6 | ) |
(Gain) loss on change in fair value of derivative instruments, net | | | (3 | ) | | | (132 | ) | | | (17 | ) | | | — | | | | (152 | ) |
Restructuring charges, net | | | — | | | | 4 | | | | 2 | | | | — | | | | 6 | |
Equity in net (income) loss of non-consolidated affiliates | | | (305 | ) | | | 20 | | | | — | | | | 305 | | | | 20 | |
Other (income) expenses, net | | | (15 | ) | | | 24 | | | | (28 | ) | | | — | | | | (19 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | 81 | | | | 2,857 | | | | 1,003 | | | | (374 | ) | | | 3,567 | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | 305 | | | | 420 | | | | 154 | | | | (305 | ) | | | 574 | |
Income tax provision (benefit) | | | (33 | ) | | | 204 | | | | 28 | | | | — | | | | 199 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | | 338 | | | | 216 | | | | 126 | | | | (305 | ) | | | 375 | |
Net income (loss) attributable to noncontrolling interests | | | — | | | | — | | | | 37 | | | | — | | | | 37 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) attributable to our common shareholder | | $ | 338 | | | $ | 216 | | | $ | 89 | | | $ | (305 | ) | | $ | 338 | |
| | | | | | | | | | | | | | | | | | | | |
F-124F-127
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
NOVELIS INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended September 30, 2008 | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
Net sales | | $ | 784 | | | $ | 5,064 | | | $ | 1,603 | | | $ | (1,389 | ) | | $ | 6,062 | |
| | | | | | | | | | | | | | | | | | | | |
Cost of goods sold (exclusive of depreciation and amortization shown below) | | | 771 | | | | 4,741 | | | | 1,499 | | | | (1,389 | ) | | | 5,622 | |
Selling, general and administrative expenses | | | 6 | | | | 124 | | | | 43 | | | | — | | | | 173 | |
Depreciation and amortization | | | 12 | | | | 166 | | | | 45 | | | | — | | | | 223 | |
Research and development expenses | | | 15 | | | | 6 | | | | 1 | | | | — | | | | 22 | |
Interest expense and amortization of debt issuance costs | | | 57 | | | | 71 | | | | 15 | | | | (52 | ) | | | 91 | |
Interest income | | | (43 | ) | | | (11 | ) | | | (8 | ) | | | 52 | | | | (10 | ) |
(Gain) loss on change in fair value of derivative instruments, net | | | 3 | | | | 133 | | | | (16 | ) | | | — | | | | 120 | |
Restructuring charges, net | | | (1 | ) | | | — | | | | — | | | | — | | | | (1 | ) |
Equity in net (income) loss of non-consolidated affiliates | | | 50 | | | | — | | | | — | | | | (50 | ) | | | — | |
Other (income) expenses, net | | | (8 | ) | | | (7 | ) | | | 48 | | | | — | | | | 33 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 862 | | | | 5,223 | | | | 1,627 | | | | (1,439 | ) | | | 6,273 | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (78 | ) | | | (159 | ) | | | (24 | ) | | | 50 | | | | (211 | ) |
Income tax provision (benefit) | | | 2 | | | | (131 | ) | | | (4 | ) | | | — | | | | (133 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | | (80 | ) | | | (28 | ) | | | (20 | ) | | | 50 | | | | (78 | ) |
Net income (loss) attributable to noncontrolling interests | | | — | | | | — | | | | 2 | | | | — | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) attributable to our common shareholder | | $ | (80 | ) | | $ | (28 | ) | | $ | (22 | ) | | $ | 50 | | | $ | (80 | ) |
| | | | | | | | | | | | | | | | | | | | |
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2008 | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
Net sales | | $ | 395 | | | $ | 2,582 | | | $ | 836 | | | $ | (710 | ) | | $ | 3,103 | |
| | | | | | | | | | | | | | | | | | | | |
Cost of goods sold (exclusive of depreciation and amortization shown below) | | | 387 | | | | 2,377 | | | | 777 | | | | (710 | ) | | | 2,831 | |
Selling, general and administrative expenses | | | — | | | | 62 | | | | 22 | | | | — | | | | 84 | |
Depreciation and amortization | | | 6 | | | | 89 | | | | 21 | | | | — | | | | 116 | |
Research and development expenses | | | 8 | | | | 3 | | | | 1 | | | | — | | | | 12 | |
Interest expense and amortization of debt issuance costs | | | 28 | | | | 34 | | | | 8 | | | | (25 | ) | | | 45 | |
Interest income | | | (21 | ) | | | (5 | ) | | | (4 | ) | | | 25 | | | | (5 | ) |
(Gain) loss on change in fair value of derivative instruments, net | | | — | | | | (61 | ) | | | (4 | ) | | | — | | | | (65 | ) |
Restructuring charges, net | | | — | | | | (1 | ) | | | — | | | | — | | | | (1 | ) |
Equity in net (income) loss of non-consolidated affiliates | | | (31 | ) | | | 2 | | | | — | | | | 31 | | | | 2 | |
Other (income) expenses, net | | | (7 | ) | | | 15 | | | | 15 | | | | — | | | | 23 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 370 | | | | 2,515 | | | | 836 | | | | (679 | ) | | | 3,042 | |
| | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | 25 | | | | 67 | | | | — | | | | (31 | ) | | | 61 | |
Income tax provision (benefit) | | | 1 | | | | 33 | | | | 1 | | | | — | | | | 35 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | | 24 | | | | 34 | | | | (1 | ) | | | (31 | ) | | | 26 | |
Net income attributable to noncontrolling interests | | | — | | | | — | | | | 2 | | | | — | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) attributable to our common shareholder | | $ | 24 | | | $ | 34 | | | $ | (3 | ) | | $ | (31 | ) | | $ | 24 | |
| | | | | | | | | | | | | | | | | | | | |
F-125F-128
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
NOVELIS INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | June 30, 2009 | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
ASSETS |
Current assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 7 | | | $ | 142 | | | $ | 88 | | | $ | — | | | $ | 237 | |
Accounts receivable, net of allowances | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 16 | | | | 817 | | | | 321 | | | | — | | | | 1,154 | |
— related parties | | | 502 | | | | 199 | | | | 42 | | | | (724 | ) | | | 19 | |
Inventories | | | 34 | | | | 543 | | | | 236 | | | | — | | | | 813 | |
Prepaid expenses and other current assets | | | 4 | | | | 32 | | | | 14 | | | | — | | | | 50 | |
Fair value of derivative instruments | | | 3 | | | | 124 | | | | 7 | | | | (23 | ) | | | 111 | |
Deferred income tax assets | | | — | | | | 109 | | | | 16 | | | | — | | | | 125 | |
| �� | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 566 | | | | 1,966 | | | | 724 | | | | (747 | ) | | | 2,509 | |
Property, plant and equipment, net | | | 156 | | | | 2,126 | | | | 513 | | | | — | | | | 2,795 | |
Goodwill | | | — | | | | 571 | | | | 11 | | | | — | | | | 582 | |
Intangible assets, net | | | — | | | | 781 | | | | — | | | | — | | | | 781 | |
Investments in and advances to non-consolidated affiliates | | | 1,823 | | | | 739 | | | | 1 | | | | (1,823 | ) | | | 740 | |
Fair value of derivative instruments, net of current portion | | | 3 | | | | 32 | | | | 26 | | | | (3 | ) | | | 58 | |
Deferred income tax assets | | | 1 | | | | 4 | | | | — | | | | — | | | | 5 | |
Other long-term assets | | | 1,014 | | | | 211 | | | | 92 | | | | (1,207 | ) | | | 110 | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 3,563 | | | $ | 6,430 | | | $ | 1,367 | | | $ | (3,780 | ) | | $ | 7,580 | |
| | | | | | | | | | | | | | | | | | | | |
|
LIABILITIES AND SHAREHOLDER’S EQUITY |
Current liabilities | | | | | | | | | | | | | | | | | | | | |
Current portion of long-term debt | | $ | 3 | | | $ | 3 | | | $ | 39 | | | $ | — | | | $ | 45 | |
Short-term borrowings | | | | | | | | | | | | | | | | | | | | |
— third parties | | | — | | | | 227 | | | | 10 | | | | — | | | | 237 | |
— related parties | | | 17 | | | | 356 | | | | 23 | | | | (396 | ) | | | — | |
Accounts payable | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 39 | | | | 456 | | | | 290 | | | | — | | | | 785 | |
— related parties | | | 37 | | | | 233 | | | | 107 | | | | (325 | ) | | | 52 | |
Fair value of derivative instruments | | | 9 | | | | 277 | | | | 75 | | | | (23 | ) | | | 338 | |
Accrued expenses and other current liabilities | | | 58 | | | | 366 | | | | 85 | | | | (2 | ) | | | 507 | |
Deferred income tax liabilities | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 163 | | | | 1,918 | | | | 629 | | | | (746 | ) | | | 1,964 | |
Long-term debt, net of current portion | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 1,461 | | | | 854 | | | | 101 | | | | — | | | | 2,416 | |
— related parties | | | 222 | | | | 963 | | | | 117 | | | | (1,208 | ) | | | 94 | |
Deferred income tax liabilities | | | — | | | | 476 | | | | 19 | | | | — | | | | 495 | |
Accrued postretirement benefits | | | 29 | | | | 361 | | | | 127 | | | | — | | | | 517 | |
Other long-term liabilities | | | 63 | | | | 291 | | | | 5 | | | | (3 | ) | | | 356 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 1,938 | | | | 4,863 | | | | 998 | | | | (1,957 | ) | | | 5,842 | |
| | | | | | | | | | | | | | | | | | | | |
Commitments and contingencies | | | | | | | | | | | | | | | | | | | | |
Shareholder’s equity | | | | | | | | | | | | | | | | | | | | |
Common stock | | | — | | | | — | | | | — | | | | — | | | | — | |
Additional paid-in capital | | | 3,497 | | | | — | | | | — | | | | — | | | | 3,497 | |
Retained earnings/(accumulated deficit)/owner’s net investment | | | (1,786 | ) | | | 1,615 | | | | 378 | | | | (1,994 | ) | | | (1,787 | ) |
Accumulated other comprehensive income (loss) | | | (86 | ) | | | (48 | ) | | | (123 | ) | | | 171 | | | | (86 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total equity of our common shareholder | | | 1,625 | | | | 1,567 | | | | 255 | | | | (1,823 | ) | | | 1,624 | |
Noncontrolling interests | | | — | | | | — | | | | 114 | | | | — | | | | 114 | |
| | | | | | | | | | | | | | | | | | | | |
Total equity | | | 1,625 | | | | 1,567 | | | | 369 | | | | (1,823 | ) | | | 1,738 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities and equity | | $ | 3,563 | | | $ | 6,430 | | | $ | 1,367 | | | $ | (3,780 | ) | | $ | 7,580 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2009 | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
ASSETS |
Current assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 11 | | | $ | 157 | | | $ | 78 | | | $ | — | | | $ | 246 | |
Accounts receivable, net of allowances | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 25 | | | | 843 | | | | 338 | | | | — | | | | 1,206 | |
— related parties | | | 666 | | | | 202 | | | | 36 | | | | (891 | ) | | | 13 | |
Inventories | | | 45 | | | | 608 | | | | 276 | | | | — | | | | 929 | |
Prepaid expenses and other current assets | | | 4 | | | | 29 | | | | 17 | | | | — | | | | 50 | |
Fair value of derivative instruments | | | 4 | | | | 168 | | | | 15 | | | | (16 | ) | | | 171 | |
Deferred income tax assets | | | — | | | | 30 | | | | 7 | | | | — | | | | 37 | |
| | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 755 | | | | 2,037 | | | | 767 | | | | (907 | ) | | | 2,652 | |
Property, plant and equipment, net | | | 144 | | | | 2,097 | | | | 528 | | | | — | | | | 2,769 | |
Goodwill | | | — | | | | 600 | | | | 11 | | | | — | | | | 611 | |
Intangible assets, net | | | — | | | | 778 | | | | 8 | | | | — | | | | 786 | |
Investments in and advances to non-consolidated affiliates | | | 1,993 | | | | 763 | | | | 1 | | | | (1,993 | ) | | | 764 | |
Fair value of derivative instruments, net of current portion | | | 1 | | | | 24 | | | | 25 | | | | (2 | ) | | | 48 | |
Deferred income tax assets | | | — | | | | 4 | | | | 1 | | | | — | | | | 5 | |
Other long-term assets | | | 1,047 | | | | 213 | | | | 79 | | | | (1,220 | ) | | | 119 | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 3,940 | | | $ | 6,516 | | | $ | 1,420 | | | $ | (4,122 | ) | | $ | 7,754 | |
| | | | | | | | | | | | | | | | | | | | |
|
LIABILITIES AND SHAREHOLDER’S EQUITY |
Current liabilities | | | | | | | | | | | | | | | | | | | | |
Current portion of long-term debt | | $ | 3 | | | $ | 4 | | | $ | 42 | | | $ | — | | | $ | 49 | |
Short-term borrowings | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 50 | | | | 116 | | | | 11 | | | | — | | | | 177 | |
— related parties | | | 8 | | | | 474 | | | | 19 | | | | (501 | ) | | | — | |
Accounts payable | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 56 | | | | 479 | | | | 346 | | | | — | | | | 881 | |
— related parties | | | 59 | | | | 275 | | | | 109 | | | | (388 | ) | | | 55 | |
Fair value of derivative instruments | | | 9 | | | | 113 | | | | 39 | | | | (16 | ) | | | 145 | |
Accrued expenses and other current liabilities | | | 40 | | | | 304 | | | | 86 | | | | (2 | ) | | | 428 | |
Deferred income tax liabilities | | | — | | | | 12 | | | | — | | | | — | | | | 12 | |
| | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 225 | | | | 1,777 | | | | 652 | | | | (907 | ) | | | 1,747 | |
Long-term debt, net of current portion | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 1,640 | | | | 855 | | | | 101 | | | | — | | | | 2,596 | |
— related parties | | | 122 | | | | 994 | | | | 104 | | | | (1,220 | ) | | | — | |
Deferred income tax liabilities | | | — | | | | 506 | | | | 12 | | | | — | | | | 518 | |
Accrued postretirement benefits | | | 30 | | | | 370 | | | | 128 | | | | — | | | | 528 | |
Other long-term liabilities | | | 40 | | | | 311 | | | | 5 | | | | (2 | ) | | | 354 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 2,057 | | | | 4,813 | | | | 1,002 | | | | (2,129 | ) | | | 5,743 | |
| | | | | | | | | | | | | | | | | | | | |
Commitments and contingencies | | | | | | | | | | | | | | | | | | | | |
Shareholder’s equity | | | | | | | | | | | | | | | | | | | | |
Common stock | | | — | | | | — | | | | — | | | | — | | | | — | |
Additional paid-in capital | | | 3,497 | | | | — | | | | — | | | | — | | | | 3,497 | |
Retained earnings/(accumulated deficit)/owner’s net investment | | | (1,592 | ) | | | 1,730 | | | | 392 | | | | (2,122 | ) | | | (1,592 | ) |
Accumulated other comprehensive income (loss) | | | (22 | ) | | | (27 | ) | | | (102 | ) | | | 129 | | | | (22 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total Novelis shareholder’s equity | | | 1,883 | | | | 1,703 | | | | 290 | | | | (1,993 | ) | | | 1,883 | |
| | | | | | | | | | | | | | | | | | | | |
Noncontrolling interests | | | — | | | | — | | | | 128 | | | | — | | | | 128 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholder’s equity | | $ | 3,940 | | | $ | 6,516 | | | $ | 1,420 | | | $ | (4,122 | ) | | $ | 7,754 | |
| | | | | | | | | | | | | | | | | | | | |
F-126F-129
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
NOVELIS INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2009 | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
ASSETS |
Current assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 3 | | | $ | 175 | | | $ | 70 | | | $ | — | | | $ | 248 | |
Accounts receivable, net of allowances | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 21 | | | | 761 | | | | 267 | | | | — | | | | 1,049 | |
— related parties | | | 411 | | | | 183 | | | | 32 | | | | (601 | ) | | | 25 | |
Inventories | | | 31 | | | | 523 | | | | 239 | | | | — | | | | 793 | |
Prepaid expenses and other current assets | | | 4 | | | | 31 | | | | 16 | | | | — | | | | 51 | |
Fair value of derivative instruments | | | — | | | | 145 | | | | 7 | | | | (33 | ) | | | 119 | |
Deferred income tax assets | | | — | | | | 192 | | | | 24 | | | | — | | | | 216 | |
| | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 470 | | | | 2,010 | | | | 655 | | | | (634 | ) | | | 2,501 | |
Property, plant and equipment, net | | | 162 | | | | 2,146 | | | | 491 | | | | — | | | | 2,799 | |
Goodwill | | | — | | | | 570 | | | | 12 | | | | — | | | | 582 | |
Intangible assets, net | | | — | | | | 787 | | | | — | | | | — | | | | 787 | |
Investments in and advances to non-consolidated affiliates | | | 1,647 | | | | 719 | | | | — | | | | (1,647 | ) | | �� | 719 | |
Fair value of derivative instruments, net of current portion | | | — | | | | 46 | | | | 28 | | | | (2 | ) | | | 72 | |
Deferred income tax assets | | | 1 | | | | 3 | | | | — | | | | — | | | | 4 | |
Other long-term assets | | | 1,028 | | | | 207 | | | | 96 | | | | (1,228 | ) | | | 103 | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 3,308 | | | $ | 6,488 | | | $ | 1,282 | | | $ | (3,511 | ) | | $ | 7,567 | |
| | | | | | | | | | | | | | | | | | | | |
|
LIABILITIES AND SHAREHOLDER’S EQUITY |
Current liabilities | | | | | | | | | | | | | | | | | | | | |
Current portion of long-term debt | | $ | 3 | | | $ | 4 | | | $ | 44 | | | $ | — | | | $ | 51 | |
Short-term borrowings | | | | | | | | | | | | | | | | | | | | |
— third parties | | | — | | | | 231 | | | | 33 | | | | — | | | | 264 | |
— related parties | | | 7 | | | | 330 | | | | 22 | | | | (359 | ) | | | — | |
Accounts payable | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 33 | | | | 458 | | | | 234 | | | | — | | | | 725 | |
— related parties | | | 41 | | | | 157 | | | | 90 | | | | (240 | ) | | | 48 | |
Fair value of derivative instruments | | | 7 | | | | 540 | | | | 126 | | | | (33 | ) | | | 640 | |
Accrued expenses and other current liabilities | | | 34 | | | | 395 | | | | 90 | | | | (3 | ) | | | 516 | |
Deferred income tax liabilities | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 125 | | | | 2,115 | | | | 639 | | | | (635 | ) | | | 2,244 | |
Long-term debt, net of current portion | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 1,464 | | | | 852 | | | | 101 | | | | — | | | | 2,417 | |
— related parties | | | 223 | | | | 976 | | | | 120 | | | | (1,228 | ) | | | 91 | |
Deferred income tax liabilities | | | — | | | | 459 | | | | 10 | | | | — | | | | 469 | |
Accrued postretirement benefits | | | 27 | | | | 346 | | | | 122 | | | | — | | | | 495 | |
Other long-term liabilities | | | 50 | | | | 288 | | | | 5 | | | | (1 | ) | | | 342 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 1,889 | | | | 5,036 | | | | 997 | | | | (1,864 | ) | | | 6,058 | |
| | | | | | | | | | | | | | | | | | | | |
Commitments and contingencies | | | | | | | | | | | | | | | | | | | | |
Shareholder’s equity | | | | | | | | | | | | | | | | | | | | |
Common stock | | | — | | | | — | | | | — | | | | — | | | | — | |
Additional paid-in capital | | | 3,497 | | | | — | | | | — | | | | — | | | | 3,497 | |
Retained earnings/(accumulated deficit)/owner’s net investment | | | (1,930 | ) | | | 1,533 | | | | 325 | | | | (1,858 | ) | | | (1,930 | ) |
Accumulated other comprehensive income (loss) | | | (148 | ) | | | (81 | ) | | | (130 | ) | | | 211 | | | | (148 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total equity of our common shareholder | | | 1,419 | | | | 1,452 | | | | 195 | | | | (1,647 | ) | | | 1,419 | |
Noncontrolling interests | | | — | | | | — | | | | 90 | | | | — | | | | 90 | |
| | | | | | | | | | | | | | | | | | | | |
Total equity | | | 1,419 | | | | 1,452 | | | | 285 | | | | (1,647 | ) | | | 1,509 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities and equity | | $ | 3,308 | | | $ | 6,488 | | | $ | 1,282 | | | $ | (3,511 | ) | | $ | 7,567 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2009 | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
ASSETS |
Current assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 3 | | | $ | 175 | | | $ | 70 | | | $ | — | | | $ | 248 | |
Accounts receivable, net of allowances | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 21 | | | | 761 | | | | 267 | | | | — | | | | 1,049 | |
— related parties | | | 411 | | | | 183 | | | | 32 | | | | (601 | ) | | | 25 | |
Inventories | | | 31 | | | | 523 | | | | 239 | | | | — | | | | 793 | |
Prepaid expenses and other current assets | | | 4 | | | | 31 | | | | 16 | | | | — | | | | 51 | |
Fair value of derivative instruments | | | — | | | | 145 | | | | 7 | | | | (33 | ) | | | 119 | |
Deferred income tax assets | | | — | | | | 192 | | | | 24 | | | | — | | | | 216 | |
| | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 470 | | | | 2,010 | | | | 655 | | | | (634 | ) | | | 2,501 | |
Property, plant and equipment, net | | | 162 | | | | 2,146 | | | | 491 | | | | — | | | | 2,799 | |
Goodwill | | | — | | | | 570 | | | | 12 | | | | — | | | | 582 | |
Intangible assets, net | | | — | | | | 787 | | | | — | | | | — | | | | 787 | |
Investments in and advances to non-consolidated affiliates | | | 1,647 | | | | 719 | | | | — | | | | (1,647 | ) | | | 719 | |
Fair value of derivative instruments, net of current portion | | | — | | | | 46 | | | | 28 | | | | (2 | ) | | | 72 | |
Deferred income tax assets | | | 1 | | | | 3 | | | | — | | | | — | | | | 4 | |
Other long-term assets | | | 1,028 | | | | 207 | | | | 96 | | | | (1,228 | ) | | | 103 | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 3,308 | | | $ | 6,488 | | | $ | 1,282 | | | $ | (3,511 | ) | | $ | 7,567 | |
| | | | | | | | | | | | | | | | | | | | |
|
LIABILITIES AND SHAREHOLDER’S EQUITY |
Current liabilities | | | | | | | | | | | | | | | | | | | | |
Current portion of long-term debt | | $ | 3 | | | $ | 4 | | | $ | 44 | | | $ | — | | | $ | 51 | |
Short-term borrowings | | | | | | | | | | | | | | | | | | | | |
— third parties | | | — | | | | 231 | | | | 33 | | | | — | | | | 264 | |
— related parties | | | 7 | | | | 330 | | | | 22 | | | | (359 | ) | | | — | |
Accounts payable | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 33 | | | | 458 | | | | 234 | | | | — | | | | 725 | |
— related parties | | | 41 | | | | 157 | | | | 90 | | | | (240 | ) | | | 48 | |
Fair value of derivative instruments | | | 7 | | | | 540 | | | | 126 | | | | (33 | ) | | | 640 | |
Accrued expenses and other current liabilities | | | 34 | | | | 395 | | | | 90 | | | | (3 | ) | | | 516 | |
Deferred income tax liabilities | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 125 | | | | 2,115 | | | | 639 | | | | (635 | ) | | | 2,244 | |
Long-term debt, net of current portion | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 1,464 | | | | 852 | | | | 101 | | | | — | | | | 2,417 | |
— related parties | | | 223 | | | | 976 | | | | 120 | | | | (1,228 | ) | | | 91 | |
Deferred income tax liabilities | | | — | | | | 459 | | | | 10 | | | | — | | | | 469 | |
Accrued postretirement benefits | | | 27 | | | | 346 | | | | 122 | | | | — | | | | 495 | |
Other long-term liabilities | | | 50 | | | | 288 | | | | 5 | | | | (1 | ) | | | 342 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 1,889 | | | | 5,036 | | | | 997 | | | | (1,864 | ) | | | 6,058 | |
| | | | | | | | | | | | | | | | | | | | |
Commitments and contingencies | | | | | | | | | | | | | | | | | | | | |
Shareholder’s equity | | | | | | | | | | | | | | | | | | | | |
Common stock | | | — | | | | — | | | | — | | | | — | | | | — | |
Additional paid-in capital | | | 3,497 | | | | — | | | | — | | | | — | | | | 3,497 | |
Retained earnings/(accumulated deficit)/owner’s net investment | | | (1,930 | ) | | | 1,533 | | | | 325 | | | | (1,858 | ) | | | (1,930 | ) |
Accumulated other comprehensive income (loss) | | | (148 | ) | | | (81 | ) | | | (130 | ) | | | 211 | | | | (148 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total Novelis shareholder’s equity | | | 1,419 | | | | 1,452 | | | | 195 | | | | (1,647 | ) | | | 1,419 | |
| | | | | | | | | | | | | | | | | | | | |
Noncontrolling interests | | | — | | | | — | | | | 90 | | | | — | | | | 90 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholder’s equity | | $ | 3,308 | | | $ | 6,488 | | | $ | 1,282 | | | $ | (3,511 | ) | | $ | 7,567 | |
| | | | | | | | | | | | | | | | | | | | |
F-127F-130
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
NOVELIS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2009 | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | 3 | | | $ | 131 | | | $ | 151 | | | $ | (27 | ) | | $ | 258 | |
| | | | | | | | | | | | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (1 | ) | | | (18 | ) | | | (5 | ) | | | — | | | | (24 | ) |
Proceeds from sales of property, plant and equipment | | | — | | | | — | | | | 3 | | | | — | | | | 3 | |
Changes to investment in and advances to non-consolidated affiliates | | | — | | | | 3 | | | | — | | | | — | | | | 3 | |
Proceeds from loans receivable, net — related parties | | | — | | | | 6 | | | | — | | | | — | | | | 6 | |
Net proceeds from settlement of derivative instruments | | | (1 | ) | | | (179 | ) | | | (43 | ) | | | — | | | | (223 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (2 | ) | | | (188 | ) | | | (45 | ) | | | — | | | | (235 | ) |
| | | | | | | | | | | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Proceeds from issuance of debt — related party | | | 3 | | | | — | | | | — | | | | — | | | | 3 | |
Principal payments | | | | | | | | | | | | | | | | | | | | |
— third parties | | | (1 | ) | | | (3 | ) | | | (8 | ) | | | — | | | | (12 | ) |
— related parties | | | (9 | ) | | | 5 | | | | (59 | ) | | | 63 | | | | — | |
Short-term borrowings, net | | | | | | | | | | | | | | | | | | | | |
— third parties | | | — | | | | (8 | ) | | | (25 | ) | | | — | | | | (33 | ) |
— related parties | | | 10 | | | | 26 | | | | — | | | | (36 | ) | | | — | |
Dividends — noncontrolling interests | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 3 | | | | 20 | | | | (93 | ) | | | 27 | | | | (43 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 4 | | | | (37 | ) | | | 13 | | | | — | | | | (20 | ) |
Effect of exchange rate changes on cash balances held in foreign currencies | | | — | | | | 4 | | | | 5 | | | | — | | | | 9 | |
Cash and cash equivalents — beginning of period | | | 3 | | | | 175 | | | | 70 | | | | — | | | | 248 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents — end of period | | $ | 7 | | | $ | 142 | | | $ | 88 | | | $ | — | | | $ | 237 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended September 30, 2009 | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | 37 | | | $ | 353 | | | $ | 152 | | | $ | (78 | ) | | $ | 464 | |
| | | | | | | | | | | | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (1 | ) | | | (34 | ) | | | (11 | ) | | | — | | | | (46 | ) |
Proceeds from sales of property, plant and equipment | | | — | | | | — | | | | 4 | | | | — | | | | 4 | |
Changes to investment in and advances to non-consolidated affiliates | | | — | | | | 2 | | | | — | | | | — | | | | 2 | |
Proceeds from loans receivable, net — related parties | | | — | | | | 14 | | | | — | | | | — | | | | 14 | |
Net proceeds from settlement of derivative instruments | | | (2 | ) | | | (332 | ) | | | (82 | ) | | | — | | | | (416 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (3 | ) | | | (350 | ) | | | (89 | ) | | | — | | | | (442 | ) |
| | | | | | | | | | | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Proceeds from issuance of debt — third party | | | 177 | | | | — | | | | — | | | | — | | | | 177 | |
Proceeds from issuance of debt — related party | | | 3 | | | | — | | | | — | | | | — | | | | 3 | |
Principal payments | | | | | | | | | | | | | | | | | | | | |
— third parties | | | (1 | ) | | | (6 | ) | | | (9 | ) | | | — | | | | (16 | ) |
— related parties | | | (256 | ) | | | (41 | ) | | | (13 | ) | | | 216 | | | | (94 | ) |
Short-term borrowings, net | | | | | | | | | | | | | | | | | | | | |
— third parties | | | 50 | | | | (121 | ) | | | (25 | ) | | | — | | | | (96 | ) |
— related parties | | | 1 | | | | 142 | | | | (5 | ) | | | (138 | ) | | | — | |
Dividends — noncontrolling interests | | | — | | | | — | | | | (13 | ) | | | — | | | | (13 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (26 | ) | | | (26 | ) | | | (65 | ) | | | 78 | | | | (39 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 8 | | | | (23 | ) | | | (2 | ) | | | — | | | | (17 | ) |
Effect of exchange rate changes on cash balances held in foreign currencies | | | — | | | | 5 | | | | 10 | | | | — | | | | 15 | |
Cash and cash equivalents — beginning of period | | | 3 | | | | 175 | | | | 70 | | | | — | | | | 248 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents — end of period | | $ | 11 | | | $ | 157 | | | $ | 78 | | | $ | — | | | $ | 246 | |
| | | | | | | | | | | | | | | | | | | | |
F-128F-131
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) — (Continued)
NOVELIS INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2008 | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | 4 | | | $ | (313 | ) | | $ | (7 | ) | | $ | (35 | ) | | $ | (351 | ) |
| | | | | | | | | | | | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (1 | ) | | | (25 | ) | | | (7 | ) | | | — | | | | (33 | ) |
Proceeds from sales of property, plant and equipment | | | — | | | | 1 | | | | — | | | | — | | | | 1 | |
Changes to investment in and advances to non-consolidated affiliates | | | — | | | | 6 | | | | — | | | | — | | | | 6 | |
Proceeds from loans receivable — net — related parties | | | — | | | | 8 | | | | — | | | | — | | | | 8 | |
Net proceeds from settlement of derivative instruments | | | — | | | | 21 | | | | 13 | | | | — | | | | 34 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (1 | ) | | | 11 | | | | 6 | | | | — | | | | 16 | |
| | | | | | | | | | | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Principal payments | | | | | | | | | | | | | | | | | | | | |
— third parties | | | (1 | ) | | | (2 | ) | | | (1 | ) | | | — | | | | (4 | ) |
— related parties | | | — | | | | 5 | | | | (30 | ) | | | 25 | | | | — | |
Short-term borrowings — net | | | | | | | | | | | | | | | | | | | | |
— third parties | | | — | | | | 288 | | | | 25 | | | | — | | | | 313 | |
— related parties | | | — | | | | (5 | ) | | | (5 | ) | | | 10 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (1 | ) | | | 286 | | | | (11 | ) | | | 35 | | | | 309 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 2 | | | | (16 | ) | | | (12 | ) | | | — | | | | (26 | ) |
Effect of exchange rate changes on cash balances held in foreign currencies | | | — | | | | — | | | | (4 | ) | | | — | | | | (4 | ) |
Cash and cash equivalents — beginning of period | | | 12 | | | | 177 | | | | 137 | | | | — | | | | 326 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents — end of period | | $ | 14 | | | $ | 161 | | | $ | 121 | | | $ | — | | | $ | 296 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended September 30, 2008 | |
| | | | | | | | Non-
| | | | | | | |
| | Parent | | | Guarantors | | | Guarantors | | | Eliminations | | | Consolidated | |
|
OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | 15 | | | $ | (272 | ) | | $ | (24 | ) | | $ | (109 | ) | | $ | (390 | ) |
| | | | | | | | | | | | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (3 | ) | | | (50 | ) | | | (17 | ) | | | — | | | | (70 | ) |
Proceeds from sales of property, plant and equipment | | | — | | | | 1 | | | | 1 | | | | — | | | | 2 | |
Changes to investment in and advances to non-consolidated affiliates | | | — | | | | 13 | | | | — | | | | — | | | | 13 | |
Proceeds from loans receivable, net — related parties | | | — | | | | 13 | | | | — | | | | — | | | | 13 | |
Net proceeds from settlement of derivative instruments | | | — | | | | 66 | | | | 28 | | | | — | | | | 94 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (3 | ) | | | 43 | | | | 12 | | | | — | | | | 52 | |
| | | | | | | | | | | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
Principal payments | | | | | | | | | | | | | | | | | | | | |
— third parties | | | (1 | ) | | | (5 | ) | | | (1 | ) | | | — | | | | (7 | ) |
— related parties | | | — | | | | (89 | ) | | | (140 | ) | | | 229 | | | | — | |
Short-term borrowings, net | | | | | | | | | | | | | | | | | | | | |
— third parties | | | — | | | | 279 | | | | (16 | ) | | | — | | | | 263 | |
— related parties | | | 6 | | | | (10 | ) | | | 124 | | | | (120 | ) | | | — | |
Dividends — noncontrolling interests | | | — | | | | — | | | | (5 | ) | | | — | | | | (5 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 5 | | | | 175 | | | | (38 | ) | | | 109 | | | | 251 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 17 | | | | (54 | ) | | | (50 | ) | | | — | | | | (87 | ) |
Effect of exchange rate changes on cash balances held in foreign currencies | | | — | | | | (6 | ) | | | (14 | ) | | | — | | | | (20 | ) |
Cash and cash equivalents — beginning of period | | | 12 | | | | 177 | | | | 137 | | | | — | | | | 326 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents — end of period | | $ | 29 | | | $ | 117 | | | $ | 73 | | | $ | — | | | $ | 219 | |
| | | | | | | | | | | | | | | | | | | | |
F-129F-132
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS
| |
Item 20. | Indemnification of Directors and Officers. |
The Canada Business Corporations Act (the “Act”), the governing act to which the Company is subject, provides that,
(1) a corporation may indemnify a Director or Officer of the Corporation, a former Director or Officer of the Corporation or another individual who acts or acted at the Corporation’s request as a Director or Officer or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with the Corporation or other entity.
(2) a corporation may advance moneys to a Director, Officer or other individual for the costs, charges and expenses of a proceeding referred to paragraph (1). However, the individual shall repay the moneys if he or she does not fulfill the conditions of paragraph (3).
(3) a corporation may not indemnify an individual under paragraph (1), unless the individual
(a) acted honestly and in good faith with a view to the best interests of the Corporation, or, as the case may be, to the best interests of the other entity for which the individual acted as a director or officer or in a similar capacity at the Corporation’s request; and
(b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that the individual’s conduct was lawful.
(4) A Corporation may with the approval of a court indemnify an individual referred to in paragraph (1), or advance moneys under paragraph (2), in respect of an action by or on behalf of the Corporation or other entity to procure a judgment in its favor, to which the individual is made a party because of the individual’s association with the Corporation or other entity as described in paragraph (1) against all costs, charges and expenses reasonably incurred by the individual in connection with such action if the individual fulfils the conditions set out in paragraph (3).
(5) Despite paragraph (1), an individual referred to in paragraph (1) is entitled to indemnity from the Corporation in respect of all costs, charges and expenses reasonably incurred by the individual in connection with the defense of any civil, criminal, administrative, investigative or other proceeding to which the individual is subject because of the individual’s association with the Corporation or other entity as described in paragraph (1), if the individual seeking indemnity:
(a) was not judged by the court or other competent authority to have committed any fault or omitted to do anything that the individual ought to have done; and
(b) fulfils the conditions set out in paragraph (3).
The Amended and Restated By-Laws of the Corporation, adopted July 24, 2008 contain provisions governing the indemnification of Directors and Officers of the Corporation which represent, in general terms, the extent to which Directors and Officers may be indemnified by the Company under the Act. The By-Laws provide as follows:
“Section 6.01. Indemnity. Subject to the limitations contained in the governing Act but without limit to the right of the Corporation to indemnify as provided for in the Act, the Corporation shall indemnify a Director or Officer, a former Director or Officer, or a person who acts or acted at the Corporation’s request as a Director or Officer or in a similar capacity of another entity at the Corporation’s request (or a person who undertakes or has undertaken any liability on behalf of the Corporation or at the Corporation’s request on behalf of any such other entity) and his heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or
II-1
satisfy a judgment, reasonably incurred by him in respect of any civil, criminal, administrative, investigative or other proceeding to which he is made a party by reason of being or having been a Director or Officer of the Corporation or such body corporate or by reason of having undertaken such liability.
Section 6.02. Limitation. The corporation may not indemnify an individual under Section 6.01 unless the individual (a) acted honestly and in good faith with a view to the best interests of the Corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.
Section 6.03. Insurance. The Corporation may purchase and maintain insurance for the benefit of any person referred to in Section 6.01 to the extent permitted by the Act.”
The Company also has an insurance policy covering Directors and Officers of the Company and of its subsidiaries against certain liabilities which might be incurred by them in their capacities as such, but excluding those claims for which such insured persons could be indemnified by the Company or its subsidiaries.
The exhibits listed below in the “Index to Exhibits” are part of this Registration Statement onForm S-4 and are numbered in accordance with Item 601 ofRegulation S-K.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually of in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for purposes of determining liability under the Securities Act of 1933 to any purchaser:
(i) Each prospectus filed pursuant to Rule 424(b) as part of the registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as
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of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(6) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the act and will be governed by the final adjudication of such issue.
(7) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(8) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS INC.
Name: Philip Martens
Title: President and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Philip Martens | | President and Chief Operating Officer (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Steven Fisher | | Senior Vice President and Chief Financial Officer (Principal Financial Officer) | | October 20,November 9, 2009 |
| | | | |
* Robert Nelson | | Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
* Kumar Mangalam Birla | | Chairman of the Board of Directors | | October 20,November 9, 2009 |
| | | | |
* Askaran Agarwala | | Director | | October 20,November 9, 2009 |
| | | | |
* Debnarayan Bhattacharya | | Vice Chairman, Director | | October 20,November 9, 2009 |
| | | | |
Clarence J. Chandran | | Director | | |
| | | | |
* Donald A. Stewart | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Leslie J. Parrette Jr. Leslie J. Parrette Jr. | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS CORPORATION
| | |
| By: | * Name: Jean-Marc Germain Title: President |
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Jean-Marc Germain | | Director, President (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Glen Guman | | Director, Vice President and Treasurer (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
/s/ Leslie J. Parrette Jr. Leslie J. Parrette Jr. | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
EUROFOIL INC. (USA)
Name: John Tillman
Title: President
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* John Tillman | | Director, President (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Glen Guman | | Vice President and Treasurer (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
* Gordon Becker | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Leslie J. Parrette Jr. Leslie J. Parrette Jr. | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS PAE CORPORATION
Name: John Tillman
Title: President
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | �� | | |
Signature | | Title | | Date |
|
| | | | |
* John Tillman | | Director, President (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Glen Guman | | Vice President and Treasurer (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
* Gordon Becker | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Leslie J. Parrette Jr. Leslie J. Parrette Jr. | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
ALUMINUM UPSTREAM HOLDINGS LLC
| | |
| By: | /s/ Leslie J. Parrette Jr. |
Name: Leslie J. Parrette Jr.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
/s/ Leslie J. Parrette Jr. Leslie J. Parrette Jr. | | Director, President (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Randal P. Miller | | Treasurer (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
* Steve Fisher | | Director | | October 20,November 9, 2009 |
| | | | |
* Philip Martens | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS BRAND LLC
Name: Marion Greenhalgh
Title: President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Marion Greenhalgh | | Director, President and Secretary (Principal Executive Officer) (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS SOUTH AMERICA HOLDINGS LLC
| | |
| By: | /s/ Leslie J. Parrette Jr. |
Name: Leslie J. Parrette Jr.
Title: President
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
/s/ Leslie J. Parrette Jr. Leslie J. Parrette Jr. | | Director, President (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Randal P. Miller | | Treasurer (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
* Steve Fisher | | Director | | October 20,November 9, 2009 |
| | | | |
* Philip Martens | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS CAST HOUSE TECHNOLOGY LTD.
Name: Marion Greenhalgh
Title: President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Marion Greenhalgh | | Director, President and Secretary (Principal Executive Officer) (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS NO. 1 LIMITED PARTNERSHIP
as General Partner
Name: Marion Greenhalgh
Title: President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Marion Greenhalgh | | Director, President and Secretary 4260848 Canada Inc. (Principal Executive Officer) (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Director 4260848 Canada Inc. | | November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
4260848 CANADA INC.
Name: Marion Greenhalgh
Title: President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Marion Greenhalgh | | Director, President and Secretary (Principal Executive Officer) (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
4260856 CANADA INC.
Name: Marion Greenhalgh
Title: President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Marion Greenhalgh | | Director, President and Secretary (Principal Executive Officer) (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS EUROPE HOLDINGS LIMITED
Name: Antonio Tadeu Coelho Nardocci
Title: Director
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Antonio Tadeu Coelho Nardocci | | Director (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Colin Bond | | Director (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
* David Sneddon | | Director | | October 20,November 9, 2009 |
| | | | |
* James Gunningham | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts*ChristopherCourtsAttorney-in-Fact | | | | |
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS UK LTD.
Name: Antonio Tadeu Coelho Nardocci
Title: Director
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Antonio Tadeu Coelho Nardocci | | Director (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Colin Bond | | Director (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
* David Sneddon | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts*ChristopherCourtsAttorney-in-Fact | | | | |
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS SERVICES LIMITED
Name: Colin Bond
Title: Director
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Colin Bond | | Director (Principal Executive Officer) (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
* James Gunningham | | Director | | October 20,November 9, 2009 |
| | | | |
* David Sneddon | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts*ChristopherCourtsAttorney-in-Fact | | | | |
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS DO BRASIL LTDA.
Name: Antonio Tadeu Coelho NardocciAlexandre Almeida
Title: Corporate Matters President
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
*
Antonio Tadeu Coelho Nardocci | | Director, Corporate Matters President (Principal Executive Officer) | | October 20, 2009 |
| | | | |
*
Alexandre Almeida | | Director, President (Principal Executive PresidentOfficer) | | October 20,November 9, 2009 |
| | | | |
* Alexandre Sesso | | Director, Finance Director (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts*ChristopherCourtsAttorney-in-Fact | | | | |
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS AG
Name: Antonie Tadeu Coelho Nardocci
Title: President
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Antonie Tadeu Coelho Nardocci | | Director, President (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Colin Bond | | Director (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
* Erwin Mayr | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts*ChristopherCourtsAttorney-in-Fact | | | | |
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS SWITZERLAND S.A.
Name: Antonie Tadeu Coelho Nardocci
Title: President
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Antonie Tadeu Coelho Nardocci | | Director, President (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Colin Bond | | Director (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
* Erwin Mayr | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts*ChristopherCourtsAttorney-in-Fact | | | | |
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS TECHNOLOGY AG
Name: Antonie Tadeu Coelho Nardocci
Title: President
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Antonie Tadeu Coelho Nardocci | | Director, President (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Colin Bond | | Director (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
* Erwin Mayr | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS ALUMINIUM HOLDING COMPANY
Name: Andreas Thiele
Title: Director
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Andreas Thiele | | Director (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Colin Bond | | Director (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
* Tony Lucido | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
II-22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS DEUTSCHLAND GMBH
Name: Erwin Mayr
Title: Managing Director
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Erwin Mayr | | Managing Director (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Gottfried Weindl | | Managing Director (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
II-23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS LUXEMBOURG S.A.
Name: François Coeffic
Title: Director
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* François Coeffic | | Director (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Luigi Pisa | | Director (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
* Pierre Labat | | Director | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
II-24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS PAE S.A.S.
Name: Philippe Charlier
Title: President
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Philippe Charlier | | President (Principal Executive Officer) | | October 20, 2009 |
| | | | |
*
Jean-Marc Baudino | | Financial Manager (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
II-25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on October 20,November 9, 2009.
NOVELIS MADEIRA, UNIPESSOAL, LDA
Name: Nick Madden
Title: Director
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | |
Signature | | Title | | Date |
|
| | | | |
* Nick Madden | | Director (Principal Executive Officer) | | October 20,November 9, 2009 |
| | | | |
* Alexandre Almeida | | Director (Principal Financial Officer) (Principal Accounting Officer) | | October 20,November 9, 2009 |
| | | | |
* James Gunningham | | Director | | October 20,November 9, 2009 |
| | | | |
* Andreas Glapka | | Director | | October 20,November 9, 2009 |
| | | | |
Rosa Maria de Canha Ornelas Frazão Afonso | | Director | | |
| | | | |
Roberto Luiz Homem | | Director | | |
| | | | |
/s/ Christopher Courts Christopher Courts | | Authorized Representative in the United States of America | | October 20,November 9, 2009 |
| | | | |
/s/ Christopher Courts *Christopher Courts Attorney-in-Fact | | | | |
II-26
| | | | |
Exhibit
| | |
No. | | Description of Exhibit |
|
| 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 onForm 8-K filed on February 13, 2007 (FileNo. 001-32312)). |
| 3 | .1 | | Restated Certificate and Articles of Incorporation of Novelis Inc. (incorporated by reference to Exhibit 3.1 to our Current Report onForm 8-K filed on January 7, 2005 (FileNo. 001-32312)). |
| 3 | .2 | | Novelis Inc. Amended and Restated Bylaws, adopted as of July 24, 2008 (incorporated by reference to Exhibit 3.2 to our Current Report onForm 8-K filed on July 25, 2008 (FileNo. 001-32312)). |
| 3 | .3 | | Articles of Amendment to the Articles of Incorporation of Novelis Corporation (formerly Alcan Aluminum Corporation) (incorporated by reference to Exhibit 3.3 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .4 | | Articles of Amendment to the Articles of Incorporation of Novelis Corporation (incorporated by reference to Exhibit 3.4 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .5 | | Articles of Incorporation of Novelis Corporation (incorporated by reference to Exhibit 3.5 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .6 | | Bylaws of Novelis Corporation (incorporated by reference to Exhibit 3.6 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .7 | | Certificate of Amendment of Certificate of Incorporation of Novelis PAE Corporation (formerly Pechiney Aluminum Engineering, Inc.) (incorporated by reference to Exhibit 3.7 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .8 | | Certificate of Incorporation of Novelis PAE Corporation (incorporated by reference to Exhibit 3.8 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .9 | | By-laws of Novelis PAE Corporation (incorporated by reference to Exhibit 3.9 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .10 | | Certificate of Incorporation of Eurofoil Inc. (USA) (incorporated by reference to Exhibit 3.10 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .11 | | By-laws of Eurofoil Inc. (USA) (incorporated by reference to Exhibit 3.11 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .12 | | Certificate of Formation of Aluminum Upstream Holdings LLC (incorporated by reference to Exhibit 3.33 to our Post-Effective Amendment No. 1 to Registration Statement onForm S-4 filed on December 1, 2006 (FileNo. 333-127139)). |
| 3 | .13 | | Certificate of Amendment No. 1 to Certificate of Formation of Aluminum Upstream Holdings LLC.† |
| 3 | .14 | | Limited Liability Company Agreement of Aluminum Upstream Holdings LLC (incorporated by reference to Exhibit 3.35 to our Post-Effective Amendment No. 1 to Registration Statement onForm S-4 filed on December 1, 2006 (FileNo. 333-127139)). |
| 3 | .15 | | Certificate of Formation of Novelis South America Holdings LLC (incorporated by reference to Exhibit 3.36 to our Post-Effective Amendment No. 1 to Registration Statement onForm S-4 filed on December 1, 2006 (FileNo. 333-127139)). |
| 3 | .16 | | Certificate of Amendment No. 1 to Certificate of Formation of Novelis South America Holdings LLC.† |
| 3 | .17 | | Limited Liability Company Agreement of Novelis South America Holdings LLC (incorporated by reference to Exhibit 3.34 to our Post-Effective Amendment No. 1 to Registration Statement onForm S-4 filed on December 1, 2006 (FileNo. 333-127139)). |
| 3 | .18 | | Certificate of Formation of Novelis Brand LLC (formerly Novelis Finances USA LLC) (incorporated by reference to Exhibit 3.31 to our Post-Effective Amendment No. 1 to Registration Statement onForm S-4 filed on December 1, 2006 (FileNo. 333-127139)). |
| 3 | .19 | | Certificate of Amendment No. 1 to Certificate of Formation of Novelis Brand LLC.† |
| 3 | .20 | | Certificate of Amendment No. 2 to Certificate of Formation of Novelis Brand LLC.† |
| 3 | .21 | | Limited Liability Company Agreement of Novelis Brand LLC (formerly Novelis Finances USA LLC) (incorporated by reference to Exhibit 3.32 to our Post-Effective Amendment No. 1 to Registration Statement onForm S-4 filed on December 1, 2006 (FileNo. 333-127139)). |
| 3 | .22 | | Articles of Association of Novelis do Brasil Ltda. (incorporated by reference to Exhibit 3.12 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .23 | | Amendment No. 1 to Articles of Association of Novelis do Brasil Ltda.† |
| 3 | .24 | | Amendment No. 2 to Articles of Association of Novelis do Brasil Ltda.† |
II-27
| | | | | | | | |
Exhibit
| Exhibit
| | | Exhibit
| | |
No. | No. | | Description of Exhibit | No. | | Description of Exhibit |
|
| 3 | .25 | | Amendment No. 3 to Articles of Association of Novelis do Brasil Ltda.† | 3 | .25 | | Amendment No. 3 to Articles of Association of Novelis do Brasil Ltda.† |
| 3 | .26 | | Certificate and Articles of Incorporation of 4260848 Canada Inc. (incorporated by reference to Exhibit 3.13 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .26 | | Certificate and Articles of Incorporation of 4260848 Canada Inc. (incorporated by reference to Exhibit 3.13 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .27 | | By-law No. 1 of 4260848 Canada Inc. (incorporated by reference to Exhibit 3.14 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .27 | | By-law No. 1 of 4260848 Canada Inc. (incorporated by reference to Exhibit 3.14 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .28 | | Certificate and Articles of Incorporation of 4260856 Canada Inc. (incorporated by reference to Exhibit 3.15 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .28 | | Certificate and Articles of Incorporation of 4260856 Canada Inc. (incorporated by reference to Exhibit 3.15 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .29 | | By-law No. 1 of 4260856 Canada Inc. (incorporated by reference to Exhibit 3.16 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .29 | | By-law No. 1 of 4260856 Canada Inc. (incorporated by reference to Exhibit 3.16 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .30 | | Amendment of Articles of Incorporation of Novelis Cast House Technology Ltd. (incorporated by reference to Exhibit 3.17 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .30 | | Amendment of Articles of Incorporation of Novelis Cast House Technology Ltd. (incorporated by reference to Exhibit 3.17 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .31 | | Certificate and Articles of Incorporation of Novelis Cast House Technology Ltd. (incorporated by reference to Exhibit 3.18 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .31 | | Certificate and Articles of Incorporation of Novelis Cast House Technology Ltd. (incorporated by reference to Exhibit 3.18 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .32 | | By-law No. 2 of Novelis Cast House Technology Ltd. (incorporated by reference to Exhibit 3.19 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .32 | | By-law No. 2 of Novelis Cast House Technology Ltd. (incorporated by reference to Exhibit 3.19 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .33 | | By-law No. 1 of Novelis Cast House Technology Ltd. (incorporated by reference to Exhibit 3.20 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .33 | | By-law No. 1 of Novelis Cast House Technology Ltd. (incorporated by reference to Exhibit 3.20 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .34 | | Amended and Restated Limited Partnership Agreement of Novelis No. 1 Limited Partnership.† | 3 | .34 | | Amended and Restated Limited Partnership Agreement of Novelis No. 1 Limited Partnership.† |
| 3 | .35 | | Bylaws of Novelis Deutschland GmbH.† | 3 | .35 | | Bylaws of Novelis Deutschland GmbH.† |
| 3 | .36 | | Certificate of Incorporation on Change of Name of Novelis Aluminium Holding Company (incorporated by reference to Exhibit 3.22 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .36 | | Certificate of Incorporation on Change of Name of Novelis Aluminium Holding Company (incorporated by reference to Exhibit 3.22 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .37 | | Memorandum and Articles of Association of Novelis Aluminium Holding Company (incorporated by reference to Exhibit 3.23 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .37 | | Memorandum and Articles of Association of Novelis Aluminium Holding Company (incorporated by reference to Exhibit 3.23 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .38 | | Articles of Association of Novelis AG (incorporated by reference to Exhibit 3.24 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .38 | | Articles of Association of Novelis AG (incorporated by reference to Exhibit 3.24 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .39 | | Articles of Association of Novelis Technology AG (incorporated by reference to Exhibit 3.25 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .39 | | Articles of Association of Novelis Technology AG (incorporated by reference to Exhibit 3.25 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .40 | | Articles of Association for Novelis Switzerland S.A.† | 3 | .40 | | Articles of Association for Novelis Switzerland S.A.† |
| 3 | .41 | | Memorandum of Association of Novelis UK Ltd. (incorporated by reference to Exhibit 3.27 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .41 | | Memorandum of Association of Novelis UK Ltd. (incorporated by reference to Exhibit 3.27 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .42 | | Articles of Association of Novelis UK Ltd. (incorporated by reference to Exhibit 3.28 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .42 | | Articles of Association of Novelis UK Ltd. (incorporated by reference to Exhibit 3.28 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .43 | | Memorandum of Association of Novelis Europe Holdings Ltd. (incorporated by reference to Exhibit 3.29 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .43 | | Memorandum of Association of Novelis Europe Holdings Ltd. (incorporated by reference to Exhibit 3.29 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .44 | | Articles of Association of Novelis Europe Holdings Ltd. (incorporated by reference to Exhibit 3.30 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 3 | .44 | | Articles of Association of Novelis Europe Holdings Ltd. (incorporated by reference to Exhibit 3.30 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 3 | .45 | | Memorandum of Association of Novelis Services Limited.† | 3 | .45 | | Memorandum of Association of Novelis Services Limited.† |
| 3 | .46 | | Articles of Association of Novelis Services Limited.† | 3 | .46 | | Articles of Association of Novelis Services Limited.† |
| 3 | .47 | | Articles of Novelis Luxembourg S.A.† | 3 | .47 | | Articles of Novelis Luxembourg S.A.† |
| 3 | .48 | | Bylaws of Novelis PAE S.A.S.† | 3 | .48 | | Bylaws of Novelis PAE S.A.S.† |
| 3 | .49 | | Articles of Novelis Madeira, Unipessoal, Lda.† | 3 | .49 | | Articles of Novelis Madeira, Unipessoal, Lda.† |
| 4 | .1 | | Shareholder Rights Agreement between Novelis Inc. and CIBC Mellon Trust Company (incorporated by reference to Exhibit 4.1 to our Annual Report onForm 10-K filed on March 30, 2005 (FileNo. 001-32312)). | 3 | .50 | | Amendment No. 3 to Articles of Association of Novelis do Brasil Ltda. |
| 4 | .2 | | First Amendment to the Shareholder Rights Agreement between Novelis Inc. and CIBC Mellon Trust Company, dated as of February 10, 2007 (incorporated by reference to Exhibit 4.1 to our Current Report onForm 8-K filed February 13, 2007 (FileNo. 001-32312)). | 4 | .1 | | Shareholder Rights Agreement between Novelis Inc. and CIBC Mellon Trust Company (incorporated by reference to Exhibit 4.1 to our Annual Report onForm 10-K filed on March 30, 2005 (FileNo. 001-32312)). |
| 4 | .3 | | Specimen Certificate of Novelis Inc. Common Shares (incorporated by reference to Exhibit 4.2 to our Registration Statement onForm 10-12B filed on December 27, 2004 (FileNo. 001-32312)). | 4 | .2 | | First Amendment to the Shareholder Rights Agreement between Novelis Inc. and CIBC Mellon Trust Company, dated as of February 10, 2007 (incorporated by reference to Exhibit 4.1 to our Current Report onForm 8-K filed February 13, 2007 (FileNo. 001-32312)). |
| | 4 | .3 | | Specimen Certificate of Novelis Inc. Common Shares (incorporated by reference to Exhibit 4.2 to our Registration Statement onForm 10-12B filed on December 27, 2004 (FileNo. 001-32312)). |
II-28
| | | | | | | | |
Exhibit
| Exhibit
| | | Exhibit
| | |
No. | No. | | Description of Exhibit | No. | | Description of Exhibit |
|
| 4 | .4 | | Indenture, relating to the 71/4% Senior Notes due 2015, dated as of February 3, 2005, between the Company, the guarantors named on the signature pages thereto and The Bank of New York Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to our Current Report onForm 8-K filed on February 3, 2005 (FileNo. 001-32312)). | 4 | .4 | | Indenture, relating to the 71/4% Senior Notes due 2015, dated as of February 3, 2005, between the Company, the guarantors named on the signature pages thereto and The Bank of New York Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to our Current Report onForm 8-K filed on February 3, 2005 (FileNo. 001-32312)). |
| 4 | .5 | | Form of Note for 71/4% Senior Notes due 2015 (incorporated by reference to Exhibit 4.1 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). | 4 | .5 | | Form of Note for 71/4% Senior Notes due 2015 (incorporated by reference to Exhibit 4.1 to our Registration Statement onForm S-4 filed on August 3, 2005 (FileNo. 333-127139)). |
| 4 | .6 | | Supplemental Indenture, between the Company, Novelis Finances USA LLC, Novelis South America Holdings LLC, Aluminum Upstream Holdings LLC and the Bank of New York Trust Company, N.A. (incorporated by reference to Exhibit 4.6 to our Post-Effective Amendment No. 1 to our Registration Statement onForm S-4 Registration Statement filed on December 1, 2006 (FileNo. 333-127139)). | 4 | .6 | | Supplemental Indenture, between the Company, Novelis Finances USA LLC, Novelis South America Holdings LLC, Aluminum Upstream Holdings LLC and the Bank of New York Trust Company, N.A. (incorporated by reference to Exhibit 4.6 to our Post-Effective Amendment No. 1 to our Registration Statement onForm S-4 Registration Statement filed on December 1, 2006 (FileNo. 333-127139)). |
| 4 | .7 | | Supplemental Indenture, among the Company, Novelis No. 1 Limited Partnership, and the Bank of New York Trust Company, N.A., as trustee, dated as of May 14, 2007 (incorporated by reference to Exhibit 4.7 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). | 4 | .7 | | Supplemental Indenture, among the Company, Novelis No. 1 Limited Partnership, and the Bank of New York Trust Company, N.A., as trustee, dated as of May 14, 2007 (incorporated by reference to Exhibit 4.7 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). |
| 4 | .8 | | Supplemental Indenture, among the Company, Novelis Luxembourg SA, and The Bank of New York Mellon Trust Company, N.A., as trustee, dated as of January 29, 2008 (incorporated by reference to Exhibit 4.8 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). | 4 | .8 | | Supplemental Indenture, among the Company, Novelis Luxembourg SA, and The Bank of New York Mellon Trust Company, N.A., as trustee, dated as of January 29, 2008 (incorporated by reference to Exhibit 4.8 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). |
| 4 | .9 | | Supplemental Indenture, among the Company, Bellona-Trading Internacional, Sociedade Unipessoal, LDA, and The Bank of New York Mellon Trust Company, N.A., as trustee, dated as of June 26, 2008 (incorporated by reference to Exhibit 4.9 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). | 4 | .9 | | Supplemental Indenture, among the Company, Bellona-Trading Internacional, Sociedade Unipessoal, LDA, and The Bank of New York Mellon Trust Company, N.A., as trustee, dated as of June 26, 2008 (incorporated by reference to Exhibit 4.9 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). |
| 4 | .10 | | Supplemental Indenture, among the Company, Novelis Services Limited, and The Bank of New York Mellon Trust Company N.A., as trustee, dated as of July 10, 2008 (incorporated by reference to Exhibit 4.10 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). | 4 | .10 | | Supplemental Indenture, among the Company, Novelis Services Limited, and The Bank of New York Mellon Trust Company N.A., as trustee, dated as of July 10, 2008 (incorporated by reference to Exhibit 4.10 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). |
| 4 | .11 | | Supplemental Indenture, among the Company, Novelis PAE SAS, and The Bank of New York Mellon Trust Company N.A., as trustee, dated as of September 16, 2008 (incorporated by reference to Exhibit 4.11 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). | 4 | .11 | | Supplemental Indenture, among the Company, Novelis PAE SAS, and The Bank of New York Mellon Trust Company N.A., as trustee, dated as of September 16, 2008 (incorporated by reference to Exhibit 4.11 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). |
| 4 | .12 | | Indenture, relating to the 111/2% Senior Notes due 2015, dated as of August 11, 2009, between the Company, the guarantors named on the signature pages thereto and The Bank of New York Mellon Trust Company, N.A., as trustee.† | 4 | .12 | | Indenture, relating to the 111/2% Senior Notes due 2015, dated as of August 11, 2009, between the Company, the guarantors named on the signature pages thereto and The Bank of New York Mellon Trust Company, N.A., as trustee.† |
| 4 | .13 | | Registration Rights Agreement, dated as of August 11, 2009, among the Company, the guarantors named on the signature pages thereto, Credit Suisse Securities (USA) LLC, as Representative of the Initial Purchasers (incorporated by reference to Exhibit 10.1 to our Current Report onForm 8-K filed on August 17, 2009 (FileNo. 001-32312)). | 4 | .13 | | Registration Rights Agreement, dated as of August 11, 2009, among the Company, the guarantors named on the signature pages thereto, Credit Suisse Securities (USA) LLC, as Representative of the Initial Purchasers (incorporated by reference to Exhibit 10.1 to our Current Report onForm 8-K filed on August 17, 2009 (FileNo. 001-32312)). |
| 4 | .14 | | Form of Note for 111/2% Senior Notes due 2015 (included in Exhibit 4.12). | 4 | .14 | | Form of Note for 111/2% Senior Notes due 2015 (included in Exhibit 4.12). |
| 5 | .1 | | Opinion of King & Spalding LLP regarding the legality of securities being registered.† | 5 | .1 | | Opinion of King & Spalding LLP regarding the legality of securities being registered. |
| 5 | .2 | | Opinion of Torys LLP.† | 5 | .2 | | Opinion of Torys LLP.† |
| 5 | .3 | | Opinion of Lavery de Billy.† | 5 | .3 | | Opinion of Lavery de Billy.† |
| 5 | .4 | | Opinion of MacFarlanes.† | 5 | .4 | | Opinion of MacFarlanes.† |
| 5 | .5 | | Opinion of Elvinger Dessoy Dennewald.† | 5 | .5 | | Opinion of Elvinger Dessoy Dennewald.† |
| 5 | .6 | | Opinion of Ernst & Young Société d’Avocats.† | 5 | .6 | | Opinion of Ernst & Young Société d’Avocats.† |
| 5 | .7 | | Opinion of Noerr Stiefenhofer Lutz.† | 5 | .7 | | Opinion of Noerr Stiefenhofer Lutz.† |
| 5 | .8 | | Opinion of CMS von Erlach Henrici AG.† | 5 | .8 | | Opinion of CMS von Erlach Henrici AG.† |
| 5 | .9 | | Opinion of A&L Goodbody.† | 5 | .9 | | Opinion of A&L Goodbody.† |
| 5 | .10 | | Opinion of Levy & Salomão Advogados.† | 5 | .10 | | Opinion of Levy & Salomão Advogados.† |
| 5 | .11 | | Opinion of Vieira de Almeida & Associados.† | 5 | .11 | | Opinion of Vieira de Almeida & Associados.† |
| 10 | .1 | | $800 million asset-based lending credit facility (“ABL Facility”) dated as of July 6, 2007 among Novelis Inc., Novelis Corporation as U.S. Borrower, the other U.S. Subsidiaries of Novelis Inc., Novelis UK Ltd, Novelis AG, AV Aluminum Inc. as parent guarantor, the other guarantors party thereto, with the lenders party thereto, ABN AMRO Bank N.V., as U.S./European issuing bank, swingline lender and administrative agent, LaSalle Business Credit, LLC, as collateral agent and funding agent, UBS Securities LLC, as syndication agent, Bank of America, N.A., National City Business Credit, Inc. and CIT Business Credit Canada Inc., as documentation agents, ABN AMRO Bank N.V. Canada Branch, as Canadian issuing bank, Canadian funding agent and Canadian administrative agent, and ABN AMRO Incorporated and UBS Securities LLC, as joint lead arrangers and joint book managers. | 10 | .1 | | $800 million asset-based lending credit facility (“ABL Facility”) dated as of July 6, 2007 among Novelis Inc., Novelis Corporation as U.S. Borrower, the other U.S. Subsidiaries of Novelis Inc., Novelis UK Ltd, Novelis AG, AV Aluminum Inc. as parent guarantor, the other guarantors party thereto, with the lenders party thereto, ABN AMRO Bank N.V., as U.S./European issuing bank, swingline lender and administrative agent, LaSalle Business Credit, LLC, as collateral agent and funding agent, UBS Securities LLC, as syndication agent, Bank of America, N.A., National City Business Credit, Inc. and CIT Business Credit Canada Inc., as documentation agents, ABN AMRO Bank N.V. Canada Branch, as Canadian issuing bank, Canadian funding agent and Canadian administrative agent, and ABN AMRO Incorporated and UBS Securities LLC, as joint lead arrangers and joint book managers.† |
II-29
| | | | | | | | |
Exhibit
| Exhibit
| | | Exhibit
| | |
No. | No. | | Description of Exhibit | No. | | Description of Exhibit |
|
| 10 | .2 | | $960 million term loan facility (“Term Loan Facility”) dated as of July 6, 2007 among Novelis Inc., Novelis Corporation as U.S. Borrower, AV Aluminum Inc., as Holdings, and the other guarantors party thereto, with the lenders party thereto, UBS AG, Stamford Branch, as administrative agent and as collateral agent, UBS Securities LLC, as syndication agent, ABN AMRO Incorporated, as documentation agent, and UBS Securities LLC and ABN AMRO Incorporated as joint lead arrangers and joint book managers. | 10 | .2 | | $960 million term loan facility (“Term Loan Facility”) dated as of July 6, 2007 among Novelis Inc., Novelis Corporation as U.S. Borrower, AV Aluminum Inc., as Holdings, and the other guarantors party thereto, with the lenders party thereto, UBS AG, Stamford Branch, as administrative agent and as collateral agent, UBS Securities LLC, as syndication agent, ABN AMRO Incorporated, as documentation agent, and UBS Securities LLC and ABN AMRO Incorporated as joint lead arrangers and joint book managers.† |
| 10 | .3 | | Intercreditor Agreement dated as of July 6, 2007 by and among Novelis Inc., Novelis Corporation, Novelis PAE Corporation, Novelis Finances USA LLC, Novelis South America Holdings LLC, Aluminum Upstream Holdings LLC, Novelis UK Ltd, Novelis AG, AV Aluminum Inc., and the subsidiary guarantors party thereto, as grantors, ABN AMRO BANK N.V., as revolving credit administrative agent ABN AMRO Bank N.A., acting through its Canadian branch, as revolving credit Canadian administrative agent and as revolving credit Canadian funding agent, La Salle Business Credit, LLC, as revolving credit collateral agent and as revolving credit funding agent, and UBS AG, Stamford Branch, as Term Loan administrative agent, and Term Loan collateral agent (incorporated by reference to Exhibit 10.3 to our Quarterly Report onForm 10-Q filed on November 9, 2007) (FileNo. 001-32312)). | 10 | .3 | | Intercreditor Agreement dated as of July 6, 2007 by and among Novelis Inc., Novelis Corporation, Novelis PAE Corporation, Novelis Finances USA LLC, Novelis South America Holdings LLC, Aluminum Upstream Holdings LLC, Novelis UK Ltd, Novelis AG, AV Aluminum Inc., and the subsidiary guarantors party thereto, as grantors, ABN AMRO BANK N.V., as revolving credit administrative agent ABN AMRO Bank N.A., acting through its Canadian branch, as revolving credit Canadian administrative agent and as revolving credit Canadian funding agent, La Salle Business Credit, LLC, as revolving credit collateral agent and as revolving credit funding agent, and UBS AG, Stamford Branch, as Term Loan administrative agent, and Term Loan collateral agent (incorporated by reference to Exhibit 10.3 to our Quarterly Report onForm 10-Q filed on November 9, 2007) (FileNo. 001-32312)). |
| 10 | .4 | | Security Agreement made by Novelis Inc., as Canadian Borrower, Novelis Corporation, as U.S. Borrower and the guarantors from time to time party thereto in favor of UBS AG, Stamford branch, as collateral agent dated as of July 6, 2007 (incorporated by reference to Exhibit 10.4 to our Quarterly Report onForm 10-Q filed on November 9, 2007) (FileNo. 001-32312)). | 10 | .4 | | Security Agreement made by Novelis Inc., as Canadian Borrower, Novelis Corporation, as U.S. Borrower and the guarantors from time to time party thereto in favor of UBS AG, Stamford branch, as collateral agent dated as of July 6, 2007 (incorporated by reference to Exhibit 10.4 to our Quarterly Report onForm 10-Q filed on November 9, 2007) (FileNo. 001-32312)). |
| 10 | .5 | | Security Agreement made by Novelis Inc., as Canadian Borrower, Novelis Corporation, Novelis PAE Corporation, Novelis Finances USA LLC, Novelis South America Holdings LLC, Aluminum Upstream Holdings LLC, as U.S. Borrowers and the guarantors from time to time party thereto in favor of La Salle Business Credit, LLC, as collateral agent dated as of July 6, 2007 (incorporated by reference to Exhibit 10.5 to our Quarterly Report onForm 10-Q filed on November 9, 2007) (FileNo. 001-32312)). | 10 | .5 | | Security Agreement made by Novelis Inc., as Canadian Borrower, Novelis Corporation, Novelis PAE Corporation, Novelis Finances USA LLC, Novelis South America Holdings LLC, Aluminum Upstream Holdings LLC, as U.S. Borrowers and the guarantors from time to time party thereto in favor of La Salle Business Credit, LLC, as collateral agent dated as of July 6, 2007 (incorporated by reference to Exhibit 10.5 to our Quarterly Report onForm 10-Q filed on November 9, 2007) (FileNo. 001-32312)). |
| 10 | .6** | | Amended and Restated Metal Supply Agreement between Novelis Inc., as Purchaser, and Alcan Inc., as Supplier, for the supply of re-melt aluminum ingot (incorporated by reference to Exhibit 10.6 to our Annual Report onForm 10-K filed on June 19, 2008 (FileNo. 001-32312)). | 10 | .6** | | Amended and Restated Metal Supply Agreement between Novelis Inc., as Purchaser, and Alcan Inc., as Supplier, for the supply of re-melt aluminum ingot (incorporated by reference to Exhibit 10.6 to our Annual Report onForm 10-K filed on June 19, 2008 (FileNo. 001-32312)). |
| 10 | .7** | | Amended and Restated Molten Metal Supply Agreement between Novelis Inc., as Purchaser, and Alcan Inc., as Supplier, for the supply of molten metal to Purchaser’s Saguenay Works facility) (incorporated by reference to Exhibit 10.7 to our Annual Report onForm 10-K filed on June 19, 2008 (FileNo. 001-32312)). | 10 | .7** | | Amended and Restated Molten Metal Supply Agreement between Novelis Inc., as Purchaser, and Alcan Inc., as Supplier, for the supply of molten metal to Purchaser’s Saguenay Works facility) (incorporated by reference to Exhibit 10.7 to our Annual Report onForm 10-K filed on June 19, 2008 (FileNo. 001-32312)). |
| 10 | .8** | | Amended and Restated Metal Supply Agreement between Novelis Inc., as Purchaser, and Alcan Inc., as Supplier, for the supply of sheet ingot in North America (incorporated by reference to Exhibit 10.8 to our Annual Report onForm 10-K filed on June 19, 2008 ) (FileNo. 001-32312)). | 10 | .8** | | Amended and Restated Metal Supply Agreement between Novelis Inc., as Purchaser, and Alcan Inc., as Supplier, for the supply of sheet ingot in North America (incorporated by reference to Exhibit 10.8 to our Annual Report onForm 10-K filed on June 19, 2008 ) (FileNo. 001-32312)). |
| 10 | .9** | | Amended and Restated Metal Supply Agreement between Novelis Inc., as Purchaser, and Alcan Inc., as Supplier, for the supply of sheet ingot in Europe (incorporated by reference to Exhibit 10.9 to our Annual Report onForm 10-K filed on June 19, 2008 ) (FileNo. 001-32312)). | 10 | .9** | | Amended and Restated Metal Supply Agreement between Novelis Inc., as Purchaser, and Alcan Inc., as Supplier, for the supply of sheet ingot in Europe (incorporated by reference to Exhibit 10.9 to our Annual Report onForm 10-K filed on June 19, 2008 ) (FileNo. 001-32312)). |
| 10 | .10* | | Employment Agreement of Martha Finn Brooks (incorporated by reference to Exhibit 10.33 to our Registration Statement onForm 10-12B filed by Novelis Inc. on December 22, 2004 (FileNo. 001-32312)). | 10 | .10* | | Employment Agreement of Martha Finn Brooks (incorporated by reference to Exhibit 10.33 to our Registration Statement onForm 10-12B filed by Novelis Inc. on December 22, 2004 (FileNo. 001-32312)). |
| 10 | .11* | | Employment Arrangement between Steven Fisher and Novelis Inc. (incorporated by reference to our Current Report onForm 8-K filed on May 21, 2007 and our Current Report onForm 8-K/A filed on August 15, 2007 (FileNo. 001-32312)). | 10 | .11* | | Employment Arrangement between Steven Fisher and Novelis Inc. (incorporated by reference to our Current Report onForm 8-K filed on May 21, 2007 and our Current Report onForm 8-K/A filed on August 15, 2007 (FileNo. 001-32312)). |
| 10 | .12* | | Letter Agreement, dated October 20, 2006, by and between Novelis Inc. and Thomas Walpole (incorporated by reference to Exhibit 10.1 to our Current Report onForm 8-K filed on October 26, 2006 (FileNo. 001-32312)). | 10 | .12* | | Letter Agreement, dated October 20, 2006, by and between Novelis Inc. and Thomas Walpole (incorporated by reference to Exhibit 10.1 to our Current Report onForm 8-K filed on October 26, 2006 (FileNo. 001-32312)). |
| 10 | .13* | | Employment Agreement of Antonio Tadeu Coelho Nardocci dated as of November 8, 2004 (incorporated by reference to Exhibit 10.16 to our Annual Report onForm 10-K filed on June 19, 2008 ) (FileNo. 001-32312)). | 10 | .13* | | Employment Agreement of Antonio Tadeu Coelho Nardocci dated as of November 8, 2004 (incorporated by reference to Exhibit 10.16 to our Annual Report onForm 10-K filed on June 19, 2008 ) (FileNo. 001-32312)). |
| 10 | .14* | | Employment Agreement of Arnaud de Weert (incorporated by reference to Exhibit 10.1 to our Current Report onForm 8-K filed on April 3, 2006 (FileNo. 001-32312)). | 10 | .14* | | Employment Agreement of Arnaud de Weert (incorporated by reference to Exhibit 10.1 to our Current Report onForm 8-K filed on April 3, 2006 (FileNo. 001-32312)). |
| 10 | .15* | | Form of Change in Control Agreement between Novelis Inc. and certain executive officers (incorporated by reference to Exhibit 99.1 to our Current Report onForm 8-K filed on September 27, 2006 (FileNo. 001-32312)). | 10 | .15* | | Form of Change in Control Agreement between Novelis Inc. and certain executive officers (incorporated by reference to Exhibit 99.1 to our Current Report onForm 8-K filed on September 27, 2006 (FileNo. 001-32312)). |
| 10 | .16* | | Form of Change in Control Agreement between Novelis Inc. and certain executive officers and key employees (incorporated by reference to Exhibit 99.2 to our Current Report onForm 8-K filed on September 27, 2006 (FileNo. 001-32312)). | 10 | .16* | | Form of Change in Control Agreement between Novelis Inc. and certain executive officers and key employees (incorporated by reference to Exhibit 99.2 to our Current Report onForm 8-K filed on September 27, 2006 (FileNo. 001-32312)). |
II-30
| | | | |
Exhibit
| | |
No. | | Description of Exhibit |
|
| 10 | .17* | | Form of Recognition Agreement between Novelis Inc. and certain executive officers and key employees (incorporated by reference to Exhibit 99.3 to our Current Report onForm 8-K filed on September 27, 2006 (FileNo. 001-32312)). |
| 10 | .18* | | Form of Amendment to Recognition Agreements (incorporated by reference to Exhibit 10.1 of our Current Report onForm 8-K/A filed May 8, 2007 (FileNo. 001-32312)). |
| 10 | .19* | | Form of SAR Award (incorporated by reference to Exhibit 10.3 to our Current Report onForm 8-K filed on November 1, 2006 (FileNo. 001-32312)). |
| 10 | .20* | | Novelis Inc. 2006 Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to our Current Report onForm 8-K filed on November 1, 2006 (FileNo. 001-32312)). |
| 10 | .21* | | Form of Non-Qualified Stock Option Award (incorporated by reference to Exhibit 10.2 to our Current Report onForm 8-K filed on November 1, 2006 (FileNo. 001-32312)). |
| 10 | .22* | | Form of Novelis Long-Term Incentive Plan for Fiscal2008-2010 (incorporated by reference to Exhibit 10.26 to our Annual Report onForm 10-K filed on June 19, 2008 ) (FileNo. 001-32312)). |
| 10 | .23* | | Form of Indemnity Agreement between Novelis Inc. and Members of the Board of Directors of Novelis Inc. (incorporated by reference to Exhibit 10.1 to our Current Report onForm 8-K filed on May 21, 2007 (FileNo. 001-32312)). |
| 10 | .24* | | Form of Indemnity Agreement between Novelis Inc. and certain executive officers dated as of June 27, 2007 (incorporated by reference to Exhibit 10.1 to our Current Report onForm 8-K filed on June 28, 2007(FileNo. 001-32312)). |
| 10 | .25* | | Form of Amended and Restated Novelis Founders Performance Awards Plan dated March 14, 2006 (incorporated by reference to Exhibit 10.7 to our Current Report onForm 8-K filed on March 20, 2006 (FileNo. 001-32312)). |
| 10 | .26* | | First Amendment to the Amended and Restated Novelis Founders Performance Awards Plan (incorporated by reference to our Current Report onForm 8-K/A filed May 8, 2007 (FileNo. 001-32312)). |
| 10 | .27* | | Novelis Founders Performance Award Notification for Martha Brooks dated March 31, 2005 (incorporated by reference to Exhibit 10.2 to our Current Report onForm 8-K filed on March 21, 2006 (FileNo. 001-32312)). |
| 10 | .28* | | Novelis Founders Performance Award Notification for Thomas Walpole dated March 31, 2005 (incorporated by reference to Exhibit 10.36 to our Annual Report onForm 10-K filed on June 19, 2008 ) (FileNo. 001-32312)). |
| 10 | .29* | | Novelis Founders Performance Award Notification for Antonio Tadeu Coelho Nardocci dated March 31, 2005 (incorporated by reference to Exhibit 10.37 to our Annual Report onForm 10-K filed on June 19, 2008 ) (FileNo. 001-32312)). |
| 10 | .30* | | Form of Novelis Annual Incentive Plan for 2007 — 2008 (incorporated by reference to Exhibit 10.39 to our Annual Report onForm 10-K filed on June 19, 2008 ) (FileNo. 001-32312)). |
| 10 | .31* | | Employment Agreement of Jean-Marc Germain dated as of April 28, 2008 (incorporated by reference to Exhibit 10.1 to our Quarterly Report onForm 10-Q filed on August 14, 2008 (FileNo. 001-32312)). |
| 10 | .32* | | Form of Novelis Long-Term Incentive Plan for Fiscal2009-2012 (incorporated by reference to Exhibit 10.2 to our Quarterly Report onForm 10-Q filed on August 14, 2008 (FileNo. 001-32312)). |
| 10 | .33* | | Employment Agreement of Alexandre Moreira Martins de Almeida dated as of August 8, 2008 (incorporated by reference to Exhibit 10.1 to our Quarterly Report onForm 10-Q filed on November 10, 2008 (FileNo. 001-32312)). |
| 10 | .34* | | Amended Novelis Long-Term Incentive Plan for Fiscal2009-2012 (incorporated by reference to Exhibit 10.2 to our Quarterly Report onForm 10-Q filed on February 17, 2009 (FileNo. 001-32312)). |
| 10 | .35* | | Employment Agreement of Philip Martens, dated as of April 11, 2009 (incorporated by reference to Exhibit 10.36 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). |
| 10 | .36 | | Joinder Agreement, among Novelis No. 1 Limited Partnership, its Subsidiaries listed on the Pledge and Security Agreement dated as of January 7, 2005, and Citicorp North America, Inc., as administrative agent, dated as of May 14, 2007 (incorporated by reference to Exhibit 10.37 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). |
| 10 | .37 | | Joinder Agreement, among Novelis PAE S.A.S. and UBS AG, Stamford Branch, as administrative agent and collateral agent, dated as of September 12, 2008 (incorporated by reference to Exhibit 10.38 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). |
| 10 | .38 | | Joinder Agreement, among Novelis PAE S.A.S. and LaSalle Business Credit, LLC, as funding agent, dated as of September 12, 2008 (incorporated by reference to Exhibit 10.39 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). |
II-31
| | | | | | | | |
Exhibit
| Exhibit
| | | Exhibit
| | |
No. | No. | | Description of Exhibit | No. | | Description of Exhibit |
|
| 10 | .39 | | Joinder Agreement, among Bellona-Trading Internacional, Sociedad Unipessoal, LDA and UBS AG, Stamford Branch, as administrative agent and as collateral agent, dated as of June 11, 2008 (incorporated by reference to Exhibit 10.40 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). | 10 | .39 | | Joinder Agreement, among Bellona-Trading Internacional, Sociedad Unipessoal, LDA and UBS AG, Stamford Branch, as administrative agent and as collateral agent, dated as of June 11, 2008 (incorporated by reference to Exhibit 10.40 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). |
| 10 | .40 | | Joinder Agreement, among Novelis Services Limited, UBS AG, Stamford Branch, as administrative agent and as collateral agent, and LaSalle Business Credit, LLC, as funding agent and as collateral agent, dated as of July 16, 2008 (incorporated by reference to Exhibit 10.41 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). | 10 | .40 | | Joinder Agreement, among Novelis Services Limited, UBS AG, Stamford Branch, as administrative agent and as collateral agent, and LaSalle Business Credit, LLC, as funding agent and as collateral agent, dated as of July 16, 2008 (incorporated by reference to Exhibit 10.41 to our Annual Report onForm 10-K filed on June 29, 2009 (FileNo. 001-32312)). |
| 10 | .41* | | Novelis Long-Term Incentive Plan for Fiscal Years 2010 -- 2013 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on July 1, 2009 (File No. 001-32312)). | 10 | .41* | | Novelis Long-Term Incentive Plan for Fiscal Years 2010 -- 2013 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on July 1, 2009 (File No. 001-32312)). |
| 10 | .42* | | Novelis Annual Incentive Plan for Fiscal Year 2010 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on July 1, 2009 (File No. 001-32312)). | 10 | .42* | | Novelis Annual Incentive Plan for Fiscal Year 2010 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on July 1, 2009 (File No. 001-32312)). |
| 10 | .43* | | Form Change in Control Agreement (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on July 1, 2009 (File No. 001-32312)). | 10 | .43* | | Form Change in Control Agreement (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on July 1, 2009 (File No. 001-32312)). |
| 10 | .44* | | Form Severance Agreement (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on July 1, 2009 (File No. 001-32312)). | 10 | .44* | | Form Severance Agreement (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on July 1, 2009 (File No. 001-32312)). |
| 10 | .45* | | Termination of Employment Agreement between Novelis AG and Arnaud deWeert, dated June 26, 2009 (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on July 1, 2009 (File No. 001-32312)). | 10 | .45* | | Termination of Employment Agreement between Novelis AG and Arnaud deWeert, dated June 26, 2009 (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on July 1, 2009 (File No. 001-32312)). |
| 10 | .46* | | Change in Control Agreement between Novelis and Philip Martens, dated April 16, 2009 (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on August 3, 2009 (File No. 001-32312)). | 10 | .46* | | Change in Control Agreement between Novelis and Philip Martens, dated April 16, 2009 (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on August 3, 2009 (File No. 001-32312)). |
| 10 | .47* | | Separation and Release Agreement between Novelis and Martha Brooks, dated May 8, 2009 (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed on August 3, 2009 (File No. 001-32312)). | 10 | .47* | | Separation and Release Agreement between Novelis and Martha Brooks, dated May 8, 2009 (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed on August 3, 2009 (File No. 001-32312)). |
| 10 | .48* | | Employment Agreement between Novelis Inc. and Antonio Tadeu Coelho Nardocci (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K/A filed on September 9, 2009 (File No. 001-32312)). | 10 | .48* | | Employment Agreement between Novelis Inc. and Antonio Tadeu Coelho Nardocci (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K/A filed on September 9, 2009 (File No. 001-32312)). |
| 11 | .1 | | Statement regarding computation of per share earnings (incorporated by reference to “Note 19 — Earnings per Share” to the Consolidated and Combined Financial Statements). | 11 | .1 | | Statement regarding computation of per share earnings (incorporated by reference to “Note 19 — Earnings per Share” to the Consolidated and Combined Financial Statements). |
| 12 | .1 | | Statement regarding computation of ratio of earnings to fixed charges.† | 12 | .1 | | Statement regarding computation of ratio of earnings to fixed charges. |
| 21 | .1 | | List of subsidiaries of Novelis Inc.† | 21 | .1 | | List of subsidiaries of Novelis Inc.† |
| 23 | .1 | | Consent of PricewaterhouseCoopers LLP. | 23 | .1 | | Consent of PricewaterhouseCoopers LLP. |
| 23 | .2 | | Consent of King & Spalding LLP (included as part of Exhibit 5.1). | 23 | .2 | | Consent of King & Spalding LLP (included as part of Exhibit 5.1). |
| 23 | .3 | | Consent of Torys LLP (included as part of Exhibit 5.2). | 23 | .3 | | Consent of Torys LLP (included as part of Exhibit 5.2). |
| 23 | .4 | | Consent of Lavery de Billy (included as part of Exhibit 5.3). | 23 | .4 | | Consent of Lavery de Billy (included as part of Exhibit 5.3). |
| 23 | .5 | | Consent of MacFarlanes (included as part of Exhibit 5.4). | 23 | .5 | | Consent of MacFarlanes (included as part of Exhibit 5.4). |
| 23 | .6 | | Consent of Elvinger Dessoy Dennewald (included as part of Exhibit 5.5). | 23 | .6 | | Consent of Elvinger Dessoy Dennewald (included as part of Exhibit 5.5). |
| 23 | .7 | | Consent of Ernst & Young Société d’Avocats (included as part of Exhibit 5.6). | 23 | .7 | | Consent of Ernst & Young Société d’Avocats (included as part of Exhibit 5.6). |
| 23 | .8 | | Consent of Noerr Stiefenhofer Lutz (included as part of Exhibit 5.7). | 23 | .8 | | Consent of Noerr Stiefenhofer Lutz (included as part of Exhibit 5.7). |
| 23 | .9 | | Consent of CMS von Erlach Henrici AG (included as part of Exhibit 5.8). | 23 | .9 | | Consent of CMS von Erlach Henrici AG (included as part of Exhibit 5.8). |
| 23 | .10 | | Consent of A&L Goodbody (included as part of Exhibit 5.9). | 23 | .10 | | Consent of A&L Goodbody (included as part of Exhibit 5.9). |
| 23 | .11 | | Consent of Levy & Salomão Advogados (included as part of Exhibit 5.10). | 23 | .11 | | Consent of Levy & Salomão Advogados (included as part of Exhibit 5.10). |
| 23 | .12 | | Consent of Vieira de Almeida & Associados (included as part of Exhibit 5.11). | 23 | .12 | | Consent of Vieira de Almeida & Associados (included as part of Exhibit 5.11). |
| 24 | .1 | | Powers of Attorney (included in the signature pages to this Registration Statement) | 24 | .1 | | Powers of Attorney (included in the signature pages to this Registration Statement) |
| 25 | .1 | | Statement of Eligibility onForm T-1 under the Trust Indenture Act of 1939 of The Bank of New York Mellon Trust Company, N.A., as trustee of the Indenture.† | 25 | .1 | | Statement of Eligibility onForm T-1 under the Trust Indenture Act of 1939 of The Bank of New York Mellon Trust Company, N.A., as trustee of the Indenture.† |
| 99 | .1 | | Form of Letter of Transmittal. | 99 | .1 | | Form of Letter of Transmittal.† |
| 99 | .2 | | Form of Notice of Guaranteed Delivery.† | 99 | .2 | | Form of Notice of Guaranteed Delivery.† |
| | |
* | | Indicates a management contract or compensatory plan or arrangement. |
|
** | | Confidential treatment requested for certain portions of this Exhibit, which portions have been omitted and filed separately with the Securities and Exchange Commission. |
II-32