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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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for the fiscal year ended December 31, 2004. |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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for the Transition Period
from to . |
Commission file number 001-32312
Novelis Inc.
(Exact name of registrant as specified in its charter)
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Canada
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Not Applicable |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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3399 Peachtree Road NE |
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30326 |
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Suite 1500 |
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(Zip Code) |
Atlanta, Georgia
(Address of principal executive offices) |
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(404) 814-4200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(d) of the
Securities Exchange Act of 1934:
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| Title of Each Class |
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Name of Each Exchange on Which Registered |
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Common Shares, no par value
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New York Stock Exchange |
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Common Share Purchase Rights
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934:
None
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes o No þ
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes o No þ
The aggregate market value of the common equity held by
non-affiliates of the registrant as of March 15, 2005
was approximately $1,550,676,873 based on the closing price of
the registrant’s common shares on the New York Stock
Exchange on such date. All executive officers and directors of
the registrant have been deemed, solely for the purpose of the
foregoing calculation, to be “affiliates” of the
registrant. There was no trading market for the
registrant’s common shares as of the last business day of
the registrant’s most recently completed second fiscal
quarter.
As of March 15, 2005, the registrant had 73,988,918 common
shares outstanding.
TABLE OF CONTENTS
Special Note Regarding Forward-Looking Statements and
Market Data
This document contains forward-looking statements that are based
on current expectations, estimates, forecasts and projections
about the industry in which we operate and beliefs and
assumptions made by our management. Such statements include, in
particular, statements about our plans, strategies and prospects
under the headings “Item 1. Business” and
“Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” Words such
as “expect,” “anticipate,”
“intend,” “plan,” “believe,”
“seek,” “estimate,” and variations of such
words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees
of future performance and involve assumptions and risks and
uncertainties that are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is
expressed, implied or forecasted in such forward-looking
statements. We do not intend, and we disclaim any obligation, to
update any forward-looking statements, whether as a result of
new information, future events or otherwise.
All market position data relating to our company is based on
information from Commodity Research Unit International Limited,
or CRU, and management estimates. This information and these
estimates reflect various assumptions and are not independently
verified. Therefore, they should be considered in this context.
This document also contains information concerning our markets
and products generally which is forward-looking in nature and is
based on a variety of assumptions regarding the ways in which
these markets and product categories will develop. These
assumptions have been derived from information currently
available to
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us and to the third-party industry analysts quoted herein. This
information includes, but is not limited to, data concerning
production capacity, product shipments and share of production.
Actual market results may differ from those predicted. While we
do not know what impact any of these differences may have on our
business, our results of operations, financial condition and the
market price of our securities may be materially adversely
affected. Factors that could cause actual results or outcomes to
differ from the results expressed or implied by forward-looking
statements include, among other things:
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our separation from Alcan; |
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the level of our indebtedness and our ability to generate cash
following the separation; |
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relationships with, and financial and operating conditions of,
our customers and suppliers; |
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changes in the prices and availability of raw materials we use; |
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fluctuations in the supply of and prices for energy in the areas
in which we maintain production facilities; |
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our ability to access financing for future capital requirements; |
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changes in the relative values of various currencies; |
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factors affecting our operations, such as litigation, labour
relations and negotiations, breakdown of equipment and other
events; |
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economic, regulatory and political factors within the countries
in which we operate or sell our products, including changes in
duties or tariffs; |
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competition from other aluminum rolled products producers as
well as from substitute materials such as steel, glass, plastic
and composite materials; |
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changes in general economic conditions; |
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cyclical demand and pricing within the principal markets for our
products as well as seasonality in certain of our
customers’ industries; and |
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changes in government regulations, particularly those affecting
environmental, health or safety compliance. |
The above list of factors is not exclusive. Some of these and
other factors are discussed in more detail under
“Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Risk
Factors.”
In this Annual Report on Form 10-K, unless otherwise
specified, the terms “we,” “our,”
“us,” “company,” “Group,”
“Novelis” and “Novelis Group” refer to
Novelis Inc., a company incorporated in Canada under the
Canadian Business Corporations Act, or CBCA, and include the
businesses transferred to us by Alcan pursuant to the
reorganization transactions described below.
Exchange Rate Data
We prepare our financial statements in U.S. dollars. The
following table sets forth exchange rate information expressed
in terms of Canadian dollars per U.S. dollar at the noon buying
rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal
Reserve Bank of New
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York. You should note the rates set forth below may differ from
the actual rates used in our accounting processes and in the
preparation of our combined financial statements.
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| Year Ended December 31, |
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At period end | |
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Average rate(1) | |
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Low | |
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2000
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1.4995 |
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1.4871 |
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1.5600 |
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1.4350 |
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2001
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1.5925 |
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1.5519 |
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1.6023 |
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1.4933 |
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2002
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1.5800 |
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1.5702 |
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1.6128 |
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1.5108 |
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2003
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1.2923 |
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1.3916 |
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1.5750 |
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1.2923 |
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2004
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1.2034 |
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1.2984 |
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1.3970 |
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1.1775 |
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2005 (through March 18, 2005)
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1.2027 |
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1.2346 |
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1.2562 |
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1.1982 |
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The average of the noon buying rates on the last day of each
month during the period. |
All dollar figures herein are in U.S. dollars unless otherwise
indicated.
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PART I
Overview
We are the world’s leading aluminum rolled products
producer based on shipment volume in 2004, with total aluminum
rolled products shipments of approximately 2,785 kilotonnes
during that year. With operations on four continents comprised
of 37 operating facilities in 12 countries, we are the only
company of our size and scope focused solely on aluminum rolled
products markets and capable of local supply of technically
sophisticated products in all of these geographic regions. We
had sales and operating revenues of $7.8 billion
in 2004.
We describe in this Annual Report on Form 10-K the
businesses we acquired from Alcan in the reorganization
transactions, which we now operate, as if they were our
businesses for all historical periods described. References to
our shipment totals, results of operations and cash flows prior
to January 1, 2004 do not include shipments from the
facilities transferred to us by Alcan that were initially
acquired by Alcan as part of the acquisition of Pechiney in
December 2003.
As used in this Annual Report, “total shipments”
refers to shipments to third parties of aluminum rolled products
as well as ingot shipments, and references to “aluminum
rolled products shipments” or “shipments” do not
include ingot shipments. All tonnages are stated in metric
tonnes. One metric tonne is equivalent to 2,204.6 pounds. One
kilotonne, or kt, is 1,000 metric tonnes. The term
“aluminum rolled products” is synonymous with the
terms “flat rolled products” and “FRP”
commonly used by manufacturers and third-party analysts in our
industry.
Our History
We were formed as a Canadian corporation on September 21,
2004. On January 6, 2005 (which we refer to as the
separation date), we acquired substantially all of the aluminum
rolled products businesses held by Alcan prior to its
acquisition of Pechiney in 2003, as well as certain alumina and
primary metal-related businesses in Brazil formerly owned by
Alcan and four rolling facilities in Europe that Alcan acquired
from Pechiney in 2003. As part of this transaction, Alcan’s
capital was reorganized and our common shares were distributed
to the then-existing shareholders of Alcan. The various steps
pursuant to which we acquired our businesses from Alcan and
distributed our shares to Alcan’s shareholders are referred
to herein as the reorganization transactions.
We inherited our basic management processes, structure, and
values from Alcan. In 1902, the Canadian subsidiary of the
Pittsburgh Reduction Company (later Alcoa Inc., or Alcoa) was
first chartered as Northern Aluminum Company, Limited. When
Alcoa divested most of its interests outside the United States
in 1928, Alcan was formed as a separate company from Alcoa to
assume control of most of these interests. In the following
years, Alcan expanded globally building or acquiring
hydroelectric power, smelting, packaging and fabricated product
facilities.
The first Alcan rolling operation began in September 1916 in
Toronto, Canada, with an 84-inch hot mill and three finishing
mills. Many of our mills were originally constructed by Alcan,
including many among the largest aluminum rolling operations in
each of the geographic regions in which we operate including:
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Oswego, United States in 1963, a major producer of can sheet and
industrial sheet; |
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Norf, Germany in 1967, a joint venture, owned at 50%, which
operates the largest hot mill rolling facility in the world in
terms of capacity; |
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Saguenay Works, Canada in 1971, which operates the largest
capacity continuous caster in the world; and |
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Pindamonhangaba, Brazil in 1977, the only South American plant
capable of producing beverage can body and end stock. |
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More recent expansion has been through acquisitions and
modernization of existing mills, including Alcan’s
acquisition of an interest in the Logan, Kentucky facility,
which is dedicated to the production of can stock, from Arco
Aluminum, or Arco, in 1985, our investment in a new production
line at Logan which increased our share of the total production
capacity from 40% to approximately 67%, as well as the purchase
of a majority ownership interest in the Yeongju and Ulsan
facilities in Korea in 1999 and 2000, respectively. Alcan’s
acquisition of Alusuisse Group Ltd. in 2000 and Pechiney in 2003
provided us with additional sheet and foil rolling facilities.
Our Industry
The aluminum rolled products market represents the supply of and
demand for aluminum sheet, plate and foil produced either from
sheet ingot or continuously cast roll-stock in rolling mills
operated by independent aluminum rolled products producers and
integrated aluminum companies alike.
Aluminum rolled products are semi-finished aluminum products
that constitute the raw material for the manufacture of finished
goods ranging from automotive body panels to household foil.
There are two major types of manufacturing processes for
aluminum rolled products differing mainly in the process used to
achieve the initial stage of processing:
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“hot mills” that require sheet ingot, a rectangular
slab of aluminum, as starter material; and |
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“continuous casting mills” that can convert molten
metal directly into semi-finished sheet. |
Both processes require subsequent rolling, which we call cold
rolling, and finishing steps such as annealing, coating,
leveling or slitting to achieve the desired thicknesses and
metal properties. Most customers receive shipments in the form
of aluminum coil, a large roll of metal, which can be fed into
their fabrication processes.
There are two sources of input material: primary aluminum, such
as molten metal, re-melt ingot and sheet ingot, and recycled
aluminum, such as recyclable material from fabrication
processes, which we refer to as recycled process material, used
beverage cans and other post-consumer aluminum.
Primary aluminum can generally be purchased at prices set on the
London Metal Exchange, or LME, plus a premium that varies by
geographic region of delivery, form (ingot or molten metal) and
alloy.
Recycled aluminum is also an important source of input material.
Aluminum is infinitely recyclable and recycling it requires
approximately 5% of the energy needed to produce primary
aluminum. As a result, in regions where aluminum is widely used,
manufacturers are active in setting up collection processes in
which used beverage cans and other recyclable aluminum are
collected for re-melting at purpose-built plants. Manufacturers
may also enter into agreements with customers who return
recycled process material and pay to have it re-melted and
rolled into the same product again.
There has been a long term industry trend towards lighter gauge
(thinner) rolled products, which we refer to as
downgauging, where customers request products with similar
properties using less metal in order to reduce costs and weight.
For example, aluminum rolled products producers and can
fabricators have continuously developed thinner walled cans with
the same strength as previous generation containers, resulting
in a lower cost unit. As a result of this trend, aluminum
tonnage across the spectrum of aluminum rolled products, and
particularly for the beverage/food cans end-use market, has
declined on a per unit basis, but actual rolling machine hours
per unit have increased. Because the industry has historically
tracked growth based on aluminum tonnage shipped, we believe the
downgauging trend may contribute to an understatement of the
actual growth of revenue attributable to rolling in some end-use
markets.
End-use Markets
Aluminum rolled products companies produce and sell a wide range
of aluminum rolled products, which can be grouped into four
end-use markets based upon similarities in end-use applications:
construction and industrial, beverage/food cans, foil products
and transportation. Within each end-use market, aluminum rolled
products are manufactured with a variety of alloy mixtures, a
range of tempers (hardness), gauges
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(thickness) and widths, and various coatings and finishes.
Large customers typically have customized needs resulting in the
development of close relationships with their supplying mills
and close technical development relationships. Refer to
“Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” for
information regarding the percentage of our sales and operating
revenues derived from each of these end-use markets.
Construction and Industrial. Construction is the
largest application within this end-use market. Aluminum rolled
products developed for the construction industry are often
decorative, offer insulating properties, are durable and
corrosion resistant, and have a high strength-to-weight ratio.
Aluminum siding, gutters, and downspouts comprise a significant
amount of construction volume. Other applications include doors,
windows, awnings, canopies, façades, roofing and ceilings.
Aluminum’s ability to conduct electricity and heat and to
offer corrosion resistance makes it useful in a wide variety of
electronic and industrial applications. Industrial applications
include electronics and communications equipment, process and
electrical machinery and lighting fixtures. Uses of aluminum
rolled products in consumer durables include microwaves, coffee
makers, flat screen televisions, air conditioners (which use
finstock in heat exchangers), pleasure boats and cooking
utensils.
Another industrial application is lithographic sheet. Print
shops, printing houses and publishing groups use lithographic
sheet to print books, magazines, newspapers and promotional
literature. In order to meet the strict quality requirements of
the end-users, lithographic sheet must meet demanding
metallurgical, surface and flatness specifications.
Beverage/ Food Cans. Beverage cans are the largest
aluminum rolled products application, accounting for
approximately a quarter of worldwide shipments in 2004,
according to CRU. The recyclability of aluminum cans enables
them to be used, collected, melted, and returned to the original
product form many times, unlike steel, paper or polyethylene
terephthalate plastic, or PET plastic, which deteriorate with
every iteration. Aluminum beverage cans also offer advantages in
fabricating efficiency and shelf life. Fabricators are able to
produce and fill beverage cans at very high speeds, and
non-porous aluminum cans provide longer shelf life than PET
plastic containers. Aluminum cans are light, stackable and use
space efficiently, making them convenient and cost efficient to
ship. Downgauging and changes in can design help to reduce total
costs on a per can basis and contribute to making aluminum more
competitive with substitute materials.
Beverage can sheet is sold in coil form for the production of
can body, ends and tabs. The material can be ordered as rolled,
degreased, pre-lubricated, pre-treated and/or lacquered.
Typically, can makers define their own specifications for
material to be delivered in terms of alloy, gauge, width, and
surface finish.
Other applications in this end-use market include food cans and
screw caps for the beverage industry.
Foil Products. Aluminum, because of its relatively
light weight, recyclability and formability, has a wide variety
of uses in packaging. Converter foil is very thin aluminum foil,
plain or printed, that is typically laminated to plastic or
paper to form an internal seal for a variety of packaging
applications including juice boxes, pharmaceuticals, food
pouches, cigarette packaging and lid stock. Customers order
coils of converter foil in a range of thicknesses from 6 microns
to 60 microns.
Household foil includes home and institutional aluminum foil
wrap, sold as a branded or generic product. Known in the
industry as packaging foil, it is manufactured in thicknesses
from 11 microns to 23 microns. Container foil is used to produce
semi-rigid containers such as pie plates and take-out food trays
and is usually ordered in a range of thicknesses from 60 microns
to 200 microns.
Transportation. Heat exchangers, such as radiators
and air conditioners, is an important application for aluminum
rolled products in the truck and automobile categories of the
transportation end-use market. Original equipment manufacturers
also use aluminum sheet with specially treated surfaces and
other specific properties for interior and exterior
applications. Newly developed alloys are being used in
transportation tanks and rigid containers that allow for safer
and more economical transportation of hazardous and corrosive
goods.
There has been recent growth in certain geographic markets in
the use of aluminum rolled products in automotive body panel
applications, including hoods, deck lids, fenders and lift
gates. These uses typically
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result from co-operative efforts between aluminum rolled
products manufacturers and their customers that yield
tailor-made solutions for specific requirements in alloy
selection, fabrication procedure, surface quality and joining.
We believe the recent growth in automotive body panel
applications is due in part to the lighter weight, better fuel
economy and performance associated with this application.
Aluminum rolled products are also used in aerospace
applications, a segment of the transportation market in which we
do not compete. Aerospace-related consumption of aluminum rolled
products has historically represented a relatively small portion
of total aluminum rolled products market shipments.
Aluminum is also used in the construction of ships’ hulls
and superstructures and passenger rail cars because of its
strength, light weight, formability and corrosion resistance.
Market Structure
The aluminum rolled products industry is characterized by
economies of scale, significant capital investments required to
achieve and maintain technological requirements, and demanding
customer qualification standards. The service and efficiency
demands of large customers have encouraged consolidation among
suppliers of aluminum rolled products. To overcome these
obstacles in small but growing markets, established Western
companies have entered into joint ventures with local companies
to provide necessary product and process know-how and capital.
While our customers tend to be increasingly global, many
aluminum rolled products tend to be produced and sold on a
regional basis. The regional nature of the markets is influenced
in part by the fact that not all mills are equipped to produce
all types of aluminum rolled products. For instance, only a few
mills in Europe, a few mills in Asia, and one mill in South
America, our Pindamonhangaba, or Pinda, facility, produce
beverage can body and end stock. In addition, individual
aluminum rolling mills generally supply a limited range of
end-use applications, and seek to maximize profits by producing
high volumes of the highest margin mix given available capacity
and equipment capabilities.
Certain multi-purpose common alloy and plate rolled products are
imported into Europe and North America from producers in
emerging markets, such as Brazil, Africa, Russia and China.
However, at this time we believe that these producers are
generally unable to meet the quality requirements, lead times
and specifications of customers for more demanding applications.
In addition, high freight costs, import duties, inability to
take back recycled aluminum, lack of technical service
capabilities and long lead-times mean that many developing
market exporters are viewed as second-tier suppliers. Therefore,
many of our customers in the Americas, Europe and Asia do not
look to suppliers in these emerging markets for a significant
portion of their requirements.
Competition
The aluminum rolled products market is highly competitive. We
face competition from a number of companies in all of the
geographic regions and end-use markets in which we operate. Our
primary competitors in North America are Alcoa, Aleris
International, Inc., Wise Metal Group LLC, Norandal Aluminum,
Corus Group Plc, Arco Aluminum, Inc. and Alcan; our primary
competitors in Europe are Norsk Hydro A.S.A., Alcan, Alcoa and
Corus; our primary competitors in Asia-Pacific are Unifus
Aluminum Co., Sumitomo Light Metal Company, Ltd., Kobe Steel
Ltd. and Alcoa; and our primary competitors in South America are
Companhia Brasileira de Alumínio, Alcoa and Aluar Aluminio
Argentino. The factors influencing competition vary by region
and end-use market but generally, we compete on the basis of our
value proposition, including price, product quality, the ability
to meet customers’ specifications, range of products
offered, lead times, technical support and customer service. In
some regions and end-use markets, competition is also affected
by fabricators’ requirements that suppliers complete a
qualification process to supply their plants. This process can
be rigorous and may take many months to complete. As a result,
obtaining business from these customers can be a lengthy and
expensive process; however, the ability to obtain and maintain
these qualifications can represent a competitive advantage.
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In addition to competition from within the aluminum rolled
products industry, we, as well as other aluminum rolled products
manufacturers, face competition from non-aluminum materials, as
fabricators and end-users have, in the past, demonstrated a
willingness to substitute other materials for aluminum. In the
beverage/food cans end-use market, aluminum rolled
products’ primary competitors are glass, PET plastic and
steel. In the transportation end-use market, aluminum rolled
products compete mainly with steel. Aluminum competes with wood,
plastic and steel in building products applications. Factors
affecting competition with substitute materials include price,
ease of manufacture, consumer preference and performance
characteristics.
Key Factors Affecting Supply and Demand
The following factors have historically affected the demand for
aluminum rolled products:
Economic Growth. We believe that economic growth
is the single largest driver of aluminum rolled products demand.
In mature markets, growth in demand has typically correlated
closely with growth in industrial production. In emerging
markets such as China, growth in demand typically exceeds
industrial production growth largely because of expanding
infrastructures, capital investments and rising incomes that
often accompany economic growth in these markets.
Substitution Trends. Manufacturers’
willingness to substitute other materials for aluminum in their
products and competition from substitution materials suppliers
also affect demand. For example, in North America,
competition from PET plastic containers and glass bottles, and
changes in consumer preferences in beverage containers, have, in
recent years, reduced the growth rate of aluminum can sheet in
North America from the high rates experienced in the 1970s and
1980s. Despite changes in consumer preferences, North American
aluminum beverage can shipments have remained at approximately
100 billion cans per year since 1994 according to the Can
Manufacturers’ Institute.
LME and Local Currency Effect. U.S. dollar
denominated trading of primary aluminum on the LME has two
primary effects on demand. First, significant shifts between the
value of the local currency of the end-user and the U.S. dollar
may affect the cost of aluminum to the end-user relative to
substitute materials, depending on the cost of the substitute
material in local currency. Second, the uncertainty of primary
metal movements on the LME may discourage product managers in
industries such as automotive from making long term commitments
to use aluminum parts. Long term forward contracts can be used
by manufacturers to reduce the impact of LME price volatility.
Downgauging. Increasing technological and asset
sophistication has enabled aluminum rolling companies to offer
consistent or even improved product strength using less
material, providing customers with a more cost-effective
product. This continuing trend reduces raw material
requirements, but also effectively increases rolled
products’ plant utilization rates and reduces available
capacity because the same number of units require more rolling
hours to achieve thinner gauges. As utilization rates increase,
revenues rise as pricing tends to be based on machine hours used
rather than on the volume of material rolled. On balance, we
believe that downgauging has enhanced overall market economics
for both users and producers of aluminum rolled products.
Seasonality. Demand for certain aluminum rolled
products is significantly affected by seasonal factors. As the
temperature increases so does consumption of beer and soft
drinks packaged in aluminum cans. Summer construction starts
also increase demand for aluminum sheet used in the construction
and industrial end-use market. For these reasons, revenues
typically peak in the northern hemisphere in the second and
third quarters, while sales in the southern hemisphere, which
account for a relatively small portion of our revenues, are
highest in the first and fourth quarters.
The following factors have historically affected the supply of
aluminum rolled products:
Production Capacity. As in most manufacturing
industries with high fixed costs, production capacity has the
largest impact on supply in the aluminum rolled products
industry. In the aluminum rolled products industry, the addition
of production capacity requires large capital investments and
significant plant construction or expansion and typically
requires long lead-time equipment orders.
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Alternative Technology. Advances in technological
capabilities allow aluminum rolled products producers to better
align product portfolio and supply with industry demand. As an
example, continuous casting offers the ability in some markets
to increase capacity in smaller increments than is possible with
hot mill additions. This enables production capacity to better
adjust to small year-over-year increases in demand. However, the
continuous casting process permits the production of a more
limited range of products.
Trade. Some trade flows do occur between regions
despite shipping costs, import duties and the need for localized
customer support. Higher value-added, specialty products such as
lithographic sheet are more likely to be traded internationally,
especially if demand in certain markets exceeds local supply.
With respect to less technically demanding applications,
emerging markets with low cost inputs may export commodity
aluminum rolled products to larger, more mature markets.
Accordingly, regional changes in supply, such as plant
expansions, may have some effect on the worldwide supply of
commodity aluminum rolled products.
Our Business Strategy
As a separate company, our management will be free to focus on
aluminum rolled products, which we believe enables us to respond
more quickly to market demands and maximize the efficient
allocation of our capital, technical and human resources. As a
separate company, we are also able to provide incentives to our
management and employees that more closely align their interests
with the performance of the aluminum rolled products business.
Our primary objective is to maximize shareholder value by
increasing our revenues and profitability in the North American,
European, Asia-Pacific and South American aluminum rolled
products markets. We intend to achieve our objective through the
application of our business strengths to the strategic
initiatives outlined below. We intend to:
Address Customer Needs with Innovative and Market-Driven
Products. We intend to enhance value to our customers by
improving the quality of our products and services. We intend to
conduct research and development that generates new products and
processes to enable us to maintain long term partnerships with
our key customers. Significant growth opportunities in aluminum
rolled products consumption have typically come from product
substitution opportunities, such as thin aluminum foil in
packaging applications, automotive body panels and aluminum
building materials. We plan to work in partnership with our
customers to develop new uses for our various products by
substituting highly engineered aluminum rolled products for
other materials, thereby developing new markets for our
products. We believe that our experience in process innovation,
developing new technologies in surface treatment, casting,
alloying, laser semi-finishing, forming and joining, and our
ability to develop specialized aluminum rolled products
solutions, will assist our efforts. We plan to address higher
technology and more profitable end-use markets with proprietary
products and processes that will be unique and attractive to our
customers.
Develop and Implement a New Metal Conversion Business
Model. Since we have separated from an integrated
aluminum producer, we intend to implement a new metal conversion
business model focused on the aluminum rolled products markets
and emphasizing product line selection based on higher
value-added rather than volume, economies of utilization and a
higher focus on recyclables. We believe the resulting change
will allow us to react more quickly in all markets and better
align our business with customer requirements.
Improve Production From Existing Assets and Reduce Capital
Needs. We intend to optimize our production capacity in
order to focus on achieving attractive returns on our capital
assets without investing significant amounts of new capital. Our
modern mills in North America, Europe, Asia and South America
give us the ability to manufacture a wide range of value-added
differentiated aluminum rolled products enabling us to
selectively move production among our mills within these regions
based on market demand. We believe that our separation from
Alcan and its vertically integrated production chain will offer
us further opportunities to improve sourcing logistics and
increase working capital efficiency. Other opportunities for
capital reductions include increasing the use of tolling which
reduces our capital requirements because the metal being
processed is owned by the customer. Tolling refers to the
process by which customers provide their own metal to us to be
converted into a rolled product, and are charged a value-added
conversion cost,
9
instead of the metal plus value-added conversion cost. Tolling
allows us to generate revenues by converting the metal without
having to devote capital to maintaining inventories of metal.
Leverage Economies of Scale in Raw Material Sourcing.
We intend to continue working with our suppliers to
further leverage economies of scale in our purchase of primary
aluminum, supplies and services. Our metal management strategy
includes plans to develop our recycling program further with a
focus on sources of material such as used beverage cans, as well
as other forms of recycled material in all regions in which we
operate, which will expand our access to more cost effective
sources of aluminum. We also have the ability to expand our
sheet ingot casting capacity in the different regions in which
we operate, which can be used to reduce reliance on, or maintain
costs from, third party sheet ingot suppliers.
Capture Growth in Targeted Markets. We intend to
capitalize on our international presence in order to capture
growth opportunities in targeted aluminum rolled products
markets such as beverage cans in selected regions and the
growing automotive component market on the North American,
European and Asian continents. We also own technology relating
to the two main types of continuous casting processes, namely
belt caster and twin roll caster, providing us with a cost
advantage when examining options to profitably serve common
alloy aluminum rolled products production in emerging markets
such as China, Eastern Europe and South America. We intend to
use these strengths, through royalty arrangements, joint
ventures with local partners, or on a stand-alone basis, to grow
profitably when opportunities arise in these emerging markets.
Pursue Selected Expansion and Acquisition Opportunities.
We intend to use our management team, large scale
operations, technical resources, market focus and operating cash
flow to identify and take advantage of appropriate expansion and
acquisition opportunities as they may arise.
We expect that implementation of these strategic initiatives
will enable us to generate stable earnings and cash flow from
operating activities. In the near-term, we expect to use a
substantial portion of our excess cash flow to repay debt and
reduce our leverage, which is required by the terms of the
senior secured credit facilities we entered into in connection
with the reorganization transactions. We will then consider
other alternatives to maximize shareholder value such as
investment opportunities and increased return of cash to
shareholders consistent with achieving and maintaining our
optimum financial structure.
Our Business Groups
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 business groups. The business
groups are Novelis North America (NNA), Novelis Europe (NE),
Novelis Asia (NA) and Novelis South America (NSA).
The table below sets forth the contribution of each of our
business groups to our sales and operating revenues, business
group profit, total assets and shipments for the years ended
December 31, 2004, 2003 and 2002. The measure of
profitability of operating segments historically used by Alcan
is referred to as business group profit, or BGP. BGP comprises
earnings before interest, income taxes, minority interests,
depreciation and amortization and excludes certain items, such
as corporate costs, restructuring, impairment and other special
charges and pension actuarial gains, losses and other
adjustments and mark to market adjustments on derivatives, that
are not under the control of our business groups or are not
considered in the measurement of their profitability. BGP also
includes our proportionate share of unconsolidated joint
ventures as their performance is measured within each operating
segment.
10
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|
2004 | |
|
2003 | |
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2002 | |
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|
(All amounts in $ millions, | |
| Business Group(i) |
|
except shipments, which are in kt) | |
|
Novelis North America
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sales and operating revenues
|
|
|
2,964 |
|
|
|
2,385 |
|
|
|
2,517 |
|
| |
BGP
|
|
|
237 |
|
|
|
206 |
|
|
|
277 |
|
| |
Total assets
|
|
|
1,301 |
|
|
|
1,131 |
|
|
|
1,130 |
|
| |
Shipments
|
|
|
1,175 |
|
|
|
1,083 |
|
|
|
1,165 |
|
|
Novelis Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sales and operating revenues
|
|
|
3,081 |
|
|
|
2,510 |
|
|
|
2,218 |
|
| |
BGP
|
|
|
188 |
|
|
|
173 |
|
|
|
130 |
|
| |
Total assets
|
|
|
2,504 |
|
|
|
2,167 |
|
|
|
1,650 |
|
| |
Shipments
|
|
|
1,089 |
|
|
|
1,012 |
|
|
|
926 |
|
|
Novelis Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sales and operating revenues
|
|
|
1,194 |
|
|
|
918 |
|
|
|
785 |
|
| |
BGP
|
|
|
79 |
|
|
|
68 |
|
|
|
35 |
|
| |
Total assets
|
|
|
954 |
|
|
|
837 |
|
|
|
824 |
|
| |
Shipments
|
|
|
491 |
|
|
|
428 |
|
|
|
378 |
|
|
Novelis South America
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sales and operating revenues
|
|
|
525 |
|
|
|
414 |
|
|
|
379 |
|
| |
BGP
|
|
|
143 |
|
|
|
112 |
|
|
|
90 |
|
| |
Total assets
|
|
|
773 |
|
|
|
733 |
|
|
|
720 |
|
| |
Shipments
|
|
|
264 |
|
|
|
258 |
|
|
|
244 |
|
|
|
| (i) |
The sales and operating revenues and shipment information
presented in the table above excludes intersegment revenues and
shipments. |
Our 37 operating facilities in 12 countries provide us with
highly automated, flexible and advanced manufacturing
capabilities. In addition to the aluminum rolled products
plants, NSA operates bauxite mining, alumina refining, hydro
power plants and smelting facilities. We believe our facilities
have the assets required for efficient production and are well
managed and maintained. For a further discussion of financial
information by geographic area, refer to note 25 to our
audited combined financial statements.
Novelis North America
Through 12 aluminum rolled products facilities, including three
recycling facilities, NNA manufactures aluminum sheet and light
gauge products. Important end-use applications for NNA include
beverage cans, containers and packaging, automotive and other
transportation applications, building products and other
industrial applications.
In 2004, NNA had sales and operating revenues of
$2,964 million, representing 38% of our total sales and
operating revenues, and shipments of 1,175 kilotonnes, including
tolled metal, representing 39% of our total shipments.
In 2004, approximately 60% of NNA’s production was directed
to beverage can sheet. The beverage can end-use application is
technically demanding to supply and pricing is competitive.
Producers with low-cost and technologically advanced
manufacturing facilities and technical support capability have a
competitive advantage. Recycling is important in the
manufacturing process and NNA has three facilities that collect
and remelt post-consumer aluminum and recycled process material.
Most of the recycled material is from used beverage cans and the
material is cast into sheet ingot for NNA’s can sheet
production plants.
11
Novelis Europe
NE provides European markets with value-added sheet and light
gauge products through its 17 operating plants. In 2004, NE had
sales and operating revenues of $3,081 million,
representing 40% of our total sales and operating revenues, and
shipments of 1,089 kilotonnes, including tolled metal,
representing 36% of our total shipments.
NE serves a broad range of aluminum rolled product end-use
applications. Construction and industrial represents the largest
end-use market in terms of shipment volume by NE. NE supplies
plain and painted sheet for building products such as roofing,
siding, panel walls and shutters, where, due to the
material’s recyclability, aluminum products compare
favourably with non-metallic building materials that usually
have to be disposed of in landfills after demolition.
NE also has packaging facilities at three locations, and in
addition to rolled product plants, NE has distribution centers
in Italy and France together with sales offices in several
European countries.
Novelis Asia
NA operates three manufacturing facilities in the Asian region
and manufactures a broad range of sheet and light gauge
products. In 2004, NA had sales and operating revenues of
$1,194 million, representing 15% of our total sales and
operating revenues, and shipments of 491 kilotonnes, including
tolled metal, representing 16% of our total shipments.
NA production is balanced between the foil products,
construction and industrial, and beverage/food can end-use
markets. We believe that NA is well-positioned to benefit from
further economic development in China.
Novelis South America
NSA operates two rolling plants and two primary aluminum
manufacturing facilities and has an interest in a calcined coke
manufacturing facility, each located in Brazil. NSA manufactures
various aluminum rolled products, including can stock,
automotive and industrial sheet and light gauge for the
beverage/food can, construction and industrial and
transportation end-use markets.
In 2004, NSA had sales and operating revenues of
$525 million, representing 7% of our total sales and
operating revenues, and shipments of 264 kilotonnes, including
tolled metal, representing 9% of our total shipments.
The primary aluminum produced by NSA’s mine, refinery and
smelters is used by our Brazilian aluminum rolled products
operations, with any excess production being sold on the market
in the form of aluminum billets. In 2004, NSA had sales of 30
kilotonnes of primary metal. NSA generates a portion of its own
power requirements. NSA also owns options to develop additional
hydroelectric power facilities.
Raw Materials and Suppliers
The raw materials that we use in manufacturing include primary
aluminum, recycled aluminum, sheet ingot, alloying elements and
grain refiners. Our smelters also use alumina, caustic soda and
calcined petroleum coke and resin. These raw materials are
generally available from several sources and are not subject to
supply constraints under normal market conditions. We also
consume considerable amounts of energy in the operation of our
facilities.
Aluminum
We obtain aluminum from a number of sources, including the
following:
Primary Aluminum Purchases. We purchased
approximately 2,100 kilotonnes of primary aluminum in 2004 in
the form of sheet ingot and standard ingot, as quoted on the
LME, 52% of which we purchased from
12
Alcan. Following our separation from Alcan, we have continued to
source aluminum from Alcan pursuant to the metal supply
agreements described under “ — Arrangements
Between Novelis and Alcan.”
Primary Aluminum Production. We produced
approximately 109 kilotonnes of our own primary aluminum
requirements in 2004 through our smelter and related facilities
in Brazil.
Recycled Aluminum Products. We operate facilities
in several plants to recycle post-consumer aluminum, such as
used beverage cans collected through recycling programs. In
addition, we have agreements with several of our large customers
where we take recycled processed material from their fabricating
activity and re-melt, cast and roll their recycled aluminum
products and re-supply them with aluminum sheet. Other sources
of recycled material include lithographic plates, where over 90%
of aluminum used is recycled, and products with longer
lifespans, like cars and buildings, which are just starting to
become high volume sources of recycled material. We purchased
approximately 800 kilotonnes of recycled material in 2004.
The majority of recycled material collected and re-melted is
directed back through can-stock plants. The net effect of these
activities is that 29% of our aluminum rolled products
production in 2004 was made with recycled material.
Sheet Ingot. We have the ability to cast sheet
ingot, which are the slabs of aluminum that are fed into hot
rolling mills to make aluminum rolled products. Casting, which
requires precise control of heat and metal alloys, can have a
major impact on the quality of the sheet ingot produced and all
aluminum rolled products that are subsequently produced from
that sheet ingot. In 2004, we were able to supply 71% of our
internal needs for sheet ingot, which helped us to control the
quality of the sheet ingot we used, and generated cost savings
and sourcing flexibility. We purchased the remainder from Alcan
and other providers on longer term contracts. Following the
separation, we have continued to source a portion of our sheet
ingot requirements from Alcan pursuant to the metal supply
agreements described under “ — Arrangements
Between Novelis and Alcan.”
Energy
We use several sources of energy in the manufacture and delivery
of our aluminum rolled products. In 2004, natural gas and
electricity represented more than 75% of our energy consumption
by cost. We also use fuel oil and transport fuel. The majority
of energy usage occurs at our casting centers and during the hot
rolling of aluminum. Our cold rolling facilities require
relatively less energy. We purchase our natural gas on the open
market, which subjects us to market pricing fluctuations. Recent
natural gas pricing volatility in the United States has
increased our energy costs. We seek to stabilize our future
exposure to natural gas prices through the use of forward
purchase contracts. Natural gas prices in Europe, Asia and South
America have historically been more stable than in the United
States.
A portion of our electricity requirements are purchased pursuant
to long term contracts in the local regions in which we operate.
A number of our facilities are located in regions with regulated
prices, which affords relatively stable costs. NSA has its own
hydroelectric facilities that meet a substantial portion of its
local electricity requirements for smelting operations.
Others
We also have bauxite and alumina requirements. We will satisfy
some of our alumina requirements for the near term pursuant to
the alumina supply agreement we have entered into with Alcan as
discussed below under “ — Arrangements Between
Novelis and Alcan”.
Our Customers
Although we provide products to a wide variety of customers in
each of the markets that we serve, we have experienced
consolidation trends among our customers in many of our key
end-use markets. In 2004, approximately 41% of our total sales
and operating revenues were to our ten largest customers, most
of whom we have been supplying for more than 20 years. To
address consolidation trends, we focus significant efforts at
developing and maintaining close working relationships with our
customers and end-users.
13
Our major customers include Agfa-Gevaert N.V., Alcan’s
packaging business group, Anheuser-Busch Companies, Inc.,
affiliates of Ball Corporation, various bottlers of the
Coca-Cola system, Crown Cork & Seal Company, Inc., Daching
Holdings Limited, DaimlerChrysler AG, Ford Motor Company,
General Motors Corporation, Lotte Aluminum Co. Ltd., Kodak
Polychrome Graphics GmbH, Pactiv Corporation, Rexam Plc, Ryerson
Tull, Inc., Tetra Pak Ltd., Thyssen and Visteon Corporation.
We sell most of our products under long-term contracts with
pricing based on “margin over metal” pricing, which is
subject to periodic adjustments based on market factors.
In our largest end-use market, beverage can sheet, we sell
directly to beverage makers and bottlers as well as to can
fabricators that sell the cans they produce to bottlers. In
certain cases, we also operate under umbrella agreements with
beverage makers and bottlers under which they direct their can
fabricators to source their requirements for beverage can body,
end and tab stock from us. The bottlers are not responsible for
the contractual performance by the can fabricators that we
supply under these umbrella agreements. Among these umbrella
agreements is one, referred to as the CC agreement, with several
North American bottlers of Coca-Cola branded products, including
Coca-Cola Enterprises and its affiliates. This agreement is
based on arrangements that have been in place since 1997 and is
subject to periodic renewal. Under the CC agreement we shipped
approximately 400 kilotonnes of beverage can sheet,
including tolled metal, in 2004. These shipments were made to,
and we received payment from, our direct customers, being the
beverage can fabricators that sell beverage cans to the
Coca-Cola associated bottlers. Under the CC agreement, bottlers
in the Coca-Cola system may join the CC agreement by committing
a specified percentage of the can sheet required by their can
fabricators to us. Pricing under the CC agreement is set for the
duration of the agreement, but is subject to change in the event
of changes in the competitive environment or to the competitive
industry price structure.
Purchases by Rexam Plc and its affiliates from our operations in
all of our business segments represented approximately 11.1%,
9.6% and 11.3% of our total sales and operating revenues in
2004, 2003 and 2002, respectively. Rexam Plc’s North
American affiliates are the largest customers purchasing under
the CC agreement.
Distribution and Backlog
We have two principal distribution channels for the end-use
markets in which we operate: direct sales and distributors (who
are sometimes referred to as stockists). In 2004, 14% of our
total sales and operating revenues were derived from
distributors and 86% of our total sales and operating revenues
were derived from direct sales from our customers.
Direct Sales
We supply various end-use markets in approximately 88 countries
through a direct sales force that operates from individual
plants or sales offices, as well as from regional sales offices
in 21 countries. The direct sales channel typically involves
very large, sophisticated fabricators and original equipment
manufacturers. Long standing relationships are maintained with
leading companies in industries that use aluminum rolled
products. Supply contracts for large global customers generally
range from one to five years in length and historically there
has been a high degree of renewal business with customers. Given
the customized nature of products and in some cases, large order
sizes, switching costs are significant, thus adding to the
overall consistency of the customer base.
We also use third-party agents or traders in some regions to
complement our own sales force. They provide service to our
customers in countries where we do not have local expertise. We
tend to use third-party agents in Asia and South America more
frequently than in other regions.
Distributors
We also sell our products through aluminum distributors,
particularly in North America and Europe. Customers of
distributors are widely dispersed, and sales through this
channel are highly fragmented.
14
Distributors sell mostly commodity or less specialized products
into many end-use markets, including the construction and
industrial and transportation markets. We collaborate with our
distributors to develop new end-use applications and improve the
supply chain and order efficiencies.
Backlog
We produce aluminum rolled products primarily to meet our
customers’ requirements established under annual or
multi-year contracts, which are typically not
“take-or-pay” contracts and we do not believe that
order backlog is a material aspect of our business.
Research and Development
In 2004, we spent $58 million on research and development
activities in our plants and modern research facilities, which
included mini-scale production lines equipped with hot mills,
can lines and continuous casters. We spent $62 million on
research and development activities in 2003 and $67 million
in 2002. We conduct research and development activities at our
mills in order to satisfy current and future customer
requirements, improve our products and reduce our conversion
costs. Our customers work closely with our research and
development professionals to improve their production processes
and market options. We have approximately 300 employees
dedicated to research and development and customer technical
support, located in many of our plants and research centers.
Our Employees
We have approximately 13,500 employees. A significant portion of
our employees, approximately 6,900, are employed in our European
operations and approximately 3,000 are employed in North
America. With respect to the remainder of our workforce,
approximately 1,600 are employed in Asia and approximately 2,000
are employed in South America and other areas. Approximately
two-thirds of our employees are represented by labour unions and
their employment conditions governed by collective bargaining
agreements. Collective bargaining agreements are negotiated on a
site, regional or national level, and are of different
durations. We believe that we have good labour relations in all
our operations and have not experienced a significant labour
stoppage in any of our principal operations during the last
decade.
Intellectual Property
In connection with our separation from Alcan, Alcan has assigned
or licensed to us a number of important patents, trademarks and
other intellectual property rights owned or previously owned by
Alcan and required for our business. Ownership of intellectual
property that is used by both us and Alcan is owned by one of
us, and licensed to the other. Certain specific intellectual
property rights which have been determined to be exclusively
useful to us or which were required to be transferred to us for
regulatory reasons have been assigned to us with no license back
to Alcan.
We own technology relating to the two main types of continuous
casting processes. Continuous casting mills are an alternative
technology for making aluminum rolled products, using a process
that converts molten aluminum directly into hot coils for
further processing. Because small incremental capacity additions
of between 10 kilotonnes and 175 kilotonnes can be made at lower
capital investment than a hot mill, continuous casting mills
offer the industry a better way of matching supply and demand,
especially in emerging markets. We developed the belt caster
technology named Flexcaster through internal research and
development, and acquired the twin roll casting machine
technology through the Pechiney acquisition. We will continue to
specialize in the development and sales of continuous casting
equipment in order to maintain our position as the world leading
manufacturer of continuous casting machines.
Environment, Health and Safety
We own and operate numerous manufacturing and other facilities
in various countries around the world. Our operations are
subject to numerous and increasingly stringent laws and
regulations governing the protection of the environment, health
and safety. We regularly monitor and conduct environment, health
and
15
safety assessments of our facilities. Environment, health and
safety is a key component of our management operating system. We
believe we have well-developed processes and we expect to
continue to focus on this component going forward.
Arrangements Between Novelis and Alcan
In connection with our separation from Alcan, we and Alcan
entered into a separation agreement and several ancillary
agreements to complete the transfer of the businesses
contributed to us by Alcan and the distribution of our shares to
Alcan common shareholders. We may in the future enter into other
commercial agreements with Alcan, the terms of which will be
determined at the relevant times.
Separation Agreement
The separation agreement sets forth the agreement between us and
Alcan with respect to: the principal corporate transactions
required to effect our separation from Alcan; the transfer to us
of the contributed businesses; the distribution of our shares to
Alcan shareholders; and other agreements governing the
relationship between Alcan and us following the separation.
Under the terms of the separation agreement, we assume and agree
to perform and fulfill all of the liabilities and obligations of
the contributed businesses and of the entities through which
such businesses were contributed, including liabilities and
obligations related to discontinued rolled products businesses
conducted by Alcan prior to the separation, in accordance with
their respective terms.
|
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Releases and Indemnification |
The separation agreement provides for a full and complete mutual
release and discharge of all liabilities existing or arising
from all acts and events occurring or failing to occur or
alleged to have occurred or to have failed to occur and all
conditions existing or alleged to have existed on or before the
separation, between or among us or any of our subsidiaries, on
the one hand, and Alcan or any of its subsidiaries other than
us, on the other hand, except as expressly set forth in the
agreement. The liabilities released or discharged include
liabilities arising under any contractual agreements or
arrangements existing or alleged to exist between or among any
such members on or before the separation, other than the
separation agreement, the ancillary agreements described below
and the other agreements referred to in the separation agreement.
We have agreed to indemnify Alcan and its subsidiaries and each
of their respective directors, officers and employees, against
liabilities relating to, among other things:
|
|
|
| |
• |
the contributed businesses, liabilities or contracts; |
| |
| |
• |
liabilities or obligations associated with the contributed
businesses, as defined in the separation agreement, or otherwise
assumed by us pursuant to the separation agreement; and |
| |
| |
• |
any breach by us of the separation agreement or any of the
ancillary agreements we entered into with Alcan in connection
with the separation. |
Alcan has agreed to indemnify us and our subsidiaries and each
of our respective directors, officers and employees against
liabilities relating to:
|
|
|
| |
• |
liabilities of Alcan other than those of an entity forming part
of our group or otherwise assumed by us pursuant to the
separation agreement; |
| |
| |
• |
any liability of Alcan or its subsidiaries, other than us,
retained by Alcan under the separation agreement; and |
| |
| |
• |
any breach by Alcan of the separation agreement or any of the
ancillary agreements we entered into with Alcan in connection
with the separation. |
The separation agreement also specifies procedures with respect
to claims subject to indemnification and related matters.
16
Both we and Alcan have agreed to use our commercially reasonable
efforts, prior to, on and after the separation, to take, or
cause to be taken, all actions, and to do, or cause to be done,
all things, reasonably necessary or advisable under applicable
laws and agreements to complete the transactions contemplated by
the agreement and the other ancillary agreements described below.
|
|
|
Non-solicitation of Employees |
Except with the written approval of the other party and subject
to certain exceptions provided in the agreement, we and Alcan
have agreed not to, for a period of two years following the
separation, (1) directly or indirectly solicit for
employment or recruit the employees of the other party or one of
its subsidiaries, or induce or attempt to induce any employee of
the other party or one of its subsidiaries to terminate his or
her relationship with that other party or subsidiary, or
(2) enter into any employment, consulting, independent
contractor or similar arrangement with any employee or former
employee of the other party or one of its subsidiaries, until
one year after the effective date of the termination of such
employee’s employment with the other party or one of its
subsidiaries, as applicable.
We have agreed not to engage, directly or indirectly, in any
manner whatsoever, for a period of five years following the
separation, in the manufacturing, production and sale of certain
products for the plate and aerospace markets, unless expressly
permitted to do so under the terms of the agreement.
We have agreed (1) not to undergo a change of control
event, as defined in the separation agreement, for a period of
12 months following the separation, and (2) in the
event of a change of control (including a change of control
achieved in an indirect manner), during the four-year period
following the first anniversary of the separation, to provide
Alcan, within 30 days thereafter with a written undertaking
of the acquirer that such acquirer shall be bound by the
non-compete covenants set forth in the separation agreement
during the remainder of the four-year period, to the same extent
as if it had been an original party to the agreement.
If a change of control event occurs during the 12 month
period following the separation, or if, at any time during the
four-year period following the first anniversary of the
separation a change of control of our company occurs and the
person or group of persons who acquired control of our company
fails to execute and deliver the undertaking mentioned above or
refuses, neglects or fails to comply with any of its obligations
pursuant to such undertaking (each a “control-related
event”), Alcan will have a number of remedies, including
terminating any or all of the metal supply agreements, the
technical services agreements, or the intellectual property
licenses granted to us or any of our subsidiaries in the
intellectual property agreements, or the transitional services
agreement.
In connection with our separation from Alcan, we entered into a
number of ancillary agreements with Alcan governing certain
terms of our separation as well as various aspects of our
relationship with Alcan following the separation. These
ancillary agreements include:
Transitional Services Agreement. Pursuant to the
transitional services agreement, Alcan will provide to us or we
will provide to Alcan, as applicable, on an interim,
transitional basis, various services, including, but not limited
to, treasury administration, selected benefits administration
functions, employee compensation and information technology
services. The agreed upon charges for these services generally
allows us or Alcan, as applicable, to recover fully the
allocated costs of providing the services, plus all
out-of-pocket costs and expenses plus a margin of five percent.
No margin will be added to the cost of services supplied by
external suppliers. In general, the services began on the
separation date and will cover a period generally not expected
to exceed 12 months following the separation. With respect
to particular services, we or Alcan, depending on
17
who is the recipient of the relevant services, may terminate the
agreement with respect to one or more of those services upon
prior written notice.
Metal Supply Agreements. We and Alcan have entered
into four multi-year metal supply agreements pursuant to which
Alcan will supply us with specified quantities of remelt ingot,
molten metal and sheet ingot in North America and Europe on
terms and conditions substantially similar to market terms and
conditions during specific periods. These agreements are
anticipated to provide us with the ability to cover some metal
requirements through a fixed price purchase mechanism. In
addition, an ingot supply agreement in effect between Alcan and
Alcan Taihan Aluminum prior to the separation remains in effect
following the separation.
Foil Supply Agreements. We have entered into foil
supply agreements with Alcan for the supply of foil from our
facilities located in Norf, Ludenscheid and Ohle, Germany to
Alcan’s packaging facility located in Rorschach,
Switzerland as well as from our facilities located in Utinga,
Brazil to Alcan’s packaging facility located in Maua,
Brazil. These agreements are for five-year terms during the
course of which we will supply specified percentages of
Alcan’s requirements for its facilities described above (in
the case of Alcan’s Rorschach facility, 95% in 2005, 94% in
2006, 93% in 2007, 92% in 2008 and 90% in 2009, and in the case
of Alcan’s Maua facility, 70%). In addition, we will
continue to supply certain of Alcan’s European operations
with foil under the terms of two agreements that were in effect
prior to the separation.
Alumina Supply Agreements. We have entered into a
ten-year alumina supply agreement with Alcan pursuant to which
we will purchase from Alcan, and Alcan will supply to us,
alumina for our primary aluminum smelter located in Aratu,
Brazil. The annual quantity of alumina to be supplied under this
agreement is between 85,000 metric tonnes to
126,000 metric tonnes. In addition, an alumina supply
agreement between Alcan and Novelis Deutschland GmbH that was in
effect prior to the separation remains in effect following the
separation.
Intellectual Property Agreements. We and Alcan
have entered into intellectual property agreements pursuant to
which Alcan has assigned or licensed to us a number of important
patents, trademarks and other intellectual property rights owned
by Alcan and required for our business. Ownership of
intellectual property that is used by both us and Alcan is owned
by one of us and licensed to the other. Certain specific
intellectual property rights which were determined to be
exclusively useful to us or which were required to be
transferred to us for regulatory reasons have been assigned to
us with no license back to Alcan.
Sierre Agreements. We and Alcan entered into a
number of agreements pursuant to which:
|
|
|
| |
• |
Alcan transferred to us certain assets and liabilities of the
automotive and other aluminum rolled products businesses
relating to the sales and marketing output of the Sierre North
Building, which comprises a portion of the Sierre facility in
Switzerland, at a transfer price determined by a valuation made
by an independent third party, pursuant to the terms of the
separation and asset transfer agreements; |
|
|
|
| |
• |
Alcan leased to us the Sierre North Building and the machinery
and equipment located in the Sierre North Building (including
the hot and cold mills) for a term of 15 years, renewable
at our option for additional five-year periods, at an annual
base rent in an amount equal to 8.5% of the book value of the
Sierre North Building, the leased machinery or equipment, as
applicable, pursuant to the terms of the real estate lease and
equipment lease agreements; |
|
|
|
| |
• |
We and Alcan will have access to, and use of, property and
assets that are common to each of our respective operations at
the Sierre facility, pursuant to the terms of the access and
easement agreement; |
| |
| |
• |
Alcan agreed to supply us with all our requirements of aluminum
rolling slabs for the production of aluminum rolled products at
the Sierre facility for a term of ten years, subject to
availability, and provided the aluminum rolling slabs meet
applicable quality standards and are competitively priced,
pursuant to the terms of the metal supply agreement; |
| |
| |
• |
Alcan will provide certain services to us at the Sierre
facility, including services consisting of or relating to
environmental testing, chemical laboratory services, utilities,
waste disposal, facility safety and |
18
|
|
|
| |
|
security, medical services, employee food service and rail
transportation, and we will provide certain services to Alcan at
the Sierre facility, including services consisting of or
relating to hydraulic and mechanical maintenance, roll grinding
and recycled process material for a two-year renewable term,
pursuant to the terms of the shared services agreement; and |
| |
| |
• |
Alcan retains access to all of the total plate production
capacity of the Sierre facility, which represents a portion of
Sierre’s total hot mill production capacity. The formula
for the price to be charged to Alcan for products from the
Sierre hot mill is based upon its proportionate share of the
fixed production costs relating to the Sierre hot mill
(determined by reference to actual production hours utilized by
Alcan) and the variable production costs (determined by
reference to the volume of product produced for Alcan). Under
the tolling agreement, we have agreed to maintain the current
standards of maintenance, management and operation of the Sierre
hot mill. |
With respect to the use of the machinery or equipment in the
Sierre North Building, we have agreed to refrain from making or
authorizing any use of it which may benefit any business
relating to the sale, marketing, manufacturing, development or
distribution of plate or aerospace products.
Neuhausen Agreements. We have entered into an
agreement with Alcan pursuant to which (1) Alcan
transferred to us various laboratory and testing equipment used
in the aluminum rolling sheet business located in Neuhausen,
Switzerland and (2) approximately 35 employees transferred
from Alcan to us at the Neuhausen facility. In addition, we have
assumed certain obligations in connection with the operations of
the Neuhausen facility, including (1) the obligation to
reimburse Alcan for 100% of its actual and direct costs incurred
in terminating employees, cancelling third-party agreements, and
discontinuing the use of assets in the event we request Alcan to
discontinue or terminate services under the services agreement,
(2) the obligation to reimburse Alcan for 20% of the costs
to close the Neuhausen facility in certain circumstances, and
(3) the obligation to indemnify Alcan for (a) all
liabilities arising from the ownership, operation, maintenance,
use, or occupancy of the Neuhausen facility and/or the equipment
at any time after the separation date and resulting from our
acts or omissions or our violation of applicable laws, including
environmental laws, (b) all liabilities relating to the
employees that transferred from Alcan to us arising before, on
or after the separation date, and (c) an amount equal to
20% of all environmental legacy costs related to the Neuhausen
facility.
Tax Sharing and Disaffiliation Agreement. The tax
sharing and disaffiliation agreement provides an 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
separation, including the reorganization transactions. It
further governs the disaffiliation of the tax matters of Alcan
and its subsidiaries or affiliates other than us, on the one
hand, and us and our subsidiaries or affiliates, on the other
hand. In this respect it allocates taxes accrued prior to the
separation and after the separation 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 create mutual collaboration obligations with
respect to tax matters.
Employee Matters Agreement. Pursuant to the
employee matters agreement, we and Alcan have allocated between
us assets, liabilities and responsibilities with respect to
certain employee compensation, pension and benefit plans,
programs and arrangements and certain employment matters and,
more specifically, pursuant to which we have set out the terms
and conditions pertaining to the transfer to us of certain Alcan
employees. As of the separation date, we hired or employed all
of the employees of Alcan and its affiliates who were then
involved in the businesses transferred to us by Alcan. During a
one-year period following the separation, such employees’
terms and conditions of employment, including pension and
benefit plans as well as employment policies, will be
comparable, in the aggregate, to the terms and conditions of
employment in effect immediately prior to the separation.
Employees who transferred to us from Alcan also receive credit
for their years of service with Alcan prior to the separation.
Effective as of the separation date, we generally assumed all
employment compensation and employee benefit liabilities
relating to our employees.
Technical Services Agreements. We have entered
into technical services agreements with Alcan pursuant to which
(1) Alcan will provide technical support and related
services to certain of our facilities in Canada, Brazil and
France, and (2) we will provide similar services to certain
Alcan facilities in Canada.
19
These agreements are not long-term agreements. In addition, we
have entered into a technical services agreement with Alcan
pursuant to which (1) Alcan will provide us with materials
characterization, chemical analysis, mechanical testing and
formability evaluation and other general support services at the
Neuhausen facility, (2) Alcan will provide us and our
employees with access to and use of those portions of the
Neuhausen facility where the laboratory and testing equipment
mentioned above is located, and office space suitable for our
technical and administrative personnel, and (3) we will
provide Alcan with access to specific technical equipment and
additional services upon request from Alcan, in consideration
for agreed upon service fees for a period of two years.
Following the first year of the term of the Neuhausen technical
services agreement, either party may terminate the agreement by
providing the other with at least six months’ prior written
notice.
Ohle Agreement. We and Alcan have entered into an
agreement pursuant to which we will supply pet food containers
to Alcan, which Alcan will market in connection with its related
packaging activities. We have agreed for a period of five years
not to, directly or indirectly, for ourselves or others, in any
way work in or for, or have an interest in, any company or
person or organization within the European market which conduct
activities competing with the activities of Alcan Packaging
Zutphen B.V., a subsidiary of Alcan, related to its
pet food containers business.
Foil Supply and Distribution Agreement. Pursuant
to the two-year foil supply and distribution agreement, we will
(1) manufacture and supply to, or on behalf of, Alcan
certain retail and industrial packages of Alcan brand aluminum
foil and (2) provide certain services to Alcan in respect
of the foil we supply to Alcan under this agreement, such as
marketing and payment collection. We will receive a service fee
based on a percentage of the foil sales under the agreement.
Pursuant to the terms of the agreement, we have agreed we will
not market retail packages of foil in Canada under a brand name
that competes directly with the Alcan brand during the term of
the agreement.
Metal Hedging Agreement. We have also entered into
an agreement pursuant to which Alcan provides metal price
hedging services to us. These fixed forward pricing arrangements
help us to reduce the risk of metal price fluctuations when we
enter into agreements with customers that provide for fixed
metal price arrangements. Alcan charges us fees based on the
amount of metal covered by each hedge.
Available Information
We are subject to the reporting and information requirements of
the Exchange Act and, as a result, will file periodic reports,
proxy statements and other information with the SEC. We make
these filings available on our website, the URL of which is
http://www.novelis.com, as soon as reasonably practicable after
we electronically file such material with, or furnish it to, the
SEC. Information on our website does not constitute part of this
Annual Report on Form 10-K. As a foreign private issuer, we
are not subject to the proxy requirements under Section 14
of the Exchange Act and our executive officers, directors and
principal shareholders are not subject to the insider short
swing profit reporting and recovery rules under Section 16
of the Exchange Act.
We have 37 operating facilities in 12 countries. We believe our
facilities are generally well-maintained and in good operating
condition and have adequate capacity to meet our current
business needs.
The following provides a description, by business group, of the
plant processes and end-use markets for our aluminum rolled
products, recycling and primary metal facilities.
20
NNA
| |
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| Location |
|
Plant Process |
|
Major End-Use Markets |
| |
|
|
|
|
|
Oswego, New York
|
|
Hot rolling, cold rolling recycling |
|
Can stock, Construction/Industrial,
Semi-finished coil |
|
Logan, Kentucky(i)
|
|
Hot rolling, cold rolling |
|
Can stock |
|
Saguenay, Quebec
|
|
Continuous casting |
|
Semi-finished coil |
|
Kingston, Ontario
|
|
Cold rolling, finishing |
|
Automotive, Construction/Industrial |
|
Terre Haute, Indiana
|
|
Cold rolling, finishing |
|
Foil |
|
Warren, Ohio
|
|
Coating |
|
Can stock |
|
Fairmont, West Virginia
|
|
Cold rolling, finishing |
|
Foil |
|
Toronto, Ontario
|
|
Finishing |
|
Foil, foil containers |
|
Louisville, Kentucky
|
|
Cold rolling, finishing |
|
Foil |
|
Burnaby, British Columbia
|
|
Finishing |
|
Foil containers |
|
|
| (i) |
We own 40% of the shares of Logan Aluminium Inc., but we have
made subsequent equipment investments such that we now have
access to approximately 67% of Logan’s total production
capacity. |
Our Oswego, New York, facility operates modern equipment for
used beverage cans recycling, ingot casting, hot rolling, cold
rolling and finishing. Oswego produces can stock as well as
building and industrial products. Oswego also provides feedstock
to our Kingston, Ontario, facility, which produces heat-treated
automotive sheet and our Fairmont, West Virginia, facility,
which produces light gauge sheet.
The Logan, Kentucky, facility is a processing joint venture
between us and Arco Aluminium, a subsidiary of BP plc. Our
original equity investment in the joint venture was 40%, while
Arco held the remaining 60% interest. Subsequent equipment
investments have resulted in us now having access to
approximately 67% of Logan’s total production capacity.
Logan, which was built in 1985, is the newest and largest hot
mill in North America. Logan operates modern and high-speed
equipment for ingot casting, hot-rolling, cold-rolling and
finishing. Logan is a dedicated manufacturer of aluminum sheet
products for the can stock market with modern equipment,
efficient workforce and product focus. A portion of the can end
stock is coated at NNA’s Warren, Ohio, facility, in
addition to Logan’s on-site coating assets. Together with
Arco, we operate Logan as a production cooperative, with each
party supplying its own primary metal inputs for transformation
at the facility. The transformed product is then returned to the
supplying party at cost. Logan does not own any of the primary
metal inputs or any of the transformed products. All of the
fixed assets at Logan are directly owned by us and Arco in
varying ownership percentages or solely by us. As discussed in
“Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations”, our
combined balance sheet includes the assets and liabilities of
Logan.
We share control of the management of Logan with Arco through a
seven-member board of directors on which we appoint four members
and Arco appoints three. Management of Logan is led jointly by
two executive officers, one nominated by us and one nominated by
Arco, who are subject to approval by at least five members of
the board of directors.
Our Saguenay Works, Quebec, facility operates the world’s
largest continuous caster, which produces feedstock for our
three foil rolling plants located in Terre Haute, Indiana,
Fairmont, West Virginia and Louisville, Kentucky. The continuous
caster was developed through internal research and development
and we own the process technology. Our Saguenay Works facility
produces aluminum rolled products directly from molten metal,
which will be sourced under long term supply arrangements we
have with Alcan.
Along with our recycling center in Oswego, New York, we own two
other fully dedicated recycling facilities in Berea, Kentucky
and Greensboro, Georgia. Each offers a modern, cost-efficient
process to recycle
21
used beverage cans and other recycled aluminum into sheet ingot
to supply our hot mills in Logan and Oswego. Berea is the
largest used beverage can recycling facility in the world.
NE
| |
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| Location |
|
Plant Process |
|
Major End-Use Markets |
| |
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|
Norf, Germany(i)
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Hot rolling, cold rolling |
|
Can stock, foilstock, reroll Construction/Industrial |
|
Göttingen, Germany
|
|
Cold rolling, finishing |
|
Can end, Lithographic, Painted sheet |
|
Rogerstone, United Kingdom
|
|
Hot rolling, cold rolling |
|
Foilstock, paintstock, reroll |
|
Nachterstedt, Germany
|
|
Cold rolling, finishing |
|
Construction/Industrial, Automotive |
|
Sierre, Switzerland(ii)
|
|
Hot rolling, cold rolling |
|
Automotive sheet |
|
Pieve, Italy
|
|
Continuous casting, cold rolling |
|
Paintstock, industrial |
|
Ohle, Germany
|
|
Cold rolling, finishing |
|
Foil |
|
Bresso, Italy
|
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Finishing |
|
Painted sheet |
|
Falkirk, United Kingdom(iii)
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Cold Rolling |
|
Construction/Industrial |
|
Rugles, France
|
|
Continuous casting, cold rolling, finishing |
|
Foil |
|
Dudelange, Luxembourg
|
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Continuous casting, cold rolling, finishing |
|
Foil |
|
Bridgnorth, United Kingdom
|
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Cold rolling, finishing |
|
Foil |
|
Annecy, France
|
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Hot rolling, Cold rolling, finishing |
|
Painted sheet, circles |
|
Ludenscheid, Germany
|
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Cold rolling, finishing |
|
Foil |
|
Flemalle, Belgium(iv)
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Cold rolling, finishing |
|
Foil |
|
Berlin, Germany
|
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Finishing |
|
Foil |
|
|
| (i) |
Operated as a joint venture between us, 50% interest, and Norsk
Hydro Aluminium Deutschland GmbH, 50% interest. |
| |
| (ii) |
We have entered into an agreement with Alcan pursuant to which
Alcan, following the separation, retains access to the plate
production capacity utilized prior to separation at the Sierre
facility, which represents a portion of the total production
capacity of the Sierre hot mill. |
| |
| (iii) |
The facility was closed in December 2004. |
| |
| (iv) |
Closure of the facility is planned for mid-2005. |
Aluminium Norf GmbH in Germany, a 50/50 production sharing joint
venture between us and Norsk Hydro Aluminium Deutschland
GmbH, is a large scale, modern manufacturing hub for several of
our operations in Europe, and is the largest aluminum rolling
mill in the world. Norf supplies hot coil for further processing
through cold rolling to some of our other plants including
Goettingen and Nachterstedt in Germany and provides foilstock to
our plants in Ohle and Ludenscheid in Germany and Rugles in
France. Together with Norsk Hydro, we operate Norf as a
production cooperative, with each party supplying its own
primary metal inputs for transformation at the facility. The
transformed product is then transferred back to the supplying
party on a pre-determined cost-plus basis. The facility’s
capacity is, in principle, shared 50/50. We own 50% of the
equity interest in Norf and Norsk Hydro owns the other 50%. We
share control of the management of Norf with Norsk Hydro through
a jointly-controlled shareholders’ committee. Management of
Norf is led jointly by two managing executives, one nominated by
us and one nominated by Norsk Hydro.
22
Rogerstone’s hot mill in the United Kingdom supplies the
Bridgnorth foil plant with foilstock and produces paintstock
reroll for Pieve and Annecy. In addition, Rogerstone produces
standard sheet and coil for the United Kingdom distributor
market. The Pieve plant, located in Milan, Italy, produces
continuous cast coil that is cold rolled into paint stock and
sent to the Bresso plant, also located in Milan.
The Dudelange foil plant in Luxembourg utilizes continuous twin
roll casting equipment and is one of the few foil plants in the
world capable of producing 6 micron foil for aseptic packaging
applications from continuous cast material. The Sierre hot
rolling plant in Switzerland is Europe’s leading producer
of automotive sheet in terms of shipments and also supplies
plate stock to Alcan.
Our recycling operations at Borgofranco, Italy and Latchford,
United Kingdom position us as one of the major recyclers in
Europe. Latchford is the only major recycling plant in Europe
dedicated to used beverage cans.
NE also manages Pechiney Aluminum Engineering (Voreppe, France),
which sells casthouse technology, including liquid metal
treatment devices, such as degassers and filters, direct cast
automation packages and twin roll continuous casters, in many
parts of the world.
NA
| |
|
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|
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| Location |
|
Plant Process |
|
Major End-Use Markets |
| |
|
|
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|
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Ulsan, Korea(i)
|
|
Hot rolling, cold rolling |
|
Can stock, Construction/Industrial, Foil stock |
|
Yeongju, Korea(ii)
|
|
Hot rolling, cold rolling |
|
Can stock, |
|
Bukit Raja, Malaysia(iii)
|
|
Continuous casting, cold rolling |
|
Construction/Industrial, Foil stock Foil, finstock |
|
|
| (i) |
We hold a 68% equity interest in the Ulsan plant. |
(ii) We hold a 68% equity interest in the Yeongju
plant.
|
|
| (iii) |
Ownership of the Bukit Raja plant corresponds to our 59%
shareholding in Aluminium Company of Malaysia Berhad. We
increased our ownership from 36% to 59% in 2003. |
Our Korean subsidiary, in which we hold a 68% interest, was
formed through acquisitions in 1999 and 2000. Since our
acquisitions, product capability has been developed to address
higher value and more technically advanced markets such as can
sheet.
In 2003, we increased from 36% to 59% our participation in the
Aluminium Company of Malaysia, a publicly traded company that
controls the Bukit Raja, Selangor light gauge rolling facility.
Unlike our production sharing joint ventures at Norf and Logan,
our Korean and Malaysian partners are financial partners and we
market 100% of the plants’ output.
NA also operates a recycling furnace in Ulsan, Korea for the
conversion of customer and third party recycled aluminum,
including used beverage cans. Metal from recycled aluminum
purchases represented 6% of NA’s total shipments in 2004.
NSA
| |
|
|
|
|
| Location |
|
Plant Process |
|
Major End-Use Markets |
| |
|
|
|
|
|
Pindamonhangaba, Brazil
|
|
Hot rolling, cold rolling |
|
Construction/Industrial, can stock, foil stock |
|
Utinga, Brazil
|
|
Finishing |
|
Foil |
Our Pinda rolling and recycling facility in Brazil has an
integrated process that includes recycling, sheet ingot casting,
hot mill and cold mill operations. A leased coating line
produces painted products, including can end stock. Pinda
supplies foil stock to our Utinga foil plant, which produces
converter, household and container foil.
23
Pinda is the largest aluminum rolling and recycling facility in
South America in terms of shipments and the only facility in
South America capable of producing can body and end stock. Pinda
recycles primarily used beverage cans, and is engaged in tolling
recycled metal for our customers.
The table below sets forth plant processes and end-use markets
information about our South American primary metal operations.
Total production capacity at these facilities was 109 kilotonnes
in 2004.
| |
|
|
|
|
|
|
| Location |
|
Plant Process | |
|
Major End-Use Markets |
| |
|
| |
|
|
|
Aratu, Brazil
|
|
|
Smelting |
|
|
Primary aluminum (sheet ingot and billets) |
|
Petrocoque, Brazil(i)
|
|
|
Refining calcined coke |
|
|
Carbon products (smelter anodes) |
|
Ouro Preto, Brazil
|
|
|
Hydroelectric, Bauxite |
|
|
Primary aluminum (sheet |
| |
|
|
mining, Alumina |
|
|
ingot and billets) |
| |
|
|
refining, Smelting |
|
|
|
|
|
| (i) |
Operated as a joint venture between us, 25% interest, Petrobas
Quimica S.A., 35% interest, Universal — Comércio
e Empreendimentos Ltda., 25% interest, and Companhia Brasileira
de Aluminio, 15% interest. |
We conduct bauxite mining, alumina refining, primary aluminum
smelting and hydroelectric power generation operations at our
Ouro Preto facility in Saramenha, Brazil. Our owned power
generation supplied 67% of the Ouro Preto smelter needs. In the
Ouro Preto region, we own rights to approximately
5.6 million tonnes of bauxite reserves. There are
additional reserves in the Cataguases and Carangola regions
sufficient to meet our requirements in the foreseeable future.
We also conduct primary aluminum smelting operations at our
Aratu facility in Brazil.
Item 3. Legal
Proceedings
In connection with our separation from Alcan, we assumed a
number of liabilities, commitments and contingencies mainly
related to our historical rolled products operations, including
liabilities in respect of legal claims and environmental
matters. As a result, we may be required to indemnify Alcan for
claims successfully brought against Alcan or for the defense of,
or defend, legal actions that arise from time to time in the
normal course of our rolled products business including
commercial and contract disputes, employee-related claims and
tax disputes (including several disputes with Brazil’s
Ministry of Treasury regarding taxes and social security
contributions, and a dispute with taxation authorities in
Italy). In addition to these assumed liabilities and
contingencies, we may, in the future, be involved in, or subject
to, other disputes, claims and proceedings that arise in the
ordinary course of our business, including some that we assert
against others. Where appropriate, we have established reserves
in respect of these matters (or, if required, we have posted
cash guarantees). While the ultimate resolution of, and
liability and costs related to, these matters cannot be
determined with certainty due to the considerable uncertainties
that exist, we do not believe that any of these pending actions,
individually or in the aggregate, will materially impair our
obligations or materially affect our financial condition or
liquidity. The following describes certain environmental matters
relating to our business for which we assumed liability as a
result of our separation from Alcan.
Environmental Matters
We are involved in proceedings under the U.S. Superfund or
analogous state provisions regarding the usage, storage,
treatment or disposal of hazardous substances 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. 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 related remediation or compliance actions. Although we
cannot reasonably estimate all of the costs that are likely to
ultimately be
24
borne by us, we have provided for the currently anticipated
costs associated with ongoing environmental remediation or
compliance actions, and we have no reason to believe that such
remediation and compliance actions will 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 a non-discounted basis 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 an estimated claim.
Management generally 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, or
PRPs, unless otherwise noted.
PAS Site. Novelis Corporation (a wholly-owned
subsidiary of ours and formerly known as Alcan Aluminum
Corporation, or Alcancorp.) and third parties were defendants in
a lawsuit instituted in July 1987 by the U.S. Environmental
Protection Agency, or EPA, relating to the Pollution Abatement
Services, or PAS, site, a third-party disposal site, in Oswego,
New York. In January 1991, the U.S. District Court for the
Northern District of New York found Novelis Corporation liable
for a share of the clean-up costs for the site, and in December
1991 determined the amount of such share to be $3,175,683 plus
interest and costs. Novelis Corporation appealed this decision
to the United States Court of Appeals, Second Circuit. In April
1993, the Second Circuit reversed the District Court and
remanded the case for a hearing on what liability, if any, might
be assigned to Novelis Corporation depending on whether Novelis
Corporation could prove that its waste did not contribute to the
costs of remediation at the site. This matter was consolidated
with another case, instituted in October 1991 by the EPA against
Novelis Corporation in the U.S. District Court for the Northern
District of New York seeking clean-up costs in regard to the
Fulton Terminals Superfund site in Oswego County, New York,
which was also owned by PAS. The remand hearing was held in
October of 1999. The trial court re-instituted its judgment
holding Novelis Corporation liable. The amount of the judgment
plus interest was $13.5 million as of December 2000. The
case was appealed. In the first quarter 2003, the Second Circuit
affirmed the decision of the trial court. In 2004, Novelis
Corporation paid $13.9 million in respect of the EPA claim,
representing the full amount of the judgment plus interest, and
$1.6 million to the State of New York, and is currently
responsible for future oversight costs, which are currently
estimated at approximately $600,000.
PAS Oswego Site Performing Group. Novelis
Corporation has also been sued by ten other PRPs at the PAS site
seeking contribution from Novelis Corporation for costs they
collectively incurred in cleaning up the PAS site from 1990 to
the present. The costs incurred by the PRPs to date total
approximately $6.4 million plus accrued interest. Based
upon currently available record evidence, Novelis Corporation is
contesting responsibility for costs incurred by the PRPs.
Oswego North Ponds. In the late 1960s and early
1970s, Novelis Corporation in Oswego used an oil containing
polychlorinated biphenyls, or PCBs, in its re-melt operations.
At the time, Novelis Corporation utilized a once-through cooling
water system that discharged through a series of constructed
ponds and wetlands, collectively referred to as the North Ponds.
In the early 1980s, low levels of PCBs were detected in the
cooling water system discharge and Novelis Corporation performed
several subsequent investigations. The PCB-containing hydraulic
oil, Pydraul, which was eliminated from use by Novelis
Corporation in the early 1970s, was identified as the source of
contamination. In the mid-1980s, the Oswego North Ponds site was
classified as an “inactive hazardous waste disposal
site” and added to the New York State Registry. Novelis
Corporation ceased discharge through the North Ponds in mid-2002.
In cooperation with the New York State Department of
Environmental Conservation, or NYSDEC, and the New York State
Department of Health, Novelis Corporation entered into a consent
decree in August 2000 to develop and implement a remedial
program to address the PCB contamination at the Oswego North
Ponds site. A remedial investigation report was submitted in
January 2004 and we anticipate that the NYSDEC will issue a
proposed remedial action plan and record of decision during the
second half of 2005. We expect that
25
the remedial plan will be implemented in 2006. The estimated
cost associated with this remediation is approximately
$25 million.
Butler Tunnel Site. Novelis Corporation was a
party in a 1989 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 United States government filed a second cost recovery action
against Novelis Corporation seeking recovery of expenses
associated with the installation of an early warning system for
potential future releases from the Butler site. The complaint
does not disclose the amount of costs sought by the government.
The case has been held in abeyance since shortly after it was
filed and therefore there has been no opportunity for discovery
to fully determine the type of remedial action sought, the total
cost, the existence of other settlements or the existence of
other non-settling PRPs that may exist for potential
contribution. In December 2004, a motion for partial summary
judgment was heard and is under advisement.
Tri-Cities Site. In 1994 Novelis Corporation and
other companies responded to an EPA inquiry concerning the
shipment of old drums to Tri-Cities Inc., a third party barrel
reprocessing facility in upstate New York. In 1996 the EPA
issued an administrative order directing the defendants to clean
up the site. Novelis Corporation refused to participate,
claiming that the drums sent to Tri-Cities were empty at the
time of delivery. In September 2002, Novelis Corporation
received notice from the EPA contending that Novelis Corporation
was responsible for past and future response costs with accrued
interest as well as penalties for its violation of the
administrative order. Novelis Corporation responded by outlining
its objections to the EPA’s determination. The EPA
subsequently referred the matter to the Department of Justice,
or DOJ, for enforcement. In December 2004, a consent decree was
negotiated with the DOJ and EPA. Under this consent agreement,
Novelis Corporation will pay $360,000 as a civil penalty as well
as $600,000 in past costs. Future costs have been capped at a
maximum payment of $800,000 payable over an extended period of
time.
Quanta Resources Site. In June 2003, the DOJ filed
a Superfund costs recovery action in the U.S. District Court for
the Northern District of New York against Novelis Corporation
and Russell Mahler, the site owner, seeking unreimbursed
response costs stemming from the disposal of rolling oil
emulsion at the Quanta Resources facility in Syracuse, New York.
The parties are in the process of discovery. In 2003, Novelis
Corporation met with the DOJ and the EPA who quantified
potential liability for unreimbursed costs and penalties in the
amount of $1.4 million.
Sealand Site. New York State and EPA claim that
Novelis Corporation’s waste that was sent to the Sealand,
New York Restoration site is a hazardous substance that
contributed to the occurrence of response costs. There are
several PRPs at this site. In 1993, Novelis Corporation declined
a request to participate in a program to provide drinking water
to area residents, contending that Novelis Corporation’s
waste did not cause or contribute to the harm at the site. In
2003, Alcan met with the DOJ and the EPA who quantified
potential liability for unreimbursed costs at $2.6 million.
Toyo Coal Tar Remediation. Prior property owners
contaminated the soil at our Joiliet, Illinois facility with
coal tar. Following litigation, Novelis Corporation received a
90% cost allocation from two defendants. In 1998, a remediation
plan was developed to clean-up soils and groundwater. The
remedial program was implemented in 1999. Novelis Corporation
continues to monitor the remediation. Novelis Corporation’s
estimated costs are approximately $275,000.
Diamond Alkali Superfund Site-Lower Passaic River
Initiative. In 2003, Novelis Corporation received a
letter from the EPA regarding an investigation being launched
into possible contamination of the Lower Passaic River in 1965.
Novelis Corporation has been identified as a PRP arising from
one of its former plants in Newark, New Jersey that may have
generated hazardous waste. A remedial investigation feasibility
study is scheduled to be carried out over several years. Novelis
Corporation has entered into a consent decree with other PRPs
and will participate in a remedial feasibility study. Novelis
Corporation’s estimated environmental costs have been set
at $184,000.
26
Jarl Extrusions (Rochester, NY). The affected
property in Rochester, New York was acquired in 1988. Operations
at the property were subsequently discontinued and the property
was sold in December 1996. Novelis Corporation retained
liability under the terms of sale. Novelis Corporation entered
into a consent decree with NYSDEC under which evaluation of the
site was performed in 1990 and 1991. Most of the contamination
was determined to have come from an adjoining site. In its
response to Novelis Corporation’s investigation report, the
NYSDEC asked Novelis Corporation to admit to liability for
off-site pollution (a Superfund site is located next door)
and that hazardous sludge was dumped in the ponds behind the
building. Novelis Corporation denied these allegations. In light
of the State’s failure to cooperate with Novelis
Corporation in the remediation of this site under the consent
decree, Novelis Corporation filed a notice of protest with the
State. Novelis Corporation’s appeal was denied, but the
State later approved a new remedial investigation report
negotiated between NYSDEC and Novelis Corporation. A feasibility
study for site remediation was then approved by NYSDEC.
Negotiations on a consent order for remedial design construction
were completed and the restrictive deed covenants have been
filed for the property. The clean-up has been completed and
NYSDEC approved a long-term operation and monitoring plan
(“O&M”). Novelis Corporation continues to conduct
O&M and has sought permission to decommission two monitoring
wells. Estimated costs associated with this matter are
approximately $150,000.
Terre Haute TCE Issue. Trichloroethylene, or TCE,
soil and groundwater contamination was discovered on the Terre
Haute site in 1990. A site investigation was performed in
between 1991 and 1994 whereby the extent of TCE groundwater and
soil contamination was delineated. The subsurface contamination
was located on site with groundwater plume migrating off site,
with impacts to private homeowner drinking water wells. Terre
Haute entered into the Indiana Voluntary Remediation Program in
1995. A remediation plan was developed which consisted of Soil
Venting/ Air Sparging for subsurface soil remediation. The point
source carbon treatment systems were installed on impacted
homeowners wells. The active subsurface soil remediation was
completed in 2003. Now that the remediation phase has been
completed, Novelis Corporation is required to support a post
remedial groundwater and drinking water well monitoring program.
Periodic monitoring will be required until groundwater clean up
goals are met. Based on historical trends in TCE contamination,
it is anticipated that clean up objectives will be met within
10 years. Once the clean up objectives are met, the project
will be considered closed. Estimated costs associated with
funding the required monitoring program for a period of
10 years is approximately $600,000.
|
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| Item 4. |
Submission of Matters to a Vote of Security Holders |
None.
27
PART II
|
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| Item 5. |
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Market Information
Our common shares are listed on the Toronto Stock Exchange and
the New York Stock Exchange under the symbol
“NVL”. Our common shares began trading on
a “when-issued” basis on the Toronto Stock
Exchange on January 6, 2005 and on a “regular
way” basis on January 7, 2005. The intra-day high
sales price for our common stock between January 6, 2005
and March 21, 2005 was $CAN34.00 and the intra-day low
sales price was $CAN25.00. Our common shares began trading on
a “when-issued” basis on the New York Stock
Exchange on January 6, 2005 and on a “regular
way” basis on January 19, 2005. The intra-day high
sales price for our common stock between January 6, 2005
and March 21, 2005 was $26.45 and the intra-day low sales
price was $20.75.
Holders
As of March 18, 2005, there were 11,320 holders
of record of our common shares.
Dividends
On March 1, 2005, our board of directors approved a policy
of quarterly dividend payments on our common shares and declared
a quarterly dividend of $0.09 per common share payable on
March 24, 2005 to shareholders of record at the close of
business on March 11, 2005. Future dividends will depend
on, among other things, our financial resources, cash flows
generated by our business, our cash requirements, restrictions
under the instruments governing our indebtedness and other
relevant factors.
Securities Authorized for Issuance Under Equity Compensation
Plans
Because we did not separate from Alcan until January 6,
2005, as of December 31, 2004, none of our equity
securities were authorized for issuance under compensation
plans. Information regarding the compensation plans that were
placed in effect concurrently with and following the separation
is set forth under “Item 11. Executive
Compensation.”
Canadian Federal Income Tax Considerations —
Non-Residents of Canada
The discussion below is a summary of the principal Canadian
federal income tax considerations relating to an investment in
our common shares. The discussion does not take into account the
individual circumstances of any particular investor. Therefore,
prospective investors in our common shares should consult their
own tax advisors for advice concerning the tax consequences of
an investment in our common shares based on their particular
circumstances, including any consequences of an investment in
our common shares arising under state, provincial or local tax
laws or the tax laws of any jurisdiction other than Canada.
Canada and the United States are parties to an income tax treaty
and accompanying protocols (the “Canada-United States
Income Tax Convention”). In general, the Canada-United
States Income Tax Convention does not have an adverse effect on
holders of our common shares.
The following is a summary of the principal Canadian federal
income tax considerations generally applicable to the ownership
and disposition of our common shares acquired by persons who, at
all relevant times and for purposes of the Income Tax Act
(Canada) (“Tax Act”), deal at arm’s length with
us, are not affiliated with us and who hold or will hold our
common shares as capital property (“holder”). The Tax
Act contains provisions relating to securities held by certain
financial institutions, registered securities dealers and
corporations controlled by one or more of the foregoing (the
“Mark-to-Market Rules”). This summary does not take
into account the Mark-to-Market Rules and taxpayers that are
“financial institutions” as defined for the purpose of
the Mark-to-Market Rules should consult their own tax advisors.
In addition, this summary assumes that our common shares will,
at all relevant times, be listed on a “prescribed stock
exchange” for
28
purposes of the Tax Act, which is currently defined to include
both the Toronto Stock Exchange and the New York Stock Exchange.
This summary is based upon the current provisions of the Tax Act
and regulations thereunder (the “Regulations”) in
force as at the date hereof, all specific proposals to amend the
Tax Act and Regulations that have been publicly announced by the
Minister of Finance (Canada) prior to the date hereof (the
“Proposed Amendments”) and our understanding of the
current published administrative policies and practices of the
Canada Revenue Agency. Except as otherwise indicated, this
summary does not take into account or anticipate any changes in
the applicable law or administrative practices or policies
whether by judicial, regulatory, administrative or legislative
action, nor does it take into account provincial, territorial or
foreign tax laws or considerations, which may differ
significantly from those discussed herein. No assurance can be
given that the Proposed Amendments will be enacted or that they
will be enacted in the form announced.
This summary is of a general nature only and is not intended to
be, nor should it be relied upon or construed to be, legal or
tax advice to any particular prospective purchaser. This summary
is not exhaustive of all possible income tax considerations
under the Tax Act that may affect a holder. Accordingly,
prospective purchasers of our common shares should consult their
own tax advisors with respect to their own particular
circumstances.
All amounts relevant in computing the Canadian federal income
tax liability of a holder are to be reported in Canadian
currency at the rate of exchange prevailing at the relevant time.
The following part of the summary is generally applicable to
persons who, at all relevant times for the purposes of the Tax
Act and any applicable income tax treaty in force between Canada
and another country, are not, or are not deemed to be, resident
in Canada.
Taxation of Dividends
Dividends, including deemed dividends and stock dividends, paid
or credited, or deemed to be paid or credited, to a non-resident
of Canada on our common shares are subject to Canadian
withholding tax under the Tax Act at a rate of 25% of the
gross amount of such dividends, subject to reduction under the
provisions of any applicable income tax treaty. The
Canada-United States Income Tax Convention generally reduces the
rate of withholding tax to 15% of any dividends paid or
credited, or deemed to be paid or credited, to holders who are
residents of the United States for the purposes of the
Canada-United States Income Tax Convention (or 5% in the case of
corporate U.S. shareholders who are the beneficial owners of at
least 10% of our voting stock).
Disposition of Shares
Capital gains realized on the disposition of our common shares
by a non-resident of Canada will not be subject to tax
under the Tax Act unless such common shares are “taxable
Canadian property” for purposes of the Tax Act. Our common
shares will generally not be taxable Canadian property of
a holder unless, at any time during the five-year period
immediately preceding a disposition, the holder, persons
with whom the holder did not deal at arm’s length or the
holder together with such persons owned, had an interest in or
had the right to acquire 25% or more of our issued shares of any
class or series. Even if our common shares constitute taxable
Canadian property to a particular holder, an exemption from
tax under the Tax Act may be available under the provisions
of any applicable income tax treaty, including the Canada-United
States Income Tax Convention.
Sales of Unregistered Equity Securities
As previously disclosed in our registration statement on
Form 10, on the separation date and pursuant to the
reorganization transactions, we issued special shares to Alcan
in consideration for common shares of Arcustarget Inc., a
Canadian corporation. The special shares were redeemed shortly
after their issuance and cancelled. The issuance of our special
shares to Alcan was exempt from registration under the
Securities Act
29
of 1933, as amended, pursuant to Section 4(2) thereof
because such issuance did not involve any public offering of
securities.
|
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| Item 6. |
Selected Financial Data |
You should read the following selected combined financial data
in conjunction with “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and the combined financial statements and the
accompanying notes included elsewhere in this Annual Report on
Form 10-K.
The combined statements of income data reflect the combined
operations of the Novelis Group. We derived the combined
statements of income data for the years ended December 31,
2004, 2003 and 2002, and the combined balance sheet data as of
December 31, 2004, and 2003, as set forth below, from our
audited combined financial statements included elsewhere in this
Annual Report on Form 10-K. We derived the condensed
combined statements of income data for the year ended
December 31, 2001 and the combined balance sheet data as of
December 31, 2002, and 2001, from our audited combined
financial statements not included in this Annual Report on
Form 10-K. We derived the unaudited condensed combined
statements of income data for the year ended December 31,
2000 and the unaudited condensed combined balance sheet data as
of December 31, 2000 from historical financial information
based on Alcan’s accounting records. The historical results
do not necessarily indicate results expected for any future
period nor are they necessarily indicative of the results of
operations or financial position that we would have obtained if
we had been an independent company during the periods presented.
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At and for the Years Ended December 31, | |
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2004 | |
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2003 | |
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2002 | |
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2001 | |
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2000 | |
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($ millions, except per share data) | |
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Sales and operating revenues
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$ |
7,755 |
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$ |
6,221 |
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$ |
5,893 |
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$ |
5,777 |
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$ |
5,668 |
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Net income (loss)
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|
55 |
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|
157 |
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(9 |
) |
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(137 |
) |
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82 |
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Total assets
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5,954 |
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|
6,316 |
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4,558 |
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|
4,390 |
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4,943 |
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Long-term debt (including current portion)
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2,737 |
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1,659 |
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623 |
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|
514 |
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|
584 |
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Other debt
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541 |
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|
964 |
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|
366 |
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|
|
445 |
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|
|
498 |
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Cash and time deposits
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|
31 |
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27 |
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31 |
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17 |
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35 |
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Invested equity
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|
555 |
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|
1,974 |
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2,181 |
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|
2,234 |
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|
2,562 |
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Earnings (loss) per share
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Basic
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Income before cumulative effect of accounting change
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|
0.74 |
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|
|
2.12 |
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|
1.01 |
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(1.85 |
) |
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|
1.11 |
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Cumulative effect of accounting change
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— |
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— |
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(1.13 |
) |
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— |
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— |
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Net income (loss) per share — basic
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|
|
0.74 |
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2.12 |
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(0.12 |
) |
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(1.85 |
) |
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1.11 |
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Diluted
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Income before effect of accounting change
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|
0.74 |
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|
2.11 |
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1.00 |
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(1.85 |
) |
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1.10 |
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Cumulative effect of accounting change
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— |
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— |
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(1.13 |
) |
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— |
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— |
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Net income (loss) per share — diluted
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0.74 |
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2.11 |
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(0.13 |
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(1.85 |
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1.10 |
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In December 2003, Alcan acquired Pechiney. A portion of the
acquisition cost relating to four plants that are included in
our company was allocated to us and accounted for as additional
invested equity. The net assets of the Pechiney plants are
included in the combined financial statements as at
December 31, 2003 and the results of operations and
cash flows are included in the combined financial statements
beginning January 1, 2004.
On January 1, 2002, we adopted SFAS No. 142,
Goodwill and Other Intangible Assets. Under this standard,
goodwill and other intangible assets with an indefinite life are
no longer amortized but are carried at the lower of carrying
value and fair value and are tested for impairment on an annual
basis. An impairment of
30
$84 million was identified in the goodwill balance as at
January 1, 2002, and was charged to income as a cumulative
effect of accounting change in 2002 upon adoption of the new
accounting standard. The amount of goodwill amortization was
$3 million in 2001.
In 2001, Alcan implemented a restructuring program that included
certain businesses we acquired from it in the reorganization
transactions. Restructuring and asset impairment charges of
$208 million, $25 million, $(24) million and
$(8) million were recorded in 2001, 2002, 2003 and 2004,
respectively, relating to this program.
In October 2000, Alcan acquired Alusuisse Group Ltd, or algroup.
A portion of the acquisition cost relating to two plants that
are included in our company was allocated to us and accounted
for as additional invested equity. The net assets of the algroup
plants are included in the combined financial statements as at
October 31, 2000 and the results of operations and cash
flows are included in the combined financial statements
beginning October 1, 2000.
|
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| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
The information set forth in “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” in Exhibit 99.1 hereto is incorporated by
reference herein.
Risk Factors
Risks Related to our Separation from Alcan
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|
We have no history operating as an independent company and
we may be unable to make on a timely or cost-effective basis the
changes necessary to operate as an independent company. |
Prior to the separation, our business was operated by Alcan
primarily within two business groups of its broader corporate
organization rather than as a stand-alone company. Alcan
performed various corporate functions for us, including, but not
limited to, the following:
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• |
treasury administration; |
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• |
selected benefits administration functions; |
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• |
selected employee compensation functions; |
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• |
selected information technology services; and |
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• |
metal, energy and currency hedging. |
Following the separation, Alcan has no obligation to provide
these functions to us other than as part of the transitional
services that are provided by Alcan and that are described in
“Item 1. Business — Arrangements Between
Novelis and Alcan.”
If we do not have in place our own systems and business
functions, we do not have agreements with other providers of
these services or we are not able to make these changes cost
effectively, once our transitional services agreement with Alcan
expires, we may not be able to operate our business effectively,
we may be unable to maintain our market position in the various
markets in which we compete and our profitability may decline.
If Alcan does not continue to perform the transitional services
it has agreed to provide to us effectively, we may not be able
to operate our business effectively after the separation.
Historically we have benefited from Alcan’s size and
purchasing power in procuring goods, technology and services.
Although we entered into group purchasing arrangements for
certain goods and services with Alcan, we may be unable to
obtain goods, technology and services as a separate, stand-alone
company, at prices and on terms as favourable as those available
to us prior to the separation and we may not have access to
financial and other resources comparable to those available to
us prior to the separation.
31
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Following the separation, the level of our indebtedness,
which will be relatively higher than that of Alcan, will subject
us to various restrictions, result in higher interest costs and
potentially limit our financial flexibility. |
Following the separation and the financing transactions, our
businesses are operating with significantly more indebtedness
and higher interest expenses than they did when they were part
of Alcan. In addition, we may incur additional debt in the
future. In connection with the reorganization transactions and
our separation from Alcan, we and certain of our subsidiaries
incurred new borrowings of $2.9 billion. These, in addition
to a capital lease agreement associated with the rolled products
portion of the business in Sierre, Switzerland in the amount of
$48 million, formed our debt structure totaling
$2,954 million shortly after our separation from Alcan.
This indebtedness is governed by instruments that impose a
number of restrictions and covenants on us that could limit our
strategic alternatives or our ability to respond to market
conditions or take advantage of business opportunities. We have
also entered into a $500 million revolving credit facility
that is available for operating working capital and other
requirements. Any additional debt we incur in the future could
impose further limits on us, increase our interest expense and
reduce our profitability.
A deterioration of our financial position or a credit rating
downgrade following the separation could increase our borrowing
costs and have an adverse effect on our business relationships.
We intend, from time to time, to enter into various forms of
hedging activities against currency or metal price fluctuations
and to trade metal contracts on the LME. Financial strength and
credit ratings are important to the pricing of these hedging and
trading activities. As a result, any downgrade of our credit
ratings may make it more costly for us to engage in these
activities and our anticipated level of indebtedness may make it
more costly for us to engage in these activities than it has
been as a part of the Alcan group.
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Our agreements with Alcan may not reflect what two
unaffiliated parties might have agreed to. |
The allocation of assets, liabilities, rights, indemnifications
and other obligations between Alcan and us under the separation
and ancillary agreements we entered into with Alcan may not
reflect what two unaffiliated parties might have agreed to. Had
these agreements been negotiated with unaffiliated third
parties, their terms may have been more favourable, or less
favourable, to us.
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As a separate company, we have supply agreements with
Alcan for a portion of our raw materials requirements. If Alcan
is unable to deliver sufficient quantities of these materials or
if it terminates these agreements, our ability to manufacture
products on a timely basis could be adversely affected. |
The manufacture of our products requires sheet ingot that has
historically been, in part, supplied by Alcan. In 2004, we
purchased the majority of our third party sheet ingot
requirements from Alcan’s primary metal group. In
connection with the separation, we entered into metal supply
agreements with Alcan upon terms and conditions substantially
similar to market terms and conditions for the continued
purchase of sheet ingot from Alcan. If Alcan is unable to
deliver sufficient quantities of this material on a timely basis
or if Alcan terminates one of these agreements, our production
may be disrupted and our sales and profitability could be
materially adversely affected. Although aluminum is traded on
the world markets, developing alternative suppliers for that
portion of our raw material requirements we expect to be
supplied by Alcan could be time consuming and expensive.
Our continuous casting operations at our Saguenay Works, Canada
facility depend upon a local supply of molten aluminum from
Alcan. In 2004, Alcan’s primary metal group supplied
approximately 173 kilotonnes of such material to us,
representing all of the molten aluminum used at Saguenay Works
in 2004. In connection with the separation, we entered into a
metal supply agreement with Alcan upon terms and conditions
substantially similar to market terms and conditions for the
continued purchase of molten aluminum from Alcan. If this supply
were to be disrupted, our Saguenay Works production could be
interrupted and our sales and profitability materially adversely
affected.
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We may lose key rights if a change in control of our
voting shares were to occur. |
Our separation agreement with Alcan provides that if we
experience a change in control in our voting shares either
within the first year of the date of separation or during the
following four years if the entity acquiring control does not
agree with Alcan not to compete in the plate and aerospace
markets, Alcan may terminate any or all of certain agreements we
have with it. The termination of any of these agreements could
deprive us of key services, resources or rights necessary to the
conduct of our business. Replacement of these assets could be
difficult or impossible, resulting in a material adverse effect
on our business operations, sales and profitability. In
addition, the potential termination of these agreements could
prevent us from entering into future business transactions such
as acquisitions or joint ventures at terms favourable to us or
at all.
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We could incur significant tax liability, or be liable to
Alcan, if certain transactions occur which violate tax-free
spin-off rules. |
Under Section 55 of the Income Tax Act (Canada), we and/or
Alcan will recognize a taxable gain on our spin-off from Alcan
if, among other specified circumstances, (1) within three
years of our spin-off from Alcan, we engage in a subsequent
spin-off or split-up transaction under Section 55,
(2) a shareholder who (together with non-arm’s length
persons and certain other persons) owns 10% or more of our
common shares or Alcan common shares, disposes to a person
unrelated to such shareholder of any such shares (or property
that derives 10% or more of its value from such shares or
property substituted therefor) as part of the series of
transactions which includes our spin-off from Alcan,
(3) there is a change of control of us or of Alcan that is
part of the series of transactions that includes our spin-off
from Alcan, (4) we sell to a person unrelated to us
(otherwise than in the ordinary course of operations) as part of
the series of transactions that includes our spin-off from
Alcan, property acquired in our spin-off from Alcan that has a
value greater than 10% of the value of all property received in
the spin-off from Alcan, (5) within three years of our
spin-off from Alcan, Alcan completes a split-up (but not
spin-off) transaction under Section 55, (6) Alcan
makes certain acquisitions of property before and in
contemplation of our spin-off from Alcan, (7) certain
shareholders of Alcan and certain other persons acquired shares
of Alcan (other than in specified permitted transactions) in
contemplation of our spin-off from Alcan, or (8) Alcan
sells to a person unrelated to it (otherwise than in the
ordinary course of operations) as part of the series of
transactions or events which includes our spin-off from Alcan,
property retained by Alcan on the spin-off that has value
greater than 10% of the value of all property retained by Alcan
on our spin-off from Alcan. We would generally be required to
indemnify Alcan for tax under the tax sharing and disaffiliation
agreement if Alcan’s tax liability arose because of
(i) a breach of our representations, warranties or
covenants in the tax sharing and disaffiliation agreement,
(ii) certain acts or omissions by us (such as a transaction
described in (1) above), or (iii) an acquisition of
control of us. Alcan would generally be required to indemnify us
for tax under the tax sharing and disaffiliation agreement if
our tax liability arose because of (i) a breach of
Alcan’s representations, warranties or covenants in the tax
sharing and disaffiliation agreement, or (ii) certain acts
or omissions by Alcan (such as a transaction described in
(5) above). These liabilities and the related indemnity
payments could be significant and could have a material adverse
effect on our financial results.
Our U.S. subsidiary has agreed under the tax sharing and
disaffiliation agreement to certain restrictions that are
intended to preserve the tax-free status of the reorganization
transactions in the United States for United States federal
income tax purposes, and that will, among other things, limit,
generally for two years, our U.S. subsidiary’s ability to
issue or sell stock or other equity-related securities, to sell
its assets outside the ordinary course of business, and to enter
into any other corporate transaction that would result in a
person acquiring, directly or indirectly, a majority of our U.S.
subsidiary, including an interest in our U.S. subsidiary through
holding our shares. If we breach any of these covenants, we
generally will be required to indemnify Alcan Corporation, the
intermediate holding company for Alcan’s U.S. operations,
against the United States federal income tax resulting from
a failure of the reorganization transactions in the
United States to be tax-free for United States federal
income tax purposes. These liabilities and the related indemnity
payments could be significant and could have a material adverse
effect on our financial results.
These potential liabilities could prevent us from entering into
business transactions at favourable terms to us or at all.
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We may be required to satisfy certain indemnification
obligations to Alcan, or may not be able to collect on
indemnification rights from Alcan. |
In connection with the separation, we and Alcan agreed to
indemnify each other for certain liabilities and obligations
related to, in the case of our indemnity, the business
transferred to us, and in the case of Alcan’s indemnity,
the business retained by Alcan. These indemnification
obligations could be significant. We cannot determine whether we
will have to indemnify Alcan for any substantial obligations
after the separation. We also cannot assure you that if Alcan
has to indemnify us for any substantial obligations, Alcan will
be able to satisfy those obligations.
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We may have potential business conflicts of interest with
Alcan with respect to our past and ongoing relationships that
could harm our business operations. |
A number of our commercial arrangements with Alcan that existed
prior to the reorganization transactions, our separation
arrangements and our post-separation commercial agreements with
Alcan could be the subject of differing interpretation and
disagreement following our separation. These agreements may be
resolved in a manner different from the manner in which disputes
were resolved when we were part of the Alcan group. This could
in turn affect our relationship with Alcan and ultimately harm
our business operations.
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Our agreement not to compete with Alcan in certain end-use
markets may hinder our ability to take advantage of new business
opportunities. |
In connection with the separation, we have agreed not to compete
with Alcan for a period of five years in the manufacture,
production and sale of certain products for use in the plate and
aerospace markets. As a result, it may be more difficult for us
to pursue successfully new business opportunities, which could
limit our potential sources of revenue and growth. Please see
“Item 1. Business — Arrangements Between
Novelis and Alcan — Separation Agreement.”
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Our historical financial information may not be
representative of results we would have achieved as an
independent company or our future results. |
The historical financial information we have included in this
Annual Report on Form 10-K has been derived from
Alcan’s consolidated financial statements and does not
necessarily reflect what our results of operations, financial
position or cash flows would have been had we been an
independent company during the periods presented. For this
reason, as well as the inherent uncertainties of our business,
the historical financial information does not necessarily
indicate what our results of operations, financial position,
cash flows or costs and expenses will be in the future.
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We expect to have to spend significant amounts of time and
resources to build a new brand identity. |
Prior to our separation from Alcan, we marketed our products
under the Alcan name, which has a strong reputation within the
markets we serve. We have adopted new trademarks and trade names
to reflect our new company name. Although we are continuing to
engage in significant marketing activities and intend to spend
significant amounts of time and resources to develop a new brand
identity, potential customers, business partners and investors
generally may not associate Alcan’s reputation and
expertise with our products and services. Furthermore, our name
change also may cause difficulties in recruiting qualified
personnel. If we fail to build brand recognition, we may not be
able to maintain the leading market positions that we have
developed while we were part of Alcan, which could harm our
financial results.
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As we build our information technology infrastructure and
transition our data to our own systems, we could experience
temporary interruptions in business operations and incur
additional costs. |
We have created our own, or have engaged third parties to
provide, information technology infrastructure and systems to
support our critical business functions, including accounting
and reporting, in order to replace many of the systems Alcan
provided to us. We may incur temporary interruptions in business
operations if we
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cannot transition effectively from Alcan’s existing
operating systems, databases and programming languages that
support these functions to our own systems. Our failure to
implement the new systems and transition our data successfully
and cost-effectively could disrupt our business operations and
have a material adverse effect on our profitability. In
addition, our costs for the operation of these systems may be
higher than the amounts reflected in our historical combined
financial statements.
Risks Related to our Business and the Market
Environment
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Certain of our customers are significant to our revenues,
and we could be adversely affected by changes in the business or
financial condition of these significant customers or by the
loss of their business. |
Our ten largest customers accounted for approximately 41% of our
total sales and operating revenues in 2004, with Rexam Plc and
its affiliates representing approximately 11.1% of our total
sales and operating revenues in that year. A significant
downturn in the business or financial condition of our
significant customers could materially adversely affect our
results of operations. In addition, if our existing
relationships with significant customers materially deteriorate
or are terminated in the future, and we are not successful in
replacing business lost from such customers, our results of
operations could be adversely affected. Some of the longer term
contracts under which we supply our customers, including under
umbrella agreements such as those described under
“Item 1. Business — Our Business —
Our Customers,” are subject to renewal, renegotiation or
re-pricing at periodic intervals or upon changes in competitive
supply conditions. Our failure to successfully renew,
renegotiate or re-price such agreements could result in a
reduction or loss in customer purchase volume or revenue, and if
we are not successful in replacing business lost from such
customers, our results of operations could be adversely
affected. The markets in which we operate are competitive and
customers may seek to consolidate supplier relationships or
change suppliers to accrue cost savings and other benefits.
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Our profitability could be adversely affected by increases
in the cost or disruptions in the availability of raw
materials. |
Prices for the raw materials we require are subject to
continuous volatility and may increase from time to time.
Although our sales are generally made on the basis of a
“margin over metal price,” if prices increase, 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 can 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 profitability. Furthermore, sales
contracts currently representing approximately 20% of our total
annual sales provide for a ceiling over which metal prices
cannot contractually be passed through to our customers, which
could potentially also have a material adverse effect on our
financial results. Although we attempt to mitigate the risk of
this occurrence through the purchase of hedging contracts or
options, this hedging policy may not successfully or completely
eliminate these effects. Finally, a sustained material increase
in raw materials prices may cause some of our customers to
substitute other materials for our products.
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Our operations consume energy and our profitability may
decline if energy costs were to rise, or if our energy supplies
were interrupted. |
We consume substantial amounts of energy in our rolling
operations, 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:
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increases in costs of natural gas; |
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significant increases in costs of supplied electricity or fuel
oil related to transportation; |
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interruptions in energy supply due to equipment failure or other
causes; and |
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the inability to extend energy supply contracts upon expiration
on economical terms. |
If energy costs were to rise, or if energy supplies or supply
arrangements were disrupted, our profitability could decline.
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We may not have sufficient cash and may be limited in our
ability to access financing for future capital requirements,
which may prevent us from increasing our manufacturing
capability, improving our technology or addressing any gaps in
our product offerings. |
Although historically our cash flow from operations has been
sufficient to satisfy working capital, capital expenditure and
research and development requirements, in the future we may need
to incur additional debt or issue equity in order to fund these
requirements as well as to make acquisitions and other
investments. To the extent we are unable to raise new capital,
we may be unable to increase our manufacturing capability,
improve our technology or address any gaps in our product
offerings. If we raise funds through the issuance of debt or
equity, any debt securities or preferred shares issued will have
rights and preferences and privileges senior to those of holders
of our common shares. The terms of the debt securities may
impose restrictions on our operations that have an adverse
impact on our financial condition. If we raise funds through the
issuance of equity, the proportional ownership interests of our
shareholders could be diluted.
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Adverse changes in currency exchange rates could
negatively affect our financial results and the competitiveness
of our aluminum rolled products relative to other
materials. |
Our businesses and operations are exposed to the effects of
changes in the exchange rates of the U.S. dollar, the euro, the
British pound, the Brazilian real, the Canadian dollar, the
Korean won and other currencies. Currency risk management for
our business was historically considered within Alcan’s
overall treasury operations. As part of that strategy, Alcan
used financial instruments to reduce its exposure to adverse
movements in currency exchange rates. As an independent company,
we plan to implement a hedging policy that will attempt to
manage currency exchange rate risks to an acceptable level based
on our management’s judgment of the appropriate trade-off
between risk, opportunity and cost; however, this hedging policy
may not successfully or completely eliminate the effects of
currency exchange rate fluctuations which could have a material
adverse effect on our financial results.
We prepare our combined financial statements in U.S. dollars,
but a portion of our earnings and expenditures are denominated
in other currencies, primarily the euro, the Korean won and the
Brazilian real. Changes in exchange rates will result in
increases or decreases in our reported costs and earnings, and
may also affect the book value of our assets located outside the
United States and the amount of our equity.
Primary aluminum and aluminum recyclables represent between 25%
and 85% of the price of our rolled products and these input
materials are purchased based upon LME aluminum trading prices
denominated in U.S. dollars. As a result, and because we
generally sell our rolled products on a “margin over
metal” price, increases in the relative value of the U.S.
dollar against the local currency in which sales are made can
make aluminum rolled products less attractive to our customers
than substitute materials, such as steel or glass, whose
manufacturing costs may be more closely linked to the local
currency, which in turn could have a material adverse effect on
our financial results.
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Most of our facilities are staffed by a unionized
workforce, and union disputes and other employee relations
issues could materially adversely affect our financial
results. |
Approximately two-thirds of our employees are represented by
labour 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
results.
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Our operations have been and will continue to be exposed
to various business and other risks, changes in conditions and
events beyond our control in countries where we have operations
or sell products. |
We are, and will continue to be, subject to financial,
political, economic and business risks in connection with our
worldwide 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 labour
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 results.
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We could be adversely affected by disruptions of our
operations. |
Breakdown of equipment or other events, including catastrophic
events such as war or natural disasters, leading to production
interruptions in our plants could have a material adverse effect
on our financial results. Further, because many of our customers
are, to varying degrees, dependent on planned deliveries from
our plants, customers that have to reschedule their own
production due to our missed deliveries could pursue financial
claims against us. We may incur costs to correct any of these
problems, in addition to facing claims from customers. Further,
our reputation among actual and potential customers may be
harmed, potentially resulting in a loss of business. While we
maintain insurance policies covering, among other things,
physical damage, business interruptions and product liability,
these policies may not cover all of our losses and we could
incur uninsured losses and liabilities arising from such events,
including damage to our reputation, loss of customers and suffer
substantial losses in operational capacity, any of which could
have a material adverse effect on our financial results.
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We may not be able to successfully develop and implement
new technology initiatives in a timely manner. |
We have invested in, and are involved with, a number of
technology and process initiatives. Several technical aspects of
these initiatives are still unproven and the eventual commercial
outcomes cannot be assessed with any certainty. Even if we are
successful with these initiatives, we may not be able to deploy
them in a timely fashion. Accordingly, the costs and benefits
from our investments in new technologies and the consequent
effects on our financial results may vary from present
expectations.
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Loss of our key management and other personnel, or an
inability to attract such management and other personnel, could
impact our business. |
We depend on our senior executive officers and other key
personnel to run our business. The loss of any of these officers
or other key personnel could materially adversely affect our
operations. Competition for qualified employees among companies
that rely heavily on engineering and technology is intense, and
the loss of qualified employees or an inability to attract,
retain and motivate additional highly skilled employees required
for the operation and expansion of our business could hinder our
ability to improve manufacturing operations, conduct research
activities successfully and develop marketable products.
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We may not be able to adequately protect proprietary
rights to our technology. |
Although we attempt to protect our proprietary technology and
processes and other intellectual property through patents,
trademarks, trade secrets, copyrights, confidentiality and
nondisclosure agreements and other
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measures, these measures may not be adequate to protect our
intellectual property. Because of differences in intellectual
property laws throughout the world, our intellectual property
may be substantially less protected in various international
markets than it is in the United States and Canada. Failure on
our part to adequately protect our intellectual property may
materially adversely affect our financial results. Furthermore,
we may be subject to claims that our technology infringes the
intellectual property rights of another. Even if without merit,
those claims could result in costly and prolonged litigation,
divert management’s attention and could materially
adversely affect our business. In addition, we may be required
to enter into licensing agreements in order to continue using
technology that is important to our business. However, we may be
unable to obtain license agreements on terms that are acceptable
to us or at all.
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Past and future acquisitions or divestitures may adversely
affect our financial condition. |
We have grown partly through the acquisition of other businesses
including businesses acquired by Alcan in its 2000 acquisition
of the Alusuisse Group Ltd. and its 2003 acquisition of
Pechiney, both of which were integrated aluminum companies. As
part of our strategy for growth, we may continue to pursue
acquisitions, divestitures or strategic alliances, which may not
be completed or, if completed, may not be ultimately beneficial
to us. There are numerous risks commonly encountered in business
combinations, including the risk that we may not be able to
complete a transaction that has been announced, effectively
integrate businesses acquired or generate the cost savings and
synergies anticipated. Failure to do so could have a material
adverse effect on our financial results.
Our four former Pechiney rolling facilities in Europe were
acquired by Alcan in December 2003. Because of the recency of
their acquisition, and the fact that two of these facilities, at
Rugles and Annecy in France, have been subject to “hold
separate” obligations to meet competition requirements
imposed on Alcan, we have yet to complete our integration of
their businesses and our analysis of the extent of the assets
and liabilities associated with their operations. The existence
of unanticipated liabilities could have a material adverse
effect on our financial results.
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We could be required to make unexpected contributions to
our defined benefit pension plans as a result of adverse changes
in interest rates and the capital markets. |
Most of our pension obligations relate to funded defined benefit
pension plans for our employees in the United States, the United
Kingdom and in Brazil, which was terminated in June 2004,
unfunded pension benefits in Germany, and lump sum indemnities
payable to our employees in France, Korea and Malaysia upon
retirement. Our pension plan assets consist primarily of listed
stocks and bonds. Our estimates of liabilities and expenses for
pensions and other post-retirement benefits incorporate a number
of assumptions, including expected long term rates of return on
plan assets and interest rates used to discount future benefits.
Our results of operations, liquidity or shareholders’
equity in a particular period could be adversely affected by
capital market returns that are less than their assumed long
term rate of return or a decline of the rate used to discount
future benefits.
If the assets of our pension plans do not achieve assumed
investment returns for any period, such deficiency could result
in one or more charges against our earnings for that period. In
addition, changing economic conditions, poor pension investment
returns or other factors may require us to make unexpected cash
contributions to the pension plans in the future, preventing the
use of such cash for other purposes.
In addition to existing defined benefit pension plans, we may
elect in 2005 to assume pension liabilities from pension plans
that we currently share with Alcan. The assumption of such
liabilities would occur by the establishment of new pension
plans and the transfer of assets from Alcan pension plans. The
risks described above will also apply to these plans.
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We face risks relating to certain joint ventures and
subsidiaries that we do not entirely control. Our ability to
generate cash from these entities may be more restricted than if
such entities were wholly owned subsidiaries. |
Some of our activities are, and will in the future be, conducted
through entities that we do not entirely control or wholly own.
These entities include our Norf, Germany and Logan, Kentucky
joint ventures, as well as our majority-owned Korean and
Malaysian subsidiaries. Under the governing documents or
agreements for certain of these joint ventures and subsidiaries,
our ability to fully control certain operational matters may be
limited. In addition, we do not solely determine certain key
matters, such as the timing and amount of cash distributions
from these entities. As a result, our ability to generate cash
from these entities may be more restricted than if they were
wholly owned entities.
Risks Related to Our Industry
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We face significant price and other forms of competition
from other aluminum rolled products producers, which could hurt
our results of operations. |
Generally, the markets in which we operate are highly
competitive. We compete primarily on the basis of our value
proposition, including price, product quality, ability to meet
customers’ specifications, range of products offered, lead
times, technical support and customer service. Some of our
competitors may benefit from greater capital resources, have
more efficient technologies, or have lower raw material and
energy costs and may be able to sustain longer periods of price
competition.
In addition, our competitive position within the global aluminum
rolled products industry may be affected by, among other things,
the recent trend toward consolidation among our competitors,
exchange rate fluctuations that may make our products less
competitive in relation to the products of companies based in
other countries (despite the U.S. dollar based input cost and
the marginal costs of shipping) and economies of scale in
purchasing, production and sales, which accrue to some of our
competitors.
Increased competition could cause a reduction in our shipment
volumes and profitability or increase our expenditures, any one
of which could have a material adverse effect on our financial
results.
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The end-use markets for certain of our products are highly
competitive and customers are willing to accept substitutes for
our products. |
The end-use markets for certain aluminum rolled products are
highly competitive. Aluminum competes with other materials, such
as steel, plastics, composite materials and glass, among others,
for various applications, including in the beverage/food cans
and automotive end-use markets. In the past, customers have
demonstrated a willingness to substitute other materials for
aluminum. The willingness of customers to accept substitutes for
aluminum products could have a material adverse effect on our
financial results.
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A downturn in the economy could have a material adverse
effect on our financial results. |
Certain end-use markets for aluminum rolled products, such as
the construction and industrial and transportation markets,
experience demand cycles that are highly correlated to the
general economic environment, which is sensitive to a number of
factors outside our control. A recession or a slowing of the
economy in any of the geographic segments in which we operate,
including China where significant economic growth is expected,
or a decrease in manufacturing activity in industries such as
automotive, construction and packaging and consumer goods, could
have a material adverse effect on our financial results. We are
not able to predict the timing, extent and duration of the
economic cycles in the markets in which we operate.
|
|
|
The seasonal nature of some of our customers’
industries could have a material adverse effect on our financial
results. |
The construction industry and the consumption of beer and soda
are sensitive to climatic conditions and as a result, demand for
aluminum rolled products in the construction industry and for
can feedstock is seasonal. Our quarterly financial results could
fluctuate as a result of climatic changes, and a prolonged series
39
of cold summers in the different areas in which we conduct our
business could have a material adverse effect on our financial
results.
|
|
|
We are subject to a broad range of environmental, health
and safety laws and regulations in the jurisdictions in which we
operate, and we may be exposed to substantial environmental,
health and safety costs and liabilities. |
We are subject to a broad range of environmental, health and
safety laws and regulations in the jurisdictions in which we
operate. These laws and regulations impose increasingly
stringent environmental, health and safety protection standards
and permitting requirements regarding, among other things, air
emissions, wastewater storage, treatment and discharges, the use
and handling of hazardous or toxic materials, waste disposal
practices, and the remediation of environmental contamination
and working conditions for our employees. The costs of complying
with these laws and regulations, including participation in
assessments and remediation of 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, including
liabilities associated with divested assets 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 or 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. We have established reserves for
environmental remediation activities and liabilities where
appropriate. However, 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 condition or results.
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. Should this occur, 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.
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. In the event that any of these
substances or related residues proves to be toxic, we may be
liable for certain costs, including, among others, costs for
health-related claims or removal or retreatment of such
substances. In addition, although we have developed
environmental, health and safety programs for our employees 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 results of operations and cash flows
could be adversely affected.
|
|
|
We may be exposed to significant legal proceedings or
investigations. |
From time to time, we are involved in, or the subject of,
disputes, proceedings and investigations with respect to a
variety of matters, including environmental, health and safety,
product liability, employee, tax, contractual and other matters
as well as other disputes and proceedings that arise in the
ordinary course of business. Certain of these matters are
discussed in the preceding risk factor and certain are discussed
above under “Item 3. Legal Proceedings.” Any
claims against us or any investigations involving us, whether
meritorious or not, could be costly to defend or comply with and
could divert management’s attention as well
40
as operational resources. Any such dispute, litigation or
investigation, whether currently pending or threatened or in the
future, may have a material adverse effect on our financial
results.
|
|
|
Product liability claims against us could result in
significant costs or negatively impact our reputation and could
adversely affect our business results and financial
condition. |
We are sometimes exposed to warranty and products liability
claims. There can be no assurance that we will not experience
material product liability losses arising from such claims in
the future and that these will not have a negative impact on our
sales and profitability. We generally maintain insurance against
many product liability risks but there can be no assurance that
this coverage will be adequate for liabilities ultimately
incurred. In addition, there is no assurance that insurance will
continue to be available on terms acceptable to us. A successful
claim that exceeds our available insurance coverage could have a
material adverse effect on our financial results.
Risks Related to Ownership of Our Common Shares
|
|
|
Because there has been a public market for our common
shares for only a short period of time, the market price and
trading volume of our shares may be volatile. |
Prior to the separation there was no trading market for our
common shares. We cannot predict the extent to which
investors’ interest will lead to a liquid trading market or
whether the market price of our shares will be volatile.
The market price of our common shares could fluctuate
significantly for many reasons, including for reasons unrelated
to our specific performance, such as reports by industry
analysts, investor perceptions, or negative announcements by our
customers, competitors or suppliers regarding their own
performance, as well as general economic and industry
conditions. For example, to the extent that other large
companies within our industry experience declines in their stock
price, our share price may decline as well. In addition, when
the market price of a company’s shares drops significantly,
shareholders often institute securities class action lawsuits
against the company.
A lawsuit against us could cause us to incur substantial costs
and could divert the time and attention of our management and
other resources.
|
|
|
The terms of our separation from Alcan and our shareholder
rights plan could delay or prevent a change of control that you
may consider favourable. |
We could incur significant tax liability, or be liable to Alcan
for the resulting tax, if certain events described under
“ — Risks related to our separation from
Alcan — We could incur significant tax liability, or
be liable to Alcan, if certain transactions occur which violate
tax-free spin-off rules” occur which violate tax-free
spin-off rules and cause the spin-off to be taxable to Alcan.
This indemnity obligation, or our potential tax liability,
either of which could be significant, might discourage, delay or
prevent a change of control that you may consider favourable.
The rights of Alcan to terminate certain of our agreements in
circumstances described under “ — Risks related
to our separation from Alcan — We may lose key rights
if a change in control of our voting shares were to occur”
also might discourage, delay or prevent a change of control that
you may consider favourable.
Please see “Item 1. Business — Arrangements
Between Novelis and Alcan” for a more detailed description
of these agreements and provisions. In addition, our shareholder
rights plan also may discourage, delay or prevent a merger or
other change of control that shareholders may consider
favourable.
|
|
| Item 7A. |
Quantitative and Qualitative Disclosures about Market
Risk |
Changes in interest rates, foreign exchange rates and the market
price of aluminum are among the factors that can impact our cash
flows.
41
Interest Rates
Historically, Alcan has centrally managed its financing
activities in order to optimize its costs of funding and
financial flexibility at a corporate level. As the debt being
carried in our historical combined financial statements does not
necessarily reflect our debt capacity and financing requirements
as a stand-alone company, we have not presented interest rate
sensitivities for historical periods. You should generally read
“Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Risk
Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Risk Management” in
Exhibit 99.1, which is incorporated by reference to
Item 7 above. For accounting policies on interest rate
swaps used to hedge interest costs on certain debt, you should
read note 3 of the annual combined financial statements.
Currency Derivatives
The schedule below presents fair value information and contract
terms relevant to determining future cash flows categorized by
expected maturity dates of our currency derivatives outstanding
as at December 31, 2004. Virtually all currency derivatives
are undertaken with Alcan.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Nominal | |
|
Fair | |
| |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
Amount | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
($ millions, except contract rates) | |
|
Forward contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To buy USD against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHF Nominal Amount
|
|
|
33 |
|
|
|
11 |
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
49 |
|
|
|
(7 |
) |
| |
Average contract rate
|
|
|
1.2722 |
|
|
|
1.3479 |
|
|
|
1.2904 |
|
|
|
1.2644 |
|
|
|
1.2408 |
|
|
|
|
|
|
|
|
|
|
GBP Nominal Amount
|
|
|
64 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
65 |
|
|
|
(3 |
) |
| |
Average contract rate
|
|
|
1.8273 |
|
|
|
1.7420 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
To sell USD against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GBP Nominal Amount
|
|
|
56 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
57 |
|
|
|
4 |
|
| |
Average contract rate
|
|
|
1.7856 |
|
|
|
1.6387 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
EUR Nominal Amount
|
|
|
49 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
49 |
|
|
|
4 |
|
| |
Average contract rate
|
|
|
1.2518 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
CHF Nominal Amount
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
| |
Average contract rate
|
|
|
1.1263 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
To sell EUR against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD Nominal Amount
|
|
|
316 |
|
|
|
87 |
|
|
|
57 |
|
|
|
— |
|
|
|
— |
|
|
|
460 |
|
|
|
(48 |
) |
| |
Average contract rate
|
|
|
1.2329 |
|
|
|
1.2284 |
|
|
|
1.2330 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
CHF Nominal Amount
|
|
|
24 |
|
|
|
13 |
|
|
|
5 |
|
|
|
5 |
|
|
|
4 |
|
|
|
51 |
|
|
|
(1 |
) |
| |
Average contract rate
|
|
|
1.5199 |
|
|
|
1.5014 |
|
|
|
1.4614 |
|
|
|
1.4436 |
|
|
|
1.4266 |
|
|
|
|
|
|
|
|
|
|
GBP Nominal Amount
|
|
|
152 |
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
168 |
|
|
|
(3 |
) |
| |
Average contract rate
|
|
|
1.4288 |
|
|
|
1.4136 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
To buy EUR against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GBP Nominal amount
|
|
|
56 |
|
|
|
5 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
62 |
|
|
|
1 |
|
| |
Average contract rate
|
|
|
1.4239 |
|
|
|
1.3990 |
|
|
|
1.3598 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
42
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Nominal | |
|
Fair | |
| |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
Amount | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
($ millions, except contract rates) | |
|
To buy GBP against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHF Nominal Amount
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9 |
|
|
|
— |
|
| |
Average contract rate
|
|
|
2.2036 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
To sell EUR against the foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHF Nominal Amount
|
|
|
19 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19 |
|
|
|
— |
|
| |
Average contract rate
|
|
|
2.1730 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Any negative impact of currency movements on the currency
contracts that we have entered into to hedge identifiable
foreign currency commitments to purchase or sell goods and
services, would be offset by an equal and opposite favourable
exchange impact on the commitments being hedged. Transactions in
currency related financial instruments for which there is no
underlying foreign currency exchange rate exposure to us are
prohibited. For our accounting policies relating to currency
contracts, refer to note 3 of the annual combined financial
statements.
Derivative Commodity Contracts
Our aluminum forward contract positions, the counterparty of
which is Alcan, are entered into to hedge future purchases of
metal that are required for firm sales and purchase commitments
to fabricated products customers and to hedge future sales.
Consequently, any negative impact movements in the price of
aluminum on the forward contracts would be offset by an equal
and opposite impact on the sales and purchases being hedged.
The effect of a reduction of 10% in aluminum prices on our
aluminum forward contracts outstanding at December 31, 2004
would be to decrease our net income over the period ending
December 31, 2007 by approximately $63 million
($44 million in 2005, $12 million in 2006 and
$7 million in 2007). These results reflect a 10% reduction
from the December 31, 2004 three-month LME aluminum closing
price of $1,958 per tonne and assume an equal 10% decrease has
occurred throughout the aluminum forward price curve existing as
at December 31, 2004.
|
|
| Item 8. |
Financial Statements and Supplementary Data |
The information set forth in Exhibit 99.2 is incorporated
herein by reference.
|
|
| Item 9. |
Changes In and Disagreements With Accountants On
Accounting and Financial Disclosure |
None.
|
|
| Item 9A. |
Controls and Procedures |
(a) Evaluation of disclosure controls and
procedures. Based on the evaluation of our disclosure
controls and procedures (as defined in Securities Exchange Act
of 1934 Rules 13a-15(e) and 15d-15(e)) required by
Securities Exchange Act Rules 13a-15(b) or 15d-15(b), our
Chief Executive Officer and our Chief Financial Officer have
concluded that as of the end of the period covered by this
report, our disclosure controls and procedures were effective.
(b) Changes in internal control over financial
reporting. There were no changes in our internal control
over financial reporting that occurred during our most recent
fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
|
|
| Item 9B. |
Other Information |
None.
43
PART III
Item 10. Directors and
Executive Officers of Registrant
Our Directors
Our Board of Directors comprises 12 directors. Our
directors’ terms will expire at each annual shareholders
meeting. Our first annual meeting of shareholders after the
separation will be held prior to June 30, 2006. This will
be an annual meeting of shareholders for the election of
directors. The annual meeting will be held at a place in North
America and on such date as may be fixed by our board of
directors.
The following table sets forth information as to persons who
currently serve as our directors. Except in the case of David
FitzPatrick, all of the directors listed below have served on
our board of directors since the separation.
Mr. FitzPatrick joined our board of directors on
March 24, 2005. Biographical details for each of our
directors are also set forth below.
| |
|
|
|
|
|
|
| Name |
|
Age | |
|
Position |
| |
|
| |
|
|
|
Brian W. Sturgell
|
|
|
55 |
|
|
Director, President and Chief Executive Officer |
|
J.E. Newall, O.C.(1)(2)(3)(4)
|
|
|
69 |
|
|
Non-Executive Chairman of the Board |
|
Jacques Bougie, O.C.(2)(4)
|
|
|
57 |
|
|
Director |
|
Charles G. Cavell(1)(2)(3)
|
|
|
62 |
|
|
Director |
|
Clarence J. Chandran(2)(3)(4)
|
|
|
56 |
|
|
Director |
|
C. Roberto Cordaro(2)(3)(4)
|
|
|
55 |
|
|
Director |
|
Helmut Eschwey(2)(3)(4)
|
|
|
55 |
|
|
Director |
|
David J. FitzPatrick(1)(2)
|
|
|
51 |
|
|
Director |
|
Suzanne Labarge(1)(2)(3)
|
|
|
58 |
|
|
Director |
|
William T. Monahan(2)(3)(4)
|
|
|
57 |
|
|
Director |
|
Rudolf Rupprecht(1)(2)(4)
|
|
|
65 |
|
|
Director |
|
Edward V. Yang(1)(2)(4)
|
|
|
59 |
|
|
Director |
|
|
| (1) |
Member of our audit committee. |
| |
| (2) |
Member of our corporate governance committee. |
| |
| (3) |
Member of our human resources committee. |
| |
| (4) |
Member of our customer relations committee. |
Brian W. Sturgell is our President and Chief Executive
Officer and a Director. Mr. Sturgell has 31 years of
experience in the aluminum business and has worked for Alcan for
the past 15 years. From January 2002 until January, 2005,
Mr. Sturgell was Executive Vice President and a member of
the Office of the President at Alcan, and responsible for
Alcan’s Rolled Products Americas and Asia, Rolled Products
Europe and Packaging business groups. In this role, he oversaw
the global operations of Alcan’s rolled products and
packaging businesses. Mr. Sturgell has held several other
positions with Alcan: Executive Vice President, Aluminum
Fabrication, Americas and Asia (from November 2000 to January
2002), Executive Vice President, Corporate Development (from
January 1999 to November 2000), Executive Vice President, Asia/
Pacific (July 1997 to January 1999) and Executive Vice
President, Fabricated Products, North America and President of
Alcan Aluminum Corporation (from January 1996 to July 1997). In
2004, Mr. Sturgell concluded a two-year term as Chairman of
the U.S. Aluminum Association. He is a member of the board of
directors for the U.S. National Association of Manufacturers.
Born in Michigan in 1949, Mr. Sturgell graduated from
Michigan State University with a bachelor of science degree. He
has also attended the Executive Development Program at the
Kellogg Graduate School at Northwestern University in the United
States.
J.E. Newall, O.C. is the Non-Executive Chairman of our
board of directors and a member of our audit, corporate
governance, human resources and customer relations committees.
Mr. Newall had been on the
44
board of directors of Alcan since 1985. Mr. Newall has been
Chairman of the board of directors of NOVA Chemicals Corporation
(previously known as Nova Corporation) since 1998 and of
Canadian Pacific Railway Limited since 2001. He was the Vice
Chairman and Chief Executive Officer of NOVA Chemicals
Corporation from 1991 to 1998. He is also a Director of Maple
Leaf Foods Inc.
Jacques Bougie, O.C. is a Director on our board of
directors and a member of our corporate governance and customer
relations committees. Mr. Bougie was President and Chief
Executive Officer of Alcan from 1993 to 2001 and was President
and Chief Operating Officer of Alcan from 1989 to 1993. He is
Chairman of the International Advisory Council of CGI Group Inc.
and is a Director of NOVA Chemicals Corporation, McCain Foods
Ltd., RONA Inc. and Abitibi Consolidated Inc.
Charles G. Cavell is a Director on our board of directors
and a member of our audit, corporate governance and human
resources committees. Mr. Cavell recently retired as
President and Chief Executive Officer of Quebecor World Inc.,
one of the world’s largest commercial printers, with plants
throughout Europe, South America and North America. He currently
serves on the board of several commercial and charitable
institutions and he is the Vice Chairman of the Board of
Governors of Concordia University.
Clarence J. Chandran is a Director on our board of
directors and a member of our corporate governance, human
resources and customer relations committees. Mr. Chandran
is Chairman of the Chandran Family Foundation Inc. He retired as
the President, Business Process Services, of CGI Group Inc. in
2004 and retired as Chief Operating Officer of Nortel Networks
Corporation in 2001. Mr. Chandran is also a Director of MDS
Inc. and Chairman of the board of directors of Conros
Corporation and was a Director of Alcan from 2001 to 2003.
C. Roberto Cordaro is a Director on our board of
directors and a member of our corporate governance, human
resources and customer relations committees. Mr. Cordaro is
the President, Chief Executive Officer and has been a Director
of Nuvera Fuel Cells, Inc. since 2002. He was Chief Executive
Officer of the Motor Coach Industries International from 2000 to
2001 and was Executive Vice President of Cummins Inc. from 1996
to 1999.
Helmut Eschwey is a Director on our board of directors
and a member of our corporate governance, human resources and
customer relations committees. Dr. Eschwey has been the
Chairman of the board of management of Heraeus Holding GmbH, in
Germany since 2003. Prior to that, Dr. Eschwey was the head
of the plastics technology business at SMS AG from 1994. Before
he joined SMS AG, he held management positions at Freudenberg
Group of Companies, Pirelli & C. S.p.A. and the Henkel Group.
David J. FitzPatrick became a Director on our board of
directors in March 2005 and is a member of the audit and
corporate governance committees. He is special advisor to the
chief executive officer of Tyco International Ltd. (Tyco).
Previously, he was executive vice president and chief financial
officer of Tyco, a post he held from September 2002 until March
2005. He was senior vice president and chief financial officer
for United Technologies Corporation from June 1998 until
September 2002.
Suzanne Labarge is a Director on our board of directors
and a member of our audit, corporate governance and human
resources committees. Ms. Labarge retired as the Vice
Chairman and Chief Risk Officer of the Royal Bank of Canada in
September 2004. She was Executive Vice President, Corporate
Treasury, of the Royal Bank of Canada from 1995 to 1998.
William T. Monahan is a Director on our board of
directors and a member of our corporate governance, human
resources and customer relations committees. Mr. Monahan is
the retired Chairman and Chief Executive Officer of Imation
Corporation, where he served in that capacity from its spin-off
from 3M Co. in 1996 to May of 2004. Prior to that, he held
numerous executive positions at 3M, including Group Vice
President, Senior Vice President of 3M Italy and the Vice
President of the Data Storage Division. Mr. Monahan is a
Director of Pentair, Inc., Hutchinson Technology Inc. and
Mosaic, Inc.
Rudolf Rupprecht is a Director on our board of directors
and a member of our audit, corporate governance and customer
relations committees. Dr. Rupprecht has been Chairman of
the executive board of MAN AG, in Germany since 1996. Prior
to that, Dr. Rupprecht occupied various supervisory board
positions
45
within that company which he joined in 1966. Dr. Rupprecht
is also a member of the supervisory boards of Salzgitter AG and
WalterBau AG and is Chairman of the supervisory board of
SMS GmbH.
Edward V. Yang is a Director on our board of directors
and a member of our audit, corporate governance and customer
relations committees. Mr. Yang is the Chief Executive
Officer of the Netstar Group of Companies and is also Operating
Partner at ING Barings Private Equity Partners Asia. Prior to
his current role, Mr. Yang was also a Corporate Senior Vice
President and the President of Asia Pacific at Electronic Data
Systems Corporation from 1992 to 2000.
Our Executive Officers
The following table sets forth information as to executive
officers of our company who are not directors. Biographical
details for each of our executive officers who are not directors
are also set forth below. None of the identified officers have
retained their positions with Alcan after the separation.
| |
|
|
|
|
|
|
| Name |
|
Age | |
|
Position |
| |
|
| |
|
|
|
Martha Finn Brooks
|
|
|
45 |
|
|
Chief Operating Officer |
|
Geoffrey P. Batt
|
|
|
57 |
|
|
Senior Vice President and Chief Financial Officer |
|
Christopher Bark-Jones
|
|
|
58 |
|
|
Senior Vice President and President — Europe |
|
Kevin Greenawalt
|
|
|
48 |
|
|
Senior Vice President and President — North America |
|
Jack Morrison
|
|
|
53 |
|
|
Senior Vice President and President — Asia |
|
Antonio Tadeu Coelho Nardocci
|
|
|
47 |
|
|
Senior Vice President and President — South America |
|
Pierre Arseneault
|
|
|
48 |
|
|
Vice President, Strategic Planning and Information Technology |
|
Steven Fehling
|
|
|
58 |
|
|
Vice President Global Procurement and Metal Management |
|
David Godsell
|
|
|
49 |
|
|
Vice President, Human Resources and Environment, Health and
Safety |
|
Jo-Ann Longworth
|
|
|
44 |
|
|
Vice President and Controller |
|
Orville G. Lunking
|
|
|
49 |
|
|
Vice President and Treasurer |
|
Leslie J. Parrette, Jr.
|
|
|
43 |
|
|
General Counsel |
|
Brenda Pulley
|
|
|
46 |
|
|
Vice President, Corporate Affairs and Communications |
|
Thomas Walpole
|
|
|
50 |
|
|
Vice President and General Manager, Can Products Business Unit |
|
David Kennedy
|
|
|
55 |
|
|
Corporate Secretary |
Martha Finn Brooks is our Chief Operating Officer.
Ms. Brooks joined Alcan as the President and Chief
Executive Officer of Alcan’s Rolled Products Americas and
Asia business group in August 2002. Ms. Brooks led three of
Alcan’s business units, namely North America, Asia and
Latin America. Prior to joining Alcan, Ms. Brooks was the
Vice President, Engine Business, Global Marketing: Sales at
Cummins Inc., a manufacturer of service electric power
generation systems, engines and related products. She was with
Cummins Inc. for 16 years, where she held a variety of
positions in strategy, international business development,
marketing and sales, engineering and general management.
Ms. Brooks is a member of the board of directors of
International Paper Company, a member of the Board of Trustees
of Manufactures Alliance, and a Trustee of the Hathaway Brown
School. Born in 1959, Ms. Brooks holds a B.A. in Economics
and Political Science and a Masters of Public and Private
Management specializing in international business from Yale
University in the United States.
46
Geoffrey P. Batt is a Senior Vice President and our Chief
Financial Officer. Mr. Batt retired from Alcan in January
2004 after a 29-year career as a senior financial manager with
the company. A former Vice President and Financial Controller of
Alcan’s Rolled Products Americas and Asia business group,
Mr. Batt has held senior finance positions in Canada,
Switzerland, the United Kingdom, and the United States.
Mr. Batt joined Alcan in 1973 as an accountant in Kingston,
Canada. In 1985 he was named Director of Planning and Finance of
Alcan Enterprises North America in Montreal. Two years later he
became Finance Director, New Business for Alcan Aluminium S.A.
In 1988, he assumed the position of New Business Development
Manager of British Alcan. He returned to Montreal in 1991 as
Assistant Controller for Alcan Aluminium Limited. Mr. Batt
became Treasurer of Alcan Aluminium Limited in 1997 and Chief
Financial Officer of Alcan Europe in 1998. Born in 1947 and a
native of Keynsham, England, Mr. Batt attended Queen’s
University in Kingston, Ontario. In 1975, Mr. Batt received
his accounting designation from The Certified General
Accountant’s Association of Canada.
Christopher Bark-Jones is a Senior Vice President and the
President of our European operations. Mr. Bark-Jones was
the President and Chief Executive Officer of Alcan Rolled
Products, Europe from January 2002 until January 2005. He held
several other positions with Alcan: Vice President, Corporate
Development and Chief Financial Officer, Alcan Europe (from
August 2000 to January 2002) and the Chairman and Chief
Executive Officer of Indian Aluminum Company, Limited, a company
listed on the Indian stock exchange (from October 1998 to August
2000). Mr. Bark-Jones was the Chief Financial Officer of
British Alcan Aluminium plc from July 1991 to June 1996, and the
Chief Financial Officer of Alcan Europe Ltd. from its formation
on June 1996 until October 1998. He is past Chairman of the
European Aluminum Association. Before joining Alcan in 1978,
Mr. Bark-Jones was an investment research analyst at Morgan
Guarantee Trust Company. Born in 1946 in Liverpool, England
Mr. Bark-Jones has an MA in economics from Cambridge
University in England and an MBA from Insead Business School in
France.
Kevin Greenawalt is a Senior Vice President and the
President of our North American operations. Mr. Greenawalt
was the President of Rolled Products North America from April
2004 until January 2005. Mr. Greenawalt was with Alcan
since 1983, holding various managerial positions in corporate
and business planning, operations planning, manufacturing, sales
and business unit management. Prior to the Rolled Products North
America position, his most recent position at Alcan was Vice
President, Manufacturing for Rolled Products Europe based in
Zurich, Switzerland, where he was responsible for ten facilities
in Germany, Switzerland, Italy and the United Kingdom. In the
late 1990s, Mr. Greenawalt led the Alcan North American
Light Gauge Products business unit. Born in 1956,
Mr. Greenawalt holds an MBA and a Bachelor of Science in
Industrial Administration from Carnegie-Mellon University in the
United States. He participated in the International Masters
Program in Practicing Management (UK, Canada, India, Japan,
France) and was trained in Japan in Kaizen and Lean
Manufacturing.
Jack Morrison is a Senior Vice President and the
President of our Asian operations. Mr. Morrison was the
President, Rolled Products Asia and Chief Executive Officer of
Alcan Taihan Aluminum Limited from June 2000 until January 2005.
Mr. Morrison has been responsible for Aluminium Company of
Malaysia since November 2001. Mr. Morrison has over
30 years experience in the aluminum industry having worked
for Alcoa and Consolidated Aluminum prior to joining Alcan in
1981. Prior to his assignment in Asia, Mr. Morrison was the
President of Alcan Sheet Products, North America located in
Cleveland, Ohio, United States. Born in 1952, Mr. Morrison
holds a Bachelor of Science in Industrial Management from Purdue
University in the United States.
Antonio Tadeu Coelho Nardocci is a Senior Vice President
and President of our South American operations following the
separation. Mr. Nardocci joined Alcan in 1980.
Mr. Nardocci was the President of Rolled Products South
America from March 2002 until January 2005. Prior to that, he
was a Vice President of Rolled Products operations in Southeast
Asia and Managing Director of Alcom — Aluminum Company
of Malaysia in Kuala Lumpur, Malaysia. Born in São Paulo,
Brazil in 1957, Mr. Nardocci graduated from the University
of São Paulo with a degree in metallurgy. Mr. Nardocci
is a member of the executive board of the Brazilian Aluminum
Association.
47
Pierre Arseneault is our Vice President, Strategic
Planning and Information Technology. He is responsible for
developing our global strategic planning efforts and leading our
organization’s information technology function.
Mr. Arseneault joined Alcan in 1981. Mr. Arseneault
was a Vice President of Alcan from December 2003 until January
2005. In his 23 years with Alcan, he held different key
positions. He led the Pechiney integration from December 2003 to
May 2004. He was President of Rolled Products North America from
August 2001 to December 2003 and President of light gauge in
North America and Asia from August 2000 to August 2001. From
April 1997 until August 2000, based in Asia, Mr. Arseneault
held the position of Vice President of South East Asia. During
the prior 15 years, he held different positions in
Alcan’s Primary Metal group. Born in 1956 in Victoriaville,
Canada, Mr. Arseneault graduated from Polytechnique
University, where he earned a Bachelor’s Degree in
Industrial Engineering. He also has a Masters Degree in
international management from the International Masters Program
in Practicing Management (IMPM), a cooperative venture of
business schools in five countries around the world —
Canada, England, France, India, and Japan.
Steven Fehling is Vice President, Global Procurement and
Metal Management for Novelis Inc. He is responsible for
developing procurement strategy, driving global procurement
improvement initiatives and for large and multi-continent
contracts. He is also responsible for leading the development
and implementation of policies on metal pricing, hedging,
trading and the global procurement of metal. Mr. Fehling
has 20 years of experience in the industry. Since joining
Alcan in 1990 as Vice President Planning & Marketing for the
company’s Recycling Division, Mr. Fehling held a
series of senior level management positions for the
organization. Prior to the separation from Alcan, he led global
purchasing, maintained a leadership role in strategic metal
policy development and day-to-day metal management and hedging
activities for Alcan Rolled Products Americas and Asia business
group as Vice President Metal Management and Purchasing.
Mr. Fehling holds an M.B.A. with a major in Logistics from
Indiana University, and a Bachelor in Industrial Management from
Purdue University. He is also a graduate of the advanced
management program at Harvard University. Active in the aluminum
industry, Mr. Fehling has served on the Executive Committee
and the Board of Directors of the Aluminum Association.
David Godsell is our Vice President, Human Resources and
Environment, Health and Safety. In this position, he has global
responsibilities for all aspects of our organization’s
human resources function as well as environment, health and
safety. Mr. Godsell joined Alcan in 1979. After joining
Alcan, he held human resources positions of increasing
responsibility within the downstream Alcan fabrication group
before transferring to Alcan’s smelting company in British
Columbia. From 1996 until January 2005, Mr. Godsell was the
Vice President of Human Resources and Environment, Health and
Safety for Alcan Rolled Products Americas and Asia.
Mr. Godsell began his career with the Continental Can
Company in 1978 prior to joining Alcan. Born in 1955,
Mr. Godsell holds a Bachelor of Arts in Economics from
Carleton University in Ottawa, Canada.
Jo-Ann Longworth is our Vice President and Controller.
From August 2003 until January 2005, Ms. Longworth was Vice
President and Business Finance Director for Rolled Products
Americas and Asia in Cleveland, Ohio, United States.
Ms. Longworth joined Alcan in 1989 and has progressed
through a series of financial positions with several Alcan
businesses. After starting her career in the Controller’s
department as Manager of Accounting Research in Montreal, she
subsequently became the controller for Alcan’s North
American Foil Products division in Toronto in 1993 before moving
to Jamaica three years later as Chief Financial Officer of the
bauxite and alumina facilities there. In 2000,
Ms. Longworth relocated back to Montreal and held the post
of Financial Director in the Primary Metals Group for Quebec and
United States prior to becoming Director, Investor Relations for
Alcan in 2002. Before joining Alcan, Ms. Longworth was an
audit manager at Price Waterhouse. Born in Montreal in 1961, she
attended Concordia and McGill universities and is a Canadian
Chartered Accountant.
Orville G. Lunking is our Vice President and Treasurer.
From August 2001 until January 2005, Mr. Lunking was the
Corporate Treasurer of Smithfield Foods, Inc. Previously, from
July 1997 to August 2001, Mr. Lunking was the Assistant
Treasurer for Sara Lee Corporation. From 1991 to July 1997,
Mr. Lunking was the Director of Global Finance for
AlliedSignal Inc., now known as Honeywell International Inc.
Mr. Lunking also worked for seven years, from 1984 to 1991,
as a senior associate and then Vice President in a broad range
of corporate financial service areas at Bankers Trust in New
York. He began his career in the
48
Treasurer’s Office of General Motors in New York, from 1981
to 1984. Mr. Lunking was born in Johannesburg, South Africa
in 1955 and graduated with an undergraduate degree in geography
from Dartmouth College and an MBA in finance from the Wharton
School of the University of Pennsylvania.
Leslie J. Parrette, Jr. joined Novelis as General Counsel
in March 2005. From July 2000 until February 2005, he served as
Senior Vice President and General Counsel of Aquila, Inc., an
international electric and gas utility and energy trading
company. From September 2001 to February 2005, he also served as
Corporate Secretary of Aquila. Prior to joining Aquila,
Mr. Parrette was a partner in the Kansas City-based law
firm of Blackwell Sanders Peper Martin LLP from April 1992
through June 2000. Born in 1961, Mr. Parrette holds an
A.B., magna cum laude, in Sociology from Harvard College
(1983) and received his J.D. from Harvard Law School (1986).
Brenda D. Pulley is our Vice President, Corporate Affairs
and Communications. She has global responsibility for our
organization’s corporate affairs and communication efforts,
which include branding, strategic planning, and internal and
external communications. She was Vice President, Corporate
Affairs and Government Relations of Alcan from September 2000 to
2004. Upon joining Alcan in 1998, Ms. Pulley was named
Director, Government Relations. She has served as Legislative
Assistant to Congressman Ike Skelton of Missouri and to the U.S.
House of Representatives Subcommittee on Small Business,
specializing in energy, environment, and international trade
issues. She also served as Executive Director for the National
Association of Chemical Recyclers, and Director, Federal
Government Relations for Safety-Kleen Corp. Ms. Pulley
currently serves as the Chairperson for America Recycles Day and
on the board of directors for the League of American Bicyclists.
Born in 1958, Ms. Pulley earned her Bachelor of Science
degree from Central Missouri State University in the United
States majoring in Social Science, with a minor in
communications.
Thomas Walpole is Vice President and General Manager, Can
Products Business Unit for Novelis Inc. He is responsible for
developing and coordinating Novelis’ global strategy in the
can market, including recycling and promotion and also leads the
Can Product business unit in North America. Mr. Walpole has
over twenty-five years of aluminum industry experience having
worked for Alcan since 1979. Prior to his recent assignment,
Mr. Walpole held international positions for the
organization in Europe and Asia until 2004. He began as Vice
President, Sales, Marketing & Business Development for Alcan
Taihan Aluminum Ltd. (ATA) and most recently was President
of the Litho/ Can and Painted Products for the Europe region.
Born in 1954, Mr. Walpole graduated from State University
of New York at Oswego with a Bachelor of Science degree in
accounting, and holds a Master of Business from Case Western
Reserve University.
David Kennedy is our Corporate Secretary. Since joining
Alcan in 1979, Mr. Kennedy has held various legal and
business positions within the Canadian downstream businesses of
the Alcan Group, including Senior Counsel, with a general focus
on business transactions. Since 1997, he has served as counsel
to global projects related to Y2K and most recently Alcan’s
TARGET project responding to evolving public policies to address
global warming. In his capacity as Manager Code of Conduct from
1997 to 2000, Mr. Kennedy provided leadership and advice in
the administration of Alcan’s Code of Conduct, a document
reflecting the legal-ethical framework in which Alcan conducts
its operations throughout the world. Mr. Kennedy is a
member of a number of professional and business associations,
including the Canadian Bar Association. From 1990 to 1998 he
served as Chairman of the Competition Law Policy Committee,
Canadian Alliance of Manufacturers and Exporters. He is
presently a Director of the Canadian Centre for Ethics and
Corporate Policy, the Canadian German Chamber of Commerce and
Family Awareness of Mental Health Everywhere. Born in 1949,
Mr. Kennedy is a graduate of the University of Western
Ontario and University of Toronto Law School. He has been a
member of the Ontario bar since 1976.
Board of Directors and Corporate Governance Matters
We are committed to the highest levels of corporate governance
practices, which we believe are essential to our success and to
the enhancement of shareholder value. Our shares are listed on
the Toronto and New York Stock Exchanges and we make
required filings with the Canadian and U.S. securities
regulators. We make these filings available on our website at
http://www.novelis.com as soon as reasonably practicable after
they are electronically filed. Novelis is subject to a variety
of corporate governance and disclosure
49
requirements. Novelis’ corporate governance practices meet
the Toronto Stock Exchange Corporate Governance Guidelines, or
the TSX Guidelines, and other applicable stock exchange and
regulatory requirements and ensure transparency and effective
governance of the Company.
Our Board of Directors will regularly review corporate
governance practices in light of developing requirements in this
field. As new provisions come into effect, our Board of
Directors will reassess our corporate governance practices and
implement changes as and when appropriate. The following is an
overview of our corporate governance practices.
Novelis Board of Directors
Our Board of Directors has the responsibility for stewardship of
our company, including the responsibility to ensure that we are
managed in the interest of our shareholders as a whole, while
taking into account the interests of other
stakeholders.1
Our Board of Directors supervises the management of our business
and affairs and discharges its duties and obligations in
accordance with the provisions of (1) the CBCA,
(2) our articles of incorporation and bylaws, (3) the
charters of our Board of Directors and its committees, and
(4) other applicable legislation and company policies.
Our corporate governance practices require that, in addition to
its statutory duties, the following matters be subject to Board
approval: (1) capital expenditure budgets and significant
investments and divestments, (2) our strategic and
value-maximizing
plans,2
(3) the number of Directors within the limits provided in
our articles of incorporation and (4) any matter which may
have the potential for important impact on our company. The
Board intends to review the composition and size of the
Board once a
year.3
All new directors will receive a Board Manual containing a
record of historical public information about the company, as
well as the charters of the Board and its committees, and other
relevant corporate and business information. Senior management
makes regular presentations to the Board on the main areas of
our business. Directors are invited to tour our various
facilities.4
|
|
|
Corporate Governance Guidelines |
The Board of Directors has adopted a Charter that establishes
various corporate governance guidelines relating to, among other
things, the composition and organization of the Board of
Directors, the duties and responsibilities of the Board of
Directors and the resources and authority of the Board of
Directors. Under the Board of Director’s Charter, which is
available on our website at www.novelis.com and is available in
print upon request from our shareholders from our Corporate
Secretary, every meeting of the Board of Directors is to be
followed by an executive session at which no executive Directors
or other members of management are present. These executive
sessions are designed to ensure free and open discussion and
communication among the non-management Directors. Presently, the
Chairman of the Board of Directors leads these
meetings.5
Stockholders and other interested parties may communicate with
the Board of Directors or any individual member or committee
thereof at the address of our headquarters, care of Corporate
Secretary or by sending an email to david.kennedy@novelis.com.
All such communications will be received by the Corporate
Secretary, who will promptly forward relevant communications to
the appropriate director or Board committee.
Note 1: Refers to TSX Guideline 1.
Note 2: Refers to TSX Guideline 1(a).
Note 3: Refers to TSX Guideline 7.
Note 4: Refers to TSX Guideline 6.
Note 5: Refers to TSX Guideline 12.
50
Independence of Our Board of
Directors6
To assist in determining the independence of its members, our
Board of Directors has established Guidelines on the
Independence of the Directors of Novelis. The definition of an
independent director under the Guidelines on Independence
encompasses both the definition of an “unrelated”
director within the meaning of the TSX Guidelines and of an
“independent” director within the meaning of the rules
of the New York Stock Exchange. Such a director must not
have any material relationship with us, either directly or as a
partner, shareholder or officer of a company that has a
relationship with us and must not have an interest or
relationship which could reasonably be perceived to interfere
with his or her ability to act in the best interests of our
company (an “independent director”). Under the
Guidelines on Independence, the following relationships
generally will be considered not to be material relationships
that would impair a director’s independence: (1) if a
director is an officer, partner or significant shareholder in an
entity that does business with us and the annual sales or
purchases, for goods or services, to or from us are less than
two percent of the consolidated gross annual revenues of that
entity; (2) if a director is a limited partner, a
non-managing member or occupies a similar position in an entity
that does business with us, or has a shareholding in such entity
which is not significant, and who, in each case, has no active
role in sales to or in providing services to us and derives no
direct material personal benefit from the same; and (3) if
a director services as an officer, director or trustee of a
charitable organization and our charitable contributions to the
organization are less than two percent of that
organization’s total consolidated gross annual revenues.
For purposes of the Guidelines on Independence, a
“significant shareholding” means direct or indirect
beneficial ownership of five percent or more of the outstanding
equity or voting rights of the relevant entity. Our Board of
Directors has determined that all members of the board of
directors with the exception of Brian W. Sturgell, are
independent directors.
The Guidelines on Independence establish standards for members
of our Audit, Human Resources and Nominating Committees. This
definition of independence corresponds to the Audit Committee
member independence qualification under the U.S. Sarbanes-Oxley
Act of 2002 (SOX). To meet the SOX Audit Committee
qualification, a director must not, directly or indirectly,
accept any consulting, advisory or other compensatory fee from
us (except in his or her capacity as director) and may not be an
affiliated person of our company or any subsidiary other than in
his or her capacity as a member of the Board or any committee of
the Board.
Committees of Our Board of
Directors
Our Board of Directors has established four standing committees:
an Audit Committee, a Corporate Governance Committee, a Human
Resources Committee and a Customer Relations Committee. Each
committee is constituted by its own charter which is available
on our website at www.novelis.com and is available in print upon
request from our shareholders from our Corporate Secretary. All
four standing committees are required to be made up exclusively
of independent
directors.7
Environment, health and safety matters (in addition to
matters relating to compensation) are dealt with by the Human
Resources Committee.
According to their mandates as set out in their charters, the
Board and each of its Committees may engage outside advisors at
the expense of
Novelis.8
Audit Committee and
Financial Expert
Our Board of Directors has a separately-designated standing
Audit
Committee9
established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended, the requirements of
the
Note 6: Refers to TSX Guidelines 2 and 3.
Note 7: Refers to TSX Guideline 9.
Note 8: Refers to TSX Guideline 14.
Note 9: Refers to TSX Guideline 13.
51
CBCA and stock exchange rules. The members of the audit
committee are J.E. Newall, O.C., Charles G. Cavell,
David J. FitzPatrick, Suzanne Labarge, Rudolf Rupprecht and
Edward V. Yang. Our Board of Directors has determined that
Suzanne Labarge is an audit committee financial expert as
defined by the rules of the Securities and Exchange Commission
and that each member of the Audit Committee is independent
within the meaning of the applicable New York Stock Exchange and
Toronto Stock Exchange listing standards.
The Audit Committee’s main objective is to provide an
effective overview of our financial reporting process and
internal control functions. It will assist our Board of
Directors in fulfilling its functions relating to corporate
accounting and reporting practices, as well as overseeing
financial and accounting
controls10
and reviewing and approving financial statements and proposals
for the issuance of securities. The Audit Committee will also
identify the principal risks of our business such as volatility
in metal price, raw material and energy costs and foreign
exchange rates and will oversee the implementation of
appropriate measures to manage such risks, including policies
and standards relating to risk
management.11
With respect to compliance and disclosure matters, the Audit
Committee will assist management in ensuring that we make timely
disclosure of
activities12
that would materially impact our financial statements, that all
potential claims against us have been properly evaluated,
accounted for and disclosed, and that regular updates are
received regarding certain of our policies and practices.
The Audit Committee will review financial information prepared
in accordance with U.S. GAAP and non-GAAP financial
information in its various forms, including quarterly earnings
releases. It will also review major accounting issues that arise
and expected changes in accounting standards and processes that
may impact our company.
The Audit Committee has direct communication with our external
and internal auditors and will meet privately on a regular basis
with each of the external and internal auditors and senior
members of financial management. It will recommend external
auditors for appointment by our shareholders, review their
degrees of independence and receive and review regular reports
from them. The chairman of the Audit Committee will review the
terms of engagement of our external auditors and sign the
external auditor’s audit engagement letter. The Audit
Committee will also discuss with our external auditors the
quality and not just the acceptability of our accounting
principles and obtain their assurance that the audit was
conducted in a manner consistent with applicable laws and
regulations. We expect to implement a formal procedure that
establishes rules on our employment of former employees of our
auditors.
The Audit Committee will assist us in ensuring that our process
for monitoring compliance with, and dealing with violations of,
our code of conduct, which is described below, is established
and updated. In particular, the Audit Committee will establish
procedures in relation to complaints or concerns that may be
received by us involving accounting, internal accounting
controls or audit matters, including the anonymous handling
thereof.
Corporate Governance
Committee
The Corporate Governance Committee has the broad responsibility
of regularly reviewing the company’s corporate governance
practices in general. Our Corporate Governance Committee is
composed entirely of independent
directors.13
The Corporate Governance Committee’s main duties are to
oversee the composition and size of our Board of Directors and
nominate new directors. It will review candidates for nomination
as directors and
Note 10: Refers to TSX Guideline 1(e).
Note 11: Refers to TSX Guideline 1(b).
Note 12: Refers to TSX Guideline 1(d).
Note 13: Refers to TSX Guideline 10.
52
recommend candidates for election to our Board of
Directors.14
The Corporate Governance Committee will develop position
descriptions for our Board of Directors, the chairman of our
Board of Directors and our chief executive officer and approve
our chief executive officer’s corporate
objectives.15
The Corporate Governance Committee is allowed to employ search
firms for identifying and evaluating Director nominees. We do
not anticipate having a specific policy regarding nominations to
our Board of Directors made by our shareholders. However,
shareholders representing five percent or more of our shares
entitled to vote may propose nominees for election as directors
by following the procedures set out in the CBCA.
The Corporate Governance Committee assesses and ensures on an
annual basis the effectiveness of our Board of Directors as a
whole, of each committee of our Board of Directors and the
contribution of individual directors, including our chief
executive
officer.16
Each director will complete a survey of Board effectiveness on
an annual basis which we anticipate will cover the subjects
under the categories of Board composition, responsibility,
meetings and committees. As part of this survey, each of our
directors will be asked to complete a self-evaluation and an
evaluation of other individual members of our Board of
Directors. The Corporate Governance Committee will also assess
our Board’s relationship with management and recommend,
where necessary, limits on our management’s authority to
act without explicit approval of our Board of Directors.
The Corporate Governance Committee’s mandate also includes
recommending levels of compensation for our directors. To this
end, the Corporate Governance Committee considers
recommendations from the Human Resources Committee and considers
factors such as time commitment, risks and
responsibilities.17
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Human Resources Committee |
The Human Resources Committee has the broad responsibility to
review human resources policy and employee relations matters and
makes recommendations with respect to such matters to our Board
of Directors or our chief executive officer, as appropriate. The
Human Resources Committee is composed entirely of independent
directors. Its specific roles and responsibilities are set out
in its charter. The Human Resources Committee will periodically
review the effectiveness of our overall management organization
structure and succession planning for senior
management,18
review recommendations for the appointment of executive
officers, and consider and make recommendations to our Board of
Directors based on trends and developments in the area of human
resource management.
The Human Resources Committee will establish our general
compensation philosophy and oversee the development and
implementation of compensation policies and programs. It also
will review and approve the level of and/or changes in the
compensation of individual executive officers, except that in
the case of the chief executive officer and chief operating
officer, it will make recommendations regarding compensation and
objectives to the Board of Directors, in each case taking into
consideration individual performance and competitive
compensation practices.
The Human Resources Committee has the responsibility of
reviewing our policy, management practices and performance in
environment, health and safety matters and making
recommendations to our Board of Directors on such matters in
light of current and changing requirements. The Human Resources
Committee also will review, assess and provide advice to our
Board of Directors on policy, legal, regulatory and consumer
trends and developments related to the environment, as they
impact us, our employees, businesses, processes and products.
Note 14: Refers to TSX Guideline 4.
Note 15: Refers to TSX Guideline 11.
Note 16: Refers to TSX Guideline 5.
Note 17: Refers to TSX Guideline 8.
Note 18: Refers to TSX Guideline 1(c).
53
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Customer Relations Committee |
In an advisory capacity, the Customer Relations Committee
reviews information furnished by management, provides advice and
counsel, and serves as a conduit for communications with the
Board of Directors for the purposes of deepening the
Board’s understanding of (a) key end-use markets
served by us (and new markets that, in the foreseeable future,
may be served by us), (b) our existing and prospective
customers in such markets, (c) the nature of our
relationships with such customers (and efforts to further
develop such relationships), (d) the needs of, and trends
facing, our customers and key end-use markets, (e) the fact
base regarding new markets and customers that, in the
foreseeable future, may be served by the Company, and
(f) our efforts to identify and implement best practices in
the areas of marketing and sales.
Code of conduct
We have adopted a Code of Conduct that governs all our employees
as well as our directors. As an annex to the Code of Conduct and
supplemental thereto, we will adopt additional standards that
are specifically tailored to our business operations around the
globe. We also have a code of ethics for senior financial
officers, including the chief executive officer, the chief
financial officer and the controller. Copies of these codes are
posted on our Internet site to emphasize the importance we place
on adherence to the highest ethical standards. We will promptly
disclose any future amendments to the codes on our Internet site
as well as any waivers from the Code for executive officers and
directors. Copies of the codes are also available in print upon
request from our shareholders from our Corporate Secretary.
We also expect to adopt “whistleblower” procedures so
that an employee can anonymously report concerns that he or she
may have regarding compliance with corporate policies, the code
of conduct, applicable laws or auditing, internal accounting
controls and accounting matters.
Section 16(a) Beneficial Ownership Reporting
Compliance
As a foreign private issuer, our executive officers, directors
and principal shareholders are not subject to the insider
reporting and short swing profit recovery rules under
Section 16 of the Exchange Act.
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| Item 11. |
Executive Compensation |
Director Compensation
Each non-executive director of our company is entitled to
receive compensation equal to $150,000 per year, payable
quarterly, except that the directors who are members of our
audit committee are entitled to $155,000. The chairman of our
board of directors is to receive compensation equal to $350,000
per year, and the chairman of our audit committee is entitled to
receive $175,000 per year. We have adopted a non-executive
deferred share unit plan. 50% of our directors’
compensation is required to be paid in the form of
director’s deferred share units, or DDSUs, and 50% in the
form of either cash or additional DDSUs at the election of each
non-executive director. An employee of our company who is a
director is not entitled to receive fees for serving on our
board of directors.
Because at least half of the non-executive directors’
compensation will be paid in DDSUs, they are not required to own
a specific amount of our shares. DDSUs are the economic
equivalent of shares. A director cannot redeem the accumulated
DDSUs until he or she ceases to be a member of our board of
directors.
Our board of directors believes that compensation in the form of
DDSUs together with the requirement for our non-executive
directors to retain all DDSUs until retirement help to align the
interests of our non-executive directors with those of our
shareholders.
The number of DDSUs to be credited each quarter will be
determined by dividing the quarterly amount payable by the
average per share price of our shares on the Toronto and New
York stock exchanges on the last five trading days of the
quarter. Additional DDSUs will be credited to each non-executive
director corresponding to dividends declared on our shares. The
DDSUs are redeemable only upon termination of the directorship
as a result of retirement, resignation or death. The amount
to be paid by us upon redemption will
54
be calculated by multiplying the accumulated balance of DDSUs by
the average per share price of our shares on those exchanges at
the time of redemption.
Our non-executive directors are entitled to reimbursement for
transportation and other expenses incurred in attending meetings
of our board of directors and meetings of committees of our
board of directors. Our non-executive directors who are not
Canadian residents are entitled to reimbursement for tax advice
related to compensation.
Executive Compensation
The human resources committee is responsible for administering
the compensation program for our executive officers. Our
executive compensation program will be based upon a
pay-for-performance philosophy. Under our program, an
executive’s compensation is based on three components,
namely, base salary, annual incentives and long term incentives.
Base Salary
We anticipate that the target salary will be the mid-point of a
salary range for an executive officer and reflect the
competitive level of similar positions in the compensation peer
groups. The companies identified as part of our peer group are
comparable to us in terms of size, industry sector and level of
international sophistication. Actual base salaries for executive
officers will reflect the individual’s performance and
contribution to our company. Base salaries of our executive
officers will be reviewed annually and any proposed changes will
be approved by the human resources committee.
Annual Incentives
Our short term incentive plan is administered by the human
resources committee, and has two components, each based on a
different aspect of our performance: (1) 90% of the
incentive opportunity of an executive will be based on our
overall profitability as measured against cash flow and economic
value added targets and (2) 10% of the incentive
opportunity will be based on the achievement of environment,
health and safety objectives as measured against pre-established
targets. For each position, a target award will be set
(expressed as “percent of target base salary”)
reflecting both the responsibilities of the position and the
competitive compensation levels.
We expect to review our annual incentives program during 2005 in
order to make recommendations to our human resources committee
by the end of 2005. We expect these recommendations will be
implemented by January 2006.
Long-term Incentives
The purpose of our long term incentives is to attract and retain
employees and to encourage them to contribute to our growth and
long term success. We anticipate that our long term incentives
will include stock options. On January 5, 2005, our board
of directors adopted the Novelis Conversion Plan of 2005 to
allow for all Alcan stock options held by employees of Alcan who
became employees of our company following our separation from
Alcan to be replaced with options to purchase our common shares
and for new options to be granted. New options granted under the
Novelis Conversion Plan of 2005 will have a vesting period
determined by our human resources committee and will expire no
more than ten years after the date of grant, except in the case
of death or retirement, in which case the options will expire
not later than five years after the earlier of such death or
retirement. In the case of an unsolicited change of control of
our company, vesting will accelerate. The number of options
granted will be based on the level of an executive’s
position, the executive’s performance in the prior year and
the executive’s potential for continued sustained
contributions to our success. Stock options will only produce
value to executives if our share price appreciates, thereby
directly linking the interests of executives with those of our
shareholders. The number of shares underlying options available
for grant under the Novelis Conversion Plan of 2005 at
March 15, 2005 is 2,219,667. We anticipate further that
stock price appreciation units may be granted instead of options
to certain employees due to certain local conditions of their
country of residence. A stock price appreciation unit is a right
to receive cash
55
in an amount equal to the excess of the per share market value
of our shares on the date of exercise of a stock price
appreciation unit over the per share market value of our shares
as of the date of grant of such stock price appreciation unit.
On March 24, 2005, our board of directors adopted the
Novelis Founders Performance Award Plan to allow for a one-time
additional compensation opportunity for certain of our
executives, including those listed in the compensation table
below. Participants are awarded performance share units if share
price improvement targets for 2006, 2007 and 2008 are achieved.
Performance share units will not be awarded unless the share
price improvement targets are achieved. A performance share
unit is the right to receive cash in an amount equal to the
market price of one of our shares at the time of payment.
Performance share units are settled in cash at the times
prescribed in the plan.
The following table sets forth compensation information for our
chief executive officer and our four other executive officers
who, based on the salary and bonus compensation received from
Alcan, were the most highly compensated of our executive
officers for the year ended December 31, 2004. All
information set forth in this table reflects compensation earned
by these individuals for service with Alcan for the years ended
December 31, 2004 and December 31, 2003.
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Long term Compensation | |
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Awards(i) | |
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Annual Compensation | |
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Shares | |
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Underlying | |
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Bonus | |
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Options Granted/ | |
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(Executive | |
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Stock Price | |
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Performance | |
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Other Annual | |
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Restricted | |
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Appreciation | |
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All Other | |
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Salary | |
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Award)(ii) | |
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Compensation | |
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Share Units | |
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Units(iv) | |
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Compensation | |
| Name and Principal Position |
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Year | |
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(in $) | |
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(in $) | |
|
(in $) (iii) | |
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($CAN) | |
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(#) | |
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(in $) | |
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Brian W. Sturgell,
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2004 |
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781,200 |
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932,257 |
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280,686 |
(v) |
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0 |
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221,100 |
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41,301 |
(vi) |
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Director and Chief Executive Officer
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2003 |
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600,000 |
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561,845 |
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254,115 |
(v) |
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404,815 |
(vii) |
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69,600 |
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29,679 |
(vi) |
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Martha Finn Brooks,
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2004 |
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514,400 |
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631,538 |
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50,723 |
(viii) |
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0 |
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78,600 |
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14,666 |
(ix) |
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Chief Operating Officer
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2003 |
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440,000 |
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445,608 |
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32,661 |
(viii) |
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0 |
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36,000 |
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16,440 |
(ix) |
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Chris Bark-Jones,
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2004 |
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440,600 |
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395,210 |
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43,892 |
(x) |
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0 |
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64,200 |
(xi) |
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0 |
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Senior Vice President and President — Europe
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2003 |
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375,000 |
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465,972 |
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9,659 |
(x) |
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0 |
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27,600 |
(xi) |
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8,348 |
(xii) |
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Pierre Arseneault,
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2004 |
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300,000 |
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257,731 |
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37,285 |
(xiii) |
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0 |
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23,700 |
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12,214 |
(xiv) |
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Vice President Strategic Planning and Information Technology
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2003 |
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272,000 |
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186,045 |
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23,145 |
(xiii) |
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0 |
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9,900 |
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10,880 |
(xiv) |
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Jack Morrison,
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2004 |
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251,088 |
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206,150 |
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329,512 |
(xv) |
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0 |
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15,000 |
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12,346 |
(xvi) |
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Senior Vice President and President — Asia
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2003 |
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239,013 |
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145,290 |
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292,892 |
(xv) |
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0 |
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8,400 |
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13,588 |
(xvi) |
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| (i) |
There were no long term incentive plan payouts. |
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| (ii) |
Alcan’s executive performance award plan, or EPA Plan, has
two components, each based on a different aspect of performance:
(1) the profitability of Alcan as measured by economic
value added, or EVA (a registered trademark of Stern
Stewart & Co.), and (2) the performance of Alcan
relative to environment, health and safety, or EHS, objectives.
For each position a target award is set (expressed as
“percent of target base salary”) reflecting both the
responsibilities of the position and the competitive
compensation levels. The first component is 90% of the incentive
compensation opportunity of an executive and is based on the
overall profitability of Alcan as measured against the
quantifiable financial metric EVA. The incentive compensation
for executive officers who are part of Alcan’s corporate
head office is contingent upon performance versus the
pre-established EVA target for Alcan, while the incentive
compensation for executive officers who are responsible for
a business group is contingent on meeting the
pre-established EVA objectives of their respective business
group. The second component |
56
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is 10% of the incentive compensation opportunity of an executive
and is based on the achievement of the EHS objectives as
measured against pre- established targets. The overall award
paid is the sum of the weighted results of each component (i.e.,
EVA and EHS) modified by the rating for the individual
performance and contribution to Alcan. The award paid may vary
from zero when the results achieved are less than the minimum
threshold set by Alcan’s human resources committee, to 200%
of the target award when the results achieved are at or exceed
the maximum level which was set by Alcan’s human resources
committee. |
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| (iii) |
Included in this column for one or more executive officers are
amounts relating to professional financial advice, club
memberships, tax equalization (amounts paid such that net income
after taxes was not less than it would have been in the United
States), expatriate-related compensation, relocation allowances
and housing (including interest on housing-related loans
transferred to third party financial institutions). |
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| (iv) |
See “— Grants of Alcan Stock Price Appreciation
Units” below for a description of the stock price
appreciation unit plan. The Alcan executive share option plan
provides for the granting to senior employees of
non-transferable options to purchase Alcan common shares.
Certain executive officers and other management employees of
Alcan have received over the years options under one or more of
the six classes of Alcan options, namely A, B, C, D, E and
F Options. With respect to the five executive officers
named in the table above, only the C Options are applicable
for the years 2004 and 2003. See “— Grants
of Alcan Stock Options” below for a description of the C
Options. |
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| (v) |
Amounts include $254,756 (in 2004) and $219,155 (in 2003) for
tax equalization. |
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| (vi) |
Amounts for 2004 include $27,225 in respect of savings plans and
$14,076 in respect of life insurance. Amounts for 2003 include
$25,875 in respect of savings plans and $3,804 in respect of
life insurance. |
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| (vii) |
Granted as 7,175 Alcan restricted share units based on the
market value of the Alcan shares on the date of grant, which was
$CAN56.42. Alcan employees who became Novelis employees at the
separation and who held restricted share units were entitled to
receive a payment of the value of those units from Alcan. |
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| (viii) |
Amounts for 2004 include $18,211 for tax equalization. Amounts
for 2003 include $11,520 in a plan for professional financial
advice and for club membership fees and $13,033 for housing
assistance. |
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| (ix) |
Amounts for 2004 include $12,902 in respect of savings plans and
$1,764 in respect of life insurance. Amounts for 2003 include
$15,480 in respect of savings plans and $960 in respect of life
insurance. |
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| (x) |
Amounts for 2004 include $38,015 for exchange rate equalization.
Amounts for 2003 include $4,839 for automobile usage and $3,217
for professional financial advice. |
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| (xi) |
Granted as Alcan stock price appreciation units, or SPAUs. |
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| (xii) |
Amount relates to tuition for training programs. |
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| (xiii) |
Amounts for 2004 include $23,341 for expatriate-related
compensation. Amounts for 2003 include $7,008 in a plan for
professional financial advice and club membership fees. |
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| (xiv) |
Amounts for 2004 include $10,804 in respect of savings plans and
$1,410 in respect of life insurance. Amounts for 2003 include
$9,240 in respect of savings plans and $1,640 in respect of life
insurance. |
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| (xv) |
Amounts for 2004 include $132,763 for housing expenses and
$110,422 for expatriate-related compensation. Amounts for 2003
include $146,081 for housing expenses and $110,574 for
expatriate-related compensation. |
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| (xvi) |
Amounts for 2004 include $11,119 in respect of savings plans and
$1,227 in respect of life insurance. Amounts for 2003 include
$12,149 in respect of savings plans and $1,439 in respect of
life insurance. |
Other Compensation
In addition to benefits under stock option or stock price
appreciation unit plans, compensation benefits made available to
senior employees will include (1) retirement benefit plans,
(2) life insurance plans, (3) savings plans,
(4) plans for the use of automobiles, (5) plans for
professional financial advice and for club membership fees, and
(6) in applicable cases, expatriate benefits, tax
equalization payments and housing assistance.
57
Alcan Stock Options
Grants of Alcan Stock Options
The Alcan executive share option plan provides for the granting
to senior employees of non-transferable options to purchase
Alcan common shares. Throughout the years, various series with
each its own conditions have been granted to senior employees.
Since September 23, 1998, the Alcan executive share option
plan has provided for options referred to as C Options.
C Options are the only class of Alcan options applicable
for the executive officers named in the compensation table under
“ — Executive Compensation” for 2004 and
2003. The exercise price per Alcan common share under
C Options is set at not less than 100% of the market value
of the Alcan common share on the effective date of the grant of
each C Option. The C Option is exercisable (not
earlier than three months after the effective date) in respect
of one-third of the grant when the market value of the Alcan
common share has increased by 20% over the exercise price,
two-thirds of the grant when the market value of the Alcan
common share has so increased by 40% and the entire amount of
the grant when the market value of the Alcan common share has so
increased by 60%. The market value of Alcan common shares must
exceed those thresholds for at least 21 consecutive trading
days. Those thresholds are waived 12 months prior to the
expiry date, which is 10 years after the effective date. In
the event of death or retirement, any remainder of this 10-year
period in excess of five years is reduced to five years, and the
relevant thresholds are waived.
The following table shows all grants of options to purchase
Alcan common shares granted to the executive officers named in
the compensation table under “ — Executive
Compensation” above for the year ended December 31,
2004 under the Alcan executive share option plan.
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Percent of | |
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Total | |
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Potential realizable value | |
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Shares | |
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Options | |
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at assumed annual rates of | |
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Under | |
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Granted | |
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share price appreciation for | |
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Options | |
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to Alcan | |
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option term ($CAN)(ii) | |
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Granted | |
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Employees | |
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Exercise Price | |
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| Name |
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(#) | |
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in 2004 | |
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($CAN/Share) | |
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Expiration Date | |
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5% | |
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10% | |
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B. W. Sturgell
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(i)221,100 |
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8.3% |
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58.15 |
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September 21, 2014 |
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8,085,676 |
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20,490,691 |
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M. F. Brooks
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(i) 78,600 |
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2.9% |
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58.15 |
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September 21, 2014 |
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2,874,419 |
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7,284,343 |
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P. Arseneault
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(i) 23,700 |
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0.9% |
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58.15 |
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September 21, 2014 |
|
|
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866,714 |
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2,196,424 |
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J. Morrison
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|
|
(i) 15,000 |
|
|
|
0.6% |
|
|
|
58.15 |
|
|
|
September 21, 2014 |
|
|
|
548,553 |
|
|
|
1,390,142 |
|
|
|
| (i) |
Date of grant: September 22, 2004. |
| |
| (ii) |
Reflects the value of the stock option on the date of grant
assuming (1) for the 5% column, a 5% annual rate of appreciation
in Alcan common shares over the term of the option and
(2) for the 10% column, a 10% annual rate of appreciation
in Alcan common shares over the term of option, in each case
without discounting to net present value and before income taxes
associated with the exercise. The 5% and 10% assumed rates of
appreciation are based on the rules of the SEC and do not
represent our estimate or projection of the future price of
Alcan common shares. The amounts in this table may not
necessarily be achieved. |
58
Exercise of Alcan Stock Options
The following table shows aggregate exercises of options to
purchase Alcan common shares in the fiscal year ended
December 31, 2004 by the executive officers named in the
compensation table
under “ — Executive Compensation”
above.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Shares Underlying | |
|
Value of Unexercised | |
| |
|
|
|
|
|
Unexercised Options | |
|
In-the-Money Options at | |
| |
|
Shares Acquired on | |
|
Value Realized | |
|
at Dec. 31, 2004(i) | |
|
December 31, 2004 (i) | |
| Name |
|
Exercise (#) | |
|
($CAN) | |
|
(#) | |
|
($CAN) | |
| |
|
| |
|
| |
|
| |
|
| |
|
B. W. Sturgell
|
|
|
167,450 |
|
|
|
2,734,759 |
|
|
|
E: 0 |
|
|
|
E: 0 |
|
| |
|
|
|
|
|
|
|
|
|
|
U: 379,700 |
|
|
|
U: 1,945,328 |
|
|
M. F. Brooks
|
|
|
25,934 |
|
|
|
561,082 |
|
|
|
E: 45,334 |
|
|
|
E: 13,147 |
|
| |
|
|
|
|
|
|
|
|
|
|
U: 150,232 |
|
|
|
U: 560,170 |
|
|
C. Bark-Jones
|
|
|
10,367 |
|
|
|
156,618 |
|
|
|
E: 0 |
|
|
|
E: 0 |
|
| |
|
|
|
|
|
|
|
|
|
|
U: 2,333 |
|
|
|
U: 29,372 |
|
|
P. Arseneault
|
|
|
11,134 |
|
|
|
216,628 |
|
|
|
E: 0 |
|
|
|
E: 0 |
|
| |
|
|
|
|
|
|
|
|
|
|
U: 44,866 |
|
|
|
U: 254,768 |
|
|
J. Morrison
|
|
|
39,300 |
|
|
|
575,712 |
|
|
|
E: 0 |
|
|
|
E: 0 |
|
| |
|
|
|
|
|
|
|
|
|
|
U: 35,300 |
|
|
|
U: 235,853 |
|
|
|
| (i) |
E: Exercisable U: Unexercisable |
The above table summarizes, for each of the executive officers,
(1) the number of Alcan common shares acquired by options
exercised during 2004, (2) the aggregate value realized
upon exercise, which is the difference between the market value
of the underlying shares on the exercise date and the exercise
price of the option, (3) the total number of shares
underlying unexercised options held at December 31, 2004
and (4) the aggregate value of unexercised in-the-money
options at December 31, 2004, which is the difference
between the exercise price of the options and the market value
of the shares on December 31, 2004, which was $CAN58.97 per
share. The aggregate values indicated with respect to
unexercised in-the-money options at year-end have not been, and
may never be, realized. These options have not been, and may
never be exercised, and actual gains, if any, on exercise will
depend on the value of the shares on the date of exercise.
Treatment of Alcan Stock Options
As of the separation date, we replaced all of the options
granted under the Alcan Executive Share Option Plan held by
employees of Alcan immediately prior to the separation who
became our employees, including our executive officers, with
options to purchase our common shares. As of March 16, 2005
our employees held stock options covering 2,701,028 common
shares at a weighted average exercise price per share of $21.60.
Under the Alcan Executive Share Option Plan, options vested
based upon Alcan’s stock price performance. All converted
options that were vested on the separation date continued to be
vested. Any that were unvested will vest in four equal
instalments on the anniversary of the separation date on each of
the next four years. In the case of an unsolicited change of
control of our company, vesting will accelerate.
Alcan Stock Price Appreciation Units
Grants of Alcan Stock Price Appreciation Units
The Alcan stock price appreciation unit plan, or SPAU Plan,
provides for the granting to senior employees of Alcan stock
price appreciation units, or SPAUs. The SPAU Plan is
administered by the Alcan human resources committee. A SPAU
is a right to receive cash in an amount equal to the excess of
the market value of Alcan common shares on the date of exercise
of a SPAU over the market value of Alcan common shares as of the
date of grant of such SPAU. SPAUs may be exercised in the same
manner as C Options, described above. Grants are made under
the SPAU Plan instead of under the Alcan executive share option
plan due to certain local conditions of countries of the
employees’ residence.
59
The following table shows all grants of SPAUs granted to the
executive officers named in the compensation table under
“ — Executive Compensation” above for the
year ended December 31, 2004 under the SPAU Plan.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Potential realizable value | |
| |
|
|
|
Percent of | |
|
|
|
|
|
at assumed rates of | |
| |
|
Shares | |
|
total | |
|
|
|
|
|
share price appreciation | |
| |
|
granted | |
|
SPAUs | |
|
Exercise price and | |
|
|
|
for option term | |
| |
|
under | |
|
granted to | |
|
market value on | |
|
|
|
($CAN)(ii) | |
| |
|
SPAUs | |
|
employees in | |
|
date of grant | |
|
|
|
| |
| Name |
|
(#) | |
|
2004 | |
|
($CAN/share) | |
|
Expiration Date | |
|
5% | |
|
10% | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
C. Bark-Jones
|
|
|
64,200 |
|
|
|
23.4% |
|
|
|
58.15 |
|
|
|
September 21,2014 |
|
|
|
2,347,808 |
|
|
|
5,949,807 |
|
|
|
| (i) |
Date of grant: September 22, 2004 |
| |
| (ii) |
Reflects the value of the SPAU on the date of grant assuming
(1) for the 5% column, a 5% annual rate of appreciation in
Alcan common shares over the term of the option and (2) for
the 10% column, a 10% annual rate of appreciation in Alcan
common shares over the term of the SPAU, in each case without
discounting to net present value and before income taxes
associated with the exercise. The 5% and 10% assumed rates of
appreciation are based on the rules of the SEC and do not
represent our estimate or projection of the future price of
Alcan common shares. The amounts in this table may not
necessarily be achieved. |
Exercise of Alcan Stock Price Appreciation Units
The following table shows aggregate exercises of SPAUs in the
fiscal year ended December 31, 2004 by the executive
officers named in the compensation table under
“ — Executive compensation” above.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Value of unexercised | |
| |
|
SPAUs | |
|
|
|
Unexercised SPAUs at | |
|
in-the-money SPAUs at | |
| |
|
Exercised | |
|
Aggregate value | |
|
December 31, 2004(i) | |
|
December 31, 2004 | |
| Name |
|
(#) | |
|
realized ($CAN) | |
|
(#) | |
|
($CAN)(i) | |
| |
|
| |
|
| |
|
| |
|
| |
|
C. Bark-Jones
|
|
|
23,434 |
|
|
|
521,503 |
|
|
|
E: 0 |
|
|
|
E: 0 |
|
| |
|
|
|
|
|
|
|
|
|
|
U: 107,766 |
|
|
|
U: 504,985 |
|
|
|
| (i) |
E: Exercisable U: Unexercisable |
The above table summarizes, for Mr. Bark-Jones (1) the
number of SPAUs exercised during 2004 (2) the aggregate
value realized upon exercise, which is the difference between
the market value of the underlying shares on the exercise date
and the exercise price of the SPAUs, (3) the total number
of SPAUs unexercised held at December 31, 2004 and
(4) the aggregate value of unexercised in-the-money SPAUs
at December 31, 2004, which is the difference between the
exercise price of the SPAUs and the market value of the shares
on December 31, 2004 which was $CAN58.97 per share. The
aggregate values indicated with respect to unexercised
in-the-money SPAUs at fiscal year-end have not been, and may
never be, realized. These SPAUs have not been, and may never be
exercised, and actual gains, if any, on exercise will depend on
the value of the shares on the date of exercise.
Treatment of Alcan Stock Price Appreciation Units
As of the separation date, we replaced all of the Alcan stock
price appreciation units held by employees of Alcan immediately
prior to the separation who became our employees, including our
executive officers, with our stock price appreciation units. As
of Match 16, 2005 our employees held approximately 418,777 stock
price appreciation units at a weighted average exercise price
per SPAU of $22.04.
Alcan Total Shareholder Return Performance Plan
The Alcan total shareholder return performance plan, or TSR
Plan, is a cash incentive plan that provides performance awards
to eligible employees based on the Alcan share price and
cumulative dividend yield performance relative to the
performance of the companies included in the S&P Industrials
Composite Index over a three-year period. The award amount, if
any, is based on Alcan’s relative total shareholder return
60
performance, as defined in the TSR Plan, and ranking of Alcan
against the other companies in the S&P Industrials Composite
Index at the end of the performance period. If Alcan’s
total shareholder return performance ranks below the 30th
percentile, the employee will not receive any award for that
performance period. At the 30th percentile rank, the employee
will be paid an award equal to 60% of the target for that
performance period. At the 50th percentile rank, the employee
will earn a payout of 100% of the target, and at or above the
75th percentile rank, the employee will earn a payout of 300%,
which is the maximum payout. The actual amount of award (if any)
will be prorated between the percentile rankings. No amounts
were awarded to the executive officers named in the compensation
table under “ — Executive Compensation”
above under the TSR Plan in 2004.
Treatment of Incentives Granted under the Alcan Total
Shareholder Return Performance Plan
As of the separation date, our employees who were eligible to
participate in the TSR Plan ceased to actively participate in,
and accrue benefits under, the TSR Plan. The current three-year
performance periods, namely 2002 to 2005 and 2003 to 2006, were
truncated as of the date of the separation. The accrued award
amounts for each participant in the TSR were converted into
restricted share units in our company, which will vest at the
end of each performance period, 2005 or 2006, as applicable. At
the end of each performance period, each holder of restricted
share units will receive the net proceeds based on our common
share price at that time, including declared dividends.
Novelis Pension and Retirement Benefits Plans
Pension Plans
Pension Plan for Officers. Our human resources
committee designates participants to the pension plan for
officers, or PPO. This plan provides for pensions calculated on
service up to 20 years as an officer of our company or of
Alcan and eligible earnings which consist of the excess of the
average annual salary and target short term incentive award
during the 60 consecutive months when they were the greatest
over eligible earnings in the U.S. Plan or the U.K. Plan, as
applicable. Both the U.S. Plan and U.K. Plan are described
below. Each provides for a maximum on eligible earnings that is
set with reference to the position of the officer prior to being
designated a PPO participant. The following table shows the
percentage of eligible earnings in the PPO, payable upon normal
retirement age after 60 according to years of service as an
officer of our company or of Alcan.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years as Officer | |
| | |
| 5 | |
|
10 | |
|
15 | |
|
20 | |
| | |
|
| |
|
| |
|
| |
| |
15% |
|
|
|
30% |
|
|
|
40% |
|
|
|
50% |
|
The normal form of payment of pensions is a lifetime annuity.
Pensions are not subject to any deduction for social security or
other offset amounts.
Brian W. Sturgell and Christopher Bark-Jones are currently the
only participants in the PPO. At age 65, the estimated credited
years of service for Mr. Sturgell would be approximately
18 years and the estimated credited years of service for
Mr. Bark-Jones would be approximately 10 years.
Eligible earnings under the PPO for 2004 for Mr. Sturgell
were $306,420 and were $175,570 for Mr. Bark-Jones.
Retirement Benefits
U.S. Plan. During 2005, those of our employees
previously participating in the Alcancorp Pension Plan and the
Alcan Supplemental Executive Retirement Plan (collectively
referred to as the U.S. Plan) will receive up to one year
of additional service under each plan to the extent that such
employees continue to be employed by us during the year. We will
pay Alcan the normal cost (in the case of the Alcancorp Pension
Plan) and the current service cost (in the case of the
Alcan Supplemental Executive Retirement Plan)with respect to
those employees. The U.S. Plan provides for pensions
calculated on service with us or Alcan of up to 35 years.
Eligible earnings consist of the average annual salary and the
short term incentive award up to its
61
target during the 3 consecutive calendar years when they were
the greatest, subject to a cap for those participating in
the PPO.
The following table shows estimated retirement benefits,
expressed as a percentage of eligible earnings, payable upon
normal retirement at age 65 according to years of service.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years of Service | |
| | |
| 10 | |
|
15 | |
|
20 | |
|
25 | |
|
30 | |
|
35 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
17% |
|
|
|
25% |
|
|
|
34% |
|
|
|
42% |
|
|
|
51% |
|
|
|
59% |
|
The normal form of payment of pensions is a lifetime annuity
with either a guaranteed minimum of 60 monthly payments or
a 50% lifetime pension to the surviving spouse.
At age 65, the estimated credited years of service for Brian
W. Sturgell, Martha Finn Brooks, Pierre Arseneault and Jack
Morrison would be approximately 25 years, 22 years,
40 years and 36 years, respectively. Eligible earnings
under the plan for 2004 for Mr. Sturgell, Ms. Brooks,
Mr. Arseneault and Mr. Morrison were $928,980,
$823,850, $455,595 and $380,088, respectively.
Individual Pension Undertakings. In addition to
participation in the U.S. Plan described above, Martha Finn
Brooks will receive from us a supplemental pension equal to the
excess, if any, of the pension she would have received from her
employer prior to joining Alcan had she been covered by this
employer’s pension plan until her termination/retirement
from our company, over the sum of her pension from the U.S. Plan
and the pension rights actually accrued with her previous
employer.
As a rehired retiree of Alcan, Geoffrey Batt continues to
receive monthly pension benefits in respect of his former
service with Alcan, and he is eligible for a supplemental
retirement benefit based on his service with us for as long as
we retain a defined benefit pension plan.
U.K. Plan. The U.K. Plan, which was transferred to
us from Alcan in connection with the separation, provides for
pensions calculated on service of up to 40 years and
eligible earnings, which consist of the average annual salary
and the short term incentive award up to its target during the
last 12 months before retirement, subject to a cap for
those participating in the PPO.
The following table shows estimated retirement benefits,
expressed as a percentage of eligible earnings, payable upon
normal retirement at age 65 according to years of service.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years of Service | |
| | |
| 10 | |
|
15 | |
|
20 | |
|
25 | |
|
30 | |
|
35 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
17% |
|
|
|
26% |
|
|
|
35% |
|
|
|
43% |
|
|
|
52% |
|
|
|
60% |
|
The normal form of payment of pensions is a lifetime annuity
with a guaranteed minimum of 60 monthly payments and a 60%
lifetime pension to the surviving spouse.
Christopher Bark-Jones is the only executive officer entitled to
participate in the U.K. Plan. At age 65, the estimated
credited years of service for Mr. Bark-Jones would be
approximately 34 years and his eligible earnings in 2004
were $494,700.
Employment Agreements
We have entered into employment agreements with Brian W.
Sturgell, our chief executive officer, Martha Finn Brooks, our
chief operating officer, Chris Bark-Jones, president of our
European operations, Pierre Arseneault, our vice president
strategic planning and information technology, Geoffrey P. Batt,
our chief financial officer, Jack Morrison, president of our
Asian operations and other executive officers, setting out the
terms and conditions of their employment. Under their respective
employment agreements, Brian W. Sturgell will be entitled to a
base salary of $985,000, Martha Finn Brooks will be entitled to
a base salary of $655,000, Chris Bark-Jones will be entitled to
a base salary of $440,611, Pierre Arseneault will be entitled to
a base salary of $300,000, Geoffrey P. Batt will be entitled to
a base salary of $460,000 and Jack Morrison will be entitled to
a base salary of $277,000 with an expatriate premium of $27,700.
Each of these officers will also be entitled to annual bonus,
long term incentives and other types of compensation that
reflect the competitive
62
level of similar positions in the compensation peer groups and
that are expected to be similar to the benefits they received
from Alcan. The companies identified as part of our peer group
are comparable to us in terms of size and industry sector.
Certain of our executive officers also have entered into change
of control agreements that provide for payment upon the
termination of the executive officer’s employment with us
by us without cause or by the executive officer for good reason.
Except in the case of Brian W. Sturgell, upon the occurrence of
such an event, the executive would be entitled to an amount
equal to 24 months of their base salary and target short
term incentive award and other applicable incentive plan
guideline amounts. Brian W. Sturgell would be entitled to an
amount equal to 36 months of his base salary and target
short term incentive award and other applicable incentive plan
guideline amounts. In the case of executive officers other than
Brian W. Sturgell, change in control provisions will expire
after 24 months of employment with us, and in the case of
Brian W. Sturgell, after 12 months.
Human Resources Committee Interlocks and Insider
Participation
The members of our human resources committee of our board of
directors are: J.E. Newall, O.C., Charles G. Cavell, Clarence J.
Chandran, C. Roberto Cordaro, Helmut Eschwey, Suzanne Labarge
and William T. Monahan. No member of our board of
director’s human resources committee is or was formerly an
officer or an employee of our company. No interlocking
relationship exists between our board of directors and its human
resources committee and the board of directors or compensation
committee of any other company.
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The following table sets forth information with respect to the
beneficial ownership of our outstanding common shares as of
March 15, 2005, by:
|
|
|
| |
• |
each director, each director nominee, our chief executive
officer and our four other most highly compensated officers
identified in Item 11 above; and |
| |
| |
• |
all of our directors, director nominees and executive officers
as a group. |
Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power
with respect to securities. Common shares and options, warrants
and convertible securities that are currently exercisable or
convertible within 60 days of March 15, 2005 into our
common shares are deemed to be outstanding and to be
beneficially owned by the person holding the options, warrants
or convertible securities for the purpose of computing the
percentage ownership of the person, but are not treated as
outstanding for the purpose of computing the percentage
ownership of any other person. No person is known by us to be
the beneficial owner of 5 percent or more of our common
shares.
Except as otherwise noted in the footnotes below, the individual
director or executive officer or the director or executive
officer’s family member identified below has sole voting
and investment power with respect to such securities. As of
March 15, 2005, we had 73,988,918 shares outstanding.
63
| |
|
|
|
|
|
|
|
|
|
| |
|
Our common | |
|
|
| |
|
shares beneficially | |
|
Percentage | |
| Name and address of beneficial owner* |
|
owned | |
|
of class | |
| |
|
| |
|
| |
|
Brian W. Sturgell,
|
|
|
|
|
|
|
|
|
| |
Director and Chief Executive Officer(i)
|
|
|
11,559 |
|
|
|
** |
|
|
J.E. Newall, O.C.,
|
|
|
|
|
|
|
|
|
| |
Non-Executive Chairman of the Board(ii)
|
|
|
21,718 |
|
|
|
** |
|
|
Jacques Bougie, O.C.,
|
|
|
|
|
|
|
|
|
| |
Director
|
|
|
0 |
|
|
|
0% |
|
|
Charles G. Cavell,
|
|
|
|
|
|
|
|
|
| |
Director
|
|
|
0 |
|
|
|
0% |
|
|
Clarence J. Chandran,
|
|
|
|
|
|
|
|
|
| |
Director
|
|
|
800 |
|
|
|
** |
|
|
C. Roberto Cordaro,
|
|
|
|
|
|
|
|
|
| |
Director
|
|
|
0 |
|
|
|
0% |
|
|
Helmut Eschwey,
|
|
|
|
|
|
|
|
|
| |
Director
|
|
|
0 |
|
|
|
0% |
|
|
David J. FitzPatrick,
|
|
|
|
|
|
|
|
|
| |
Director
|
|
|
0 |
|
|
|
0% |
|
|
Suzanne Labarge,
|
|
|
|
|
|
|
|
|
| |
Director
|
|
|
3,000 |
|
|
|
** |
|
|
William T. Monahan,
|
|
|
|
|
|
|
|
|
| |
Director
|
|
|
3,000 |
|
|
|
** |
|
|
Rudolf Rupprecht,
|
|
|
|
|
|
|
|
|
| |
Director
|
|
|
0 |
|
|
|
0% |
|
|
Edward V. Yang,
|
|
|
|
|
|
|
|
|
| |
Director
|
|
|
0 |
|
|
|
0% |
|
|
Martha Finn Brooks,
|
|
|
|
|
|
|
|
|
| |
Chief Operating Officer(iii)
|
|
|
89,960 |
|
|
|
** |
|
|
Chris Bark-Jones,
|
|
|
|
|
|
|
|
|
| |
Senior Vice President and President — Europe(iv)
|
|
|
20 |
|
|
|
** |
|
|
Pierre Arseneault,
|
|
|
|
|
|
|
|
|
| |
Vice President Strategic Planning and Information Technology(v)
|
|
|
0 |
|
|
|
0% |
|
|
Jack Morrison,
|
|
|
|
|
|
|
|
|
| |
Senior Vice President and President — Asia(vi)
|
|
|
0 |
|
|
|
0% |
|
|
Directors and executive officers as a group (26 persons)(vii)
|
|
|
184,469 |
|
|
|
** |
|
|
|
|
| |
* |
The address for each individual listed is c/o Novelis Inc., 3399
Peachtree Road NE, Suite 1500, Atlanta, GA 30326. |
|
|
| ** |
Indicates less than 1% of the class. |
| |
| (i) |
Does not include options to purchase 753,477 of our shares that
are not currently exercisable and are not exercisable within
60 days. |
| |
| (ii) |
Includes 20,800 common shares held by Waskesiu East Holdings
Inc., the shares of which are held by Mr. Newall and his
children. |
| |
| (iii) |
Includes options to purchase 89,960 of our common shares that
are currently exercisable. Does not include options to purchase
298,121 of our shares that are not currently exercisable and are
not exercisable within 60 days. |
64
|
|
| (iv) |
Does not include options to purchase 4,630 of our shares that
are not currently exercisable and are not exercisable within
60 days. |
| |
| (v) |
Does not include options to purchase 89,032 of our shares that
are not currently exercisable and are not exercisable within
60 days. |
| |
| (vi) |
Does not include options to purchase 70,049 of our shares that
are not currently exercisable and are not exercisable within
60 days. |
| |
| (vii) |
Our directors and executive officers as a group hold 41,523 of
our shares. 300 of such shares are shares over which the officer
has sole investment power but does not have voting power. Our
directors and executive officers as a group hold options to
purchase 142,946 of our shares that are currently exercisable or
are exercisable within 60 days. Our directors and executive
officers as a group hold options to purchase 1,476,248 of our
shares that are not currently exercisable and are not
exercisable within 60 days. |
Securities Authorized for Issuance Under Equity Compensation
Plans
Because we did not separate from Alcan until January 6,
2005, as of December 31, 2004, none of our equity
securities were authorized for issuance under compensation
plans. Information regarding the compensation plans that were
placed in effect concurrently with and following the separation
is set forth under “Item 11. Executive
Compensation.”
|
|
| Item 13. |
Certain Relationships and Related Transactions |
Some of our directors and executive officers own Alcan common
shares and vested Alcan options or are employees or former
employees of Alcan. Ownership of Alcan common shares and Alcan
shares by our directors and officers could create, or appear to
create, potential conflicts of interest for such directors and
officers when faced with decisions that could have disparate
implications for Alcan and us.
Alcan Aluminum Corporation, or Alcancorp, a wholly-owned
subsidiary of Alcan (now known as Novelis Corporation),
established a real estate loan program to assist relocating
employees in the United States. Under the program, an employee
was permitted to obtain an interest-free loan from Alcancorp,
the proceeds of which were to be used only to purchase a new
principal residence. The loan is secured by a mortgage on the
new principal residence. On July 1, 2003, Jo-Ann Longworth,
our Vice President and Controller following the separation,
received a loan from Alcancorp in the amount of $75,000 under
this program. As of December 31, 2004, the amount
outstanding under the loan was $73,125. The largest amount
outstanding under the loan in 2004 was $75,000. On
August 9, 2000, Pierre Arseneault, our Vice President,
Strategic Planning and Information Technology following the
separation, received a loan from Alcancorp in the amount of
$75,000 under this program. As of December 31, 2004, the
amount outstanding under the loan was $58,342. The largest
amount outstanding under the loan in 2004 was $63,748. In
connection with our separation from Alcan, these loans were
transferred to a third-party bank, at which point they became
interest-bearing loans. We will pay the interest on these loans.
|
|
| Item 14. |
Principal Accountant Fees and Services |
PricewaterhouseCoopers LLP and its predecessor (Price
Waterhouse) have been Alcan’s auditors since 1936.
PricewaterhouseCoopers LLP were appointed as our independent
auditors following our separation from Alcan.
We did not directly pay any fees to PricewaterhouseCoopers LLP
in either 2003 or 2004. The fees for audit and non-audit
services provided by PricewaterhouseCoopers LLP while we were
part of Alcan were paid by Alcan. A portion of those fees has
been allocated to us based on the principles described in note 2
to our consolidated financial statements. The aggregate fees
paid by Alcan to PricewaterhouseCoopers LLP and allocated to us
in 2003 and 2004 were approximately $2.1 million and $ 6.4
million, respectively, substantially all of which related to
audit services.
65
The audit committee has considered whether the provision of
services other than audit services is compatible with
maintaining the PricewaterhouseCoopers LLP’s independence
and has concluded that it is.
We expect that our audit committee will adopt pre-approval
policies and procedures with respect to the engagement of our
outside auditors for certain non-audit services.
|
|
| Item 15. |
Exhibits and Financial Statement Schedules |
(a) The following documents are filed as part of this
report:
1. Consolidated Financial Statements
| |
|
|
|
|
| |
|
Page | |
| |
|
Number of | |
| |
|
Exhibit 99.2 | |
| |
|
| |
|
Management Responsibility Report
|
|
|
1 |
|
|
Report of independent registered public accounting firm
|
|
|
1 |
|
|
Combined statements of income
|
|
|
2 |
|
|
Combined balance sheets
|
|
|
3 |
|
|
Combined statements of cash flows
|
|
|
4 |
|
|
Combined statements of invested equity
|
|
|
5 |
|
|
Notes to combined financial statements
|
|
|
6 |
|
2. Financial Statement Schedules
None.
3. Exhibits
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
3 |
.1 |
|
Restated Certificate and Articles of Incorporation of Novelis
Inc. (Incorporated by reference to Exhibit 3.1 to the Form 8-K
filed by Novelis Inc. on January 7, 2005 (File
No. 001-32312).) |
| |
3 |
.2 |
|
By-law No. 1 of Novelis Inc. (Incorporated by reference to
Exhibit 3.2 to the Form 10 filed by Novelis Inc. on
November 17, 2004 (File No. 001-32312).) |
| |
4 |
.1 |
|
Shareholder Rights Agreement between Novelis Inc. and CIBC
Mellon Trust Company |
| |
4 |
.2 |
|
Specimen Certificate of Novelis Inc. Common Shares (Incorporated
by reference to Exhibit 4.2 to the Form 10 filed by
Novelis Inc. on December 27, 2004 (File
No. 001-32312).) |
| |
4 |
.3 |
|
Indenture, relating to the Notes, 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 the
Form 8-K filed by Novelis Inc. on February 3, 2005
(File No. 001-32312).) |
| |
4 |
.4 |
|
Registration Rights Agreement, dated as of February 3,
2005, among the Company, the guarantors named on the signature
pages thereto, Citigroup Global Markets Inc., Morgan Stanley
& Co. Incorporated and UBS Securities LLC, as
Representatives of the Initial Purchasers (Incorporated by
reference to Exhibit 4.2 to the Form 8-K filed by
Novelis Inc. on February 3, 2005
(File No. 001-32312).) |
| |
10 |
.1 |
|
Separation Agreement between Alcan Inc. and Novelis Inc. |
| |
10 |
.2 |
|
Metal Supply Agreement between Novelis Inc., as Purchaser, and
Alcan Inc., as Supplier, for the supply of remelt aluminum
ingot** |
| |
10 |
.3 |
|
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** |
| |
10 |
.4 |
|
Metal Supply Agreement between Novelis Inc., as Purchaser, and
Alcan Inc., as Supplier, for the supply of sheet ingot in North
America** |
| |
10 |
.5 |
|
Metal Supply Agreement between Novelis Inc., as Purchaser, and
Alcan Inc., as Supplier, for the supply of sheet ingot in
Europe** |
66
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
10 |
.6 |
|
Tax Sharing and Disaffiliation Agreement between Alcan Inc.,
Novelis Inc., Arcustarget Inc., Alcan Corporation and Novelis
Corporation |
| |
10 |
.7 |
|
Transitional Services Agreement between Alcan Inc. and Novelis
Inc. |
| |
10 |
.8 |
|
Principal Intellectual Property Agreement between Alcan
International Limited and Novelis Inc.** |
| |
10 |
.9 |
|
Secondary Intellectual Property Agreement between Novelis Inc.
and Alcan International Limited** |
| |
10 |
.10 |
|
Master Metal Hedging Agreement between Alcan Inc. and Novelis
Inc.** |
| |
10 |
.11 |
|
Credit Agreement, dated as of January 7, 2005, among
Novelis Inc., Novelis Corporation, Novelis Deutschland GmbH,
Novelis UK Limited and Novelis AG, as Borrowers, the Lenders and
Issuers Party (as defined in the agreement), Citigroup North
America, Inc., as Administrative Agent and Collateral Agent,
Morgan Stanley Senior Funding, Inc. and UBS Securities LLC, as
Co-Syndication Agents, and Citigroup Global Markets Inc., Morgan
Stanley Senior Funding, Inc. and UBS Securities LLC, as Joint
Lead Arrangers and Joint Book-Running Managers. |
| |
10 |
.12* |
|
Employee Matters Agreement between Alcan Inc. and Novelis Inc. |
| |
10 |
.13* |
|
Employment Agreement of Brian W. Sturgell (Incorporated by
reference to Exhibit 10.32 to the Form 10 filed by
Novelis Inc. on December 22, 2004 (File
No. 001-32312).) |
| |
10 |
.14* |
|
Employment Agreement of Martha Finn Brooks (Incorporated by
reference to Exhibit 10.33 to the Form 10 filed by
Novelis Inc. on December 22, 2004 (File
No. 001-32312).) |
| |
10 |
.15* |
|
Employment Agreement of Christopher Bark-Jones (Incorporated by
reference to Exhibit 10.34 to the Form 10 filed by
Novelis Inc. on December 27, 2004 (File
No. 001-32312).) |
| |
10 |
.16* |
|
Employment Agreement of Pierre Arseneault (Incorporated by
reference to Exhibit 10.35 to the Form 10 filed by
Novelis Inc. on December 22, 2004 (File
No. 001-32312).) |
| |
10 |
.17* |
|
Employment Agreement of Geoffrey P. Batt (Incorporated by
reference to Exhibit 10.36 to the Form 10 filed by
Novelis Inc. on December 22, 2004 (File
No. 001-32312).) |
| |
10 |
.18* |
|
Form of Change of Control Agreement between Alcan Inc. and
executive officers of Novelis Inc. (Incorporated by reference to
Exhibit 10.37 to the Form 10 filed by
Novelis Inc. on December 22, 2004 (File
No. 001-32312).) |
| |
10 |
.19* |
|
Change of Control Agreement dated as of August 1, 2002
between Alcan Inc. and Brian W. Sturgell, as amended by a
letter dated May 11, 2004 from Travis Engen, President and
Chief Executive Officer of Alcan Inc. (Incorporated by reference
to Exhibit 10.1 to the Form 8-K filed by Novelis Inc.
on January 7, 2005 (File No. 001-32312).) |
| |
10 |
.20* |
|
Change of Control Agreement dated as of December 22, 2004
between Alcan Inc. and Martha Finn Brooks (Incorporated by
reference to Exhibit 10.2 to the Form 8-K filed by
Novelis Inc. on January 7, 2005 (File No. 001-32312).) |
| |
10 |
.21* |
|
Change of Control Agreement dated as of December 23, 2004
between Alcan Inc. and Christopher Bark-Jones (Incorporated by
reference to Exhibit 10.3 to the Form 8-K filed by
Novelis Inc. on January 7, 2005 (File No. 001-32312).) |
| |
10 |
.22* |
|
Change of Control Agreement dated as of November 12, 2004
between Alcan Inc. and Pierre Arseneault (Incorporated by
reference to Exhibit 10.4 to the Form 8-K filed by
Novelis Inc. on January 7, 2005 (File No. 001-32312).) |
| |
10 |
.23* |
|
Change of Control Agreement dated as of November 8, 2004
between Alcan Inc. and Geoffrey P. Batt (Incorporated by
reference to Exhibit 10.5 to the Form 8-K filed by
Novelis Inc. on January 7, 2005 (File No. 001-32312).) |
| |
10 |
.24* |
|
Novelis Conversion Plan of 2005 (Incorporated by reference to
Exhibit 10.6 to the Form 8-K filed by Novelis Inc. on
January 7, 2005 (File No. 001-32312).) |
| |
10 |
.25* |
|
Written description of Novelis Short Term Incentive
Plan — 2005 Performance Measures |
| |
10 |
.26* |
|
Novelis Inc. Deferred Share Unit Plan for Non-Executive Directors |
| |
10 |
.27* |
|
Employment Agreement of Jack Morrison |
| |
10 |
.28* |
|
Form of Offer Letter with certain Novelis executive officers |
67
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
10 |
.29* |
|
Written description of Novelis Pension Plan for Officers |
| |
10 |
.30* |
|
Written description of Novelis Founders Performance Award Plan |
| |
21 |
.1 |
|
List of subsidiaries of Novelis Inc. |
| |
23 |
.1 |
|
Consent of independent auditors |
| |
31 |
.1 |
|
Section 302 Certification of Principal Executive Officer |
| |
31 |
.2 |
|
Section 302 Certification of Principal Financial Officer |
| |
32 |
.1 |
|
Section 906 Certification of Principal Executive Officer |
| |
32 |
.2 |
|
Section 906 Certification of Principal Financial Officer |
| |
99 |
.1 |
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
| |
99 |
.2 |
|
Combined Financial Statements |
|
|
| * |
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. |
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
| |
By: |
/s/ Brian W. Sturgell |
|
|
| |
|
| |
Name: Brian W. Sturgell |
| |
Title: Chief Executive Officer |
Date: March 24, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
| |
|
|
| |
|
Date: March 24, 2005
|
|
/s/ Brian W. Sturgell
Brian
W. Sturgell
(Director, Principal Executive Officer) |
| |
|
Date: March 24, 2005
|
|
/s/ Geoffrey P. Batt
Geoffrey
P. Batt
(Principal Financial Officer) |
| |
|
Date: March 24, 2005
|
|
/s/ Jo-Ann Longworth
Jo-Ann
Longworth
(Principal Accounting Officer) |
| |
|
Date: March 24, 2005
|
|
/s/ J.E. Newall
J.E.
Newall
(Non-Executive Chairman of the Board of Directors) |
| |
|
Date: March 24, 2005
|
|
/s/ Jacques Bougie
Jacques
Bougie
(Director) |
| |
|
Date: March 24, 2005
|
|
/s/ Charles G. Cavell
Charles
G. Cavell
(Director) |
| |
|
Date: March 24, 2005
|
|
/s/ Clarence J. Chandran
Clarence
J. Chandran
(Director) |
| |
|
Date: March 24, 2005
|
|
/s/ C. Roberto Cordaro
C.
Roberto Cordaro
(Director) |
| |
|
Date: March 24, 2005
|
|
/s/ Helmut Eschwey
Helmut
Eschwey
(Director) |
69
| |
|
|
| |
|
Date: March 24, 2005
|
|
/s/ Suzanne Labarge
Suzanne
Labarge
(Director) |
| |
|
Date: March 24, 2005
|
|
/s/ William T. Monahan
William
T. Monahan
(Director) |
| |
|
Date: March 24, 2005
|
|
/s/ Rudolf Rupprecht
Rudolf
Rupprecht
(Director) |
| |
|
Date: March 24, 2005
|
|
/s/ Edward V. Yang
Edward
V. Yang
(Director) |
70
EXHIBIT INDEX
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
3 |
.1 |
|
Restated Certificate and Articles of Incorporation of Novelis
Inc. (Incorporated by reference to Exhibit 3.1 to the
Form 8-K filed by Novelis Inc. on January 7, 2005
(File No. 001-32312).) |
| |
3 |
.2 |
|
By-law No. 1 of Novelis Inc. (Incorporated by reference to
Exhibit 3.2 to the Form 10 filed by Novelis Inc. on
November 17, 2004 (File No. 001-32312).) |
| |
4 |
.1 |
|
Shareholder Rights Agreement between Novelis Inc. and CIBC
Mellon Trust Company |
| |
4 |
.2 |
|
Specimen Certificate of Novelis Inc. Common Shares (Incorporated
by reference to Exhibit 4.2 to the Form 10 filed by
Novelis Inc. on December 27, 2004 (File
No. 001-32312).) |
| |
4 |
.3 |
|
Indenture, relating to the Notes, 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 the
Form 8-K filed by Novelis Inc. on February 3, 2005
(File No. 001-32312).) |
| |
4 |
.4 |
|
Registration Rights Agreement, dated as of February 3,
2005, among the Company, the guarantors named on the signature
pages thereto, Citigroup Global Markets Inc., Morgan Stanley
& Co. Incorporated and UBS Securities LLC, as
Representatives of the Initial Purchasers (Incorporated by
reference to Exhibit 4.2 to the Form 8-K filed by
Novelis Inc. on February 3, 2005 (File No. 001-32312).) |
| |
10 |
.1 |
|
Separation Agreement between Alcan Inc. and Novelis Inc. |
| |
10 |
.2 |
|
Metal Supply Agreement between Novelis Inc., as Purchaser, and
Alcan Inc., as Supplier, for the supply of remelt aluminum
ingot** |
| |
10 |
.3 |
|
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** |
| |
10 |
.4 |
|
Metal Supply Agreement between Novelis Inc., as Purchaser, and
Alcan Inc., as Supplier, for the supply of sheet ingot in North
America** |
| |
10 |
.5 |
|
Metal Supply Agreement between Novelis Inc., as Purchaser, and
Alcan Inc., as Supplier, for the supply of sheet ingot in
Europe** |
| |
10 |
.6 |
|
Tax Sharing and Disaffiliation Agreement between Alcan Inc.,
Novelis Inc., Arcustarget Inc., Alcan Corporation and Novelis
Corporation |
| |
10 |
.7 |
|
Transitional Services Agreement between Alcan Inc. and Novelis
Inc. |
| |
10 |
.8 |
|
Principal Intellectual Property Agreement between Alcan
International Limited and Novelis Inc.** |
| |
10 |
.9 |
|
Secondary Intellectual Property Agreement between Novelis Inc.
and Alcan International Limited** |
| |
10 |
.10 |
|
Master Metal Hedging Agreement between Alcan Inc. and Novelis
Inc.** |
| |
10 |
.11 |
|
Credit Agreement, dated as of January 7, 2005, among
Novelis Inc., Novelis Corporation, Novelis Deutschland GmbH,
Novelis UK Limited and Novelis AG, as Borrowers, the Lenders and
Issuers Party (as defined in the agreement), Citigroup North
America, Inc., as Administrative Agent and Collateral Agent,
Morgan Stanley Senior Funding, Inc. and UBS Securities LLC, as
Co-Syndication Agents, and Citigroup Global Markets Inc., Morgan
Stanley Senior Funding, Inc. and UBS Securities LLC, as Joint
Lead Arrangers and Joint Book-Running Managers. |
| |
10 |
.12* |
|
Employee Matters Agreement between Alcan Inc. and Novelis Inc. |
| |
10 |
.13* |
|
Employment Agreement of Brian W. Sturgell (Incorporated by
reference to Exhibit 10.32 to the Form 10 filed by
Novelis Inc. on December 22, 2004 (File
No. 001-32312).) |
| |
10 |
.14* |
|
Employment Agreement of Martha Finn Brooks (Incorporated by
reference to Exhibit 10.33 to the Form 10 filed by
Novelis Inc. on December 22, 2004
(File No. 001-32312).) |
| |
10 |
.15* |
|
Employment Agreement of Christopher Bark-Jones (Incorporated by
reference to Exhibit 10.34 to the Form 10 filed by
Novelis Inc. on December 27, 2004
(File No. 001-32312).) |
| |
10 |
.16* |
|
Employment Agreement of Pierre Arseneault (Incorporated by
reference to Exhibit 10.35 to the Form 10 filed by
Novelis Inc. on December 22, 2004
(File No. 001-32312).) |
71
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
10 |
.17* |
|
Employment Agreement of Geoffrey P. Batt (Incorporated by
reference to Exhibit 10.36 to the Form 10 filed by
Novelis Inc. on December 22, 2004
(File No. 001-32312).) |
| |
10 |
.18* |
|
Form of Change of Control Agreement between Alcan Inc. and
executive officers of Novelis Inc. (Incorporated by reference to
Exhibit 10.37 to the Form 10 filed by
Novelis Inc. on December 22, 2004
(File No. 001-32312).) |
| |
10 |
.19* |
|
Change of Control Agreement dated as of August 1, 2002
between Alcan Inc. and Brian W. Sturgell, as amended by a letter
dated May 11, 2004 from Travis Engen, President and Chief
Executive Officer of Alcan Inc. (Incorporated by reference to
Exhibit 10.1 to the Form 8-K filed by Novelis Inc. on
January 7, 2005 (File No. 001-32312).) |
| |
10 |
.20* |
|
Change of Control Agreement dated as of December 22, 2004
between Alcan Inc. and Martha Finn Brooks (Incorporated by
reference to Exhibit 10.2 to the Form 8-K filed by
Novelis Inc. on January 7, 2005
(File No. 001-32312).) |
| |
10 |
.21* |
|
Change of Control Agreement dated as of December 23, 2004
between Alcan Inc. and Christopher Bark-Jones (Incorporated by
reference to Exhibit 10.3 to the Form 8-K filed by
Novelis Inc. on January 7, 2005
(File No. 001-32312).) |
| |
10 |
.22* |
|
Change of Control Agreement dated as of November 12, 2004
between Alcan Inc. and Pierre Arseneault (Incorporated by
reference to Exhibit 10.4 to the Form 8-K filed by
Novelis Inc. on January 7, 2005
(File No. 001-32312).) |
| |
10 |
.23* |
|
Change of Control Agreement dated as of November 8, 2004
between Alcan Inc. and Geoffrey P. Batt (Incorporated by
reference to Exhibit 10.5 to the Form 8-K filed by
Novelis Inc. on January 7, 2005
(File No. 001-32312).) |
| |
10 |
.24* |
|
Novelis Conversion Plan of 2005 (Incorporated by reference to
Exhibit 10.6 to the Form 8-K filed by Novelis Inc. on
January 7, 2005 (File No. 001-32312).) |
| |
10 |
.25* |
|
Written description of Novelis Short Term Incentive
Plan — 2005 Performance Measures |
| |
10 |
.26* |
|
Novelis Inc. Deferred Share Unit Plan for Non-Executive Directors |
| |
10 |
.27* |
|
Employment Agreement of Jack Morrison |
| |
10 |
.28* |
|
Form of Offer Letter with certain Novelis executive officers |
| |
10 |
.29* |
|
Written description of Novelis Pension Plan for Officers |
| |
10 |
.30* |
|
Written description of Novelis Founders Performance Award Plan |
| |
21 |
.1 |
|
List of subsidiaries of Novelis Inc. |
| |
23 |
.1 |
|
Consent of independent auditors |
| |
31 |
.1 |
|
Section 302 Certification of Principal Executive Officer |
| |
31 |
.2 |
|
Section 302 Certification of Principal Financial Officer |
| |
32 |
.1 |
|
Section 906 Certification of Principal Executive Officer |
| |
32 |
.2 |
|
Section 906 Certification of Principal Financial Officer |
| |
99 |
.1 |
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
| |
99 |
.2 |
|
Combined Financial Statements |
|
|
| * |
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. |
72