Novelis Reports Third Quarter Fiscal Year 2017 Results

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in millions)

Three Months Ended
December 31,

Nine Months Ended
December 31,

2016

2015

2016

2015

Net sales

$

2,313

$

2,354

$

6,970

$

7,470

Cost of goods sold (exclusive of depreciation and amortization)

1,924

2,051

5,834

6,692

Selling, general and administrative expenses

103

104

303

304

Depreciation and amortization

88

88

267

264

Interest expense and amortization of debt issuance costs

67

82

231

244

Loss on extinguishment of debt

—

—

112

13

Research and development expenses

14

13

41

39

Gain on assets held for sale

—

—

(2)

—

Restructuring and impairment, net

1

10

4

29

Equity in net loss of non-consolidated affiliates

8

—

8

2

Other (income) expense, net

(3)

(16)

63

(78)

2,202

2,332

6,861

7,509

Income (loss) before income taxes

111

22

109

(39)

Income tax provision

47

16

110

28

Net income (loss)

64

6

(1)

(67)

Net income attributable to noncontrolling interests

1

—

1

—

Net income (loss) attributable to our common shareholder

$

63

$

6

$

(2)

$

(67)

Novelis Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in millions, except number of shares)

December 31,
2016

March 31,
2016

ASSETS

Cash and cash equivalents

$

505

$

556

Accounts receivable, net

— third parties (net of uncollectible accounts of $5 as of December 31, 2016 and $3 as of March 31, 2016)

993

956

— related parties

63

59

Inventories

1,321

1,180

Prepaid expenses and other current assets

101

127

Fair value of derivative instruments

84

88

Assets held for sale

3

5

Total current assets

3,070

2,971

Property, plant and equipment, net

3,304

3,506

Goodwill

607

607

Intangible assets, net

470

523

Investment in and advances to non–consolidated affiliate

444

488

Deferred income tax assets

81

87

Other long–term assets

  — third parties

86

82

  — related parties

13

16

  Total assets

$

8,075

$

8,280

LIABILITIES AND SHAREHOLDER'S DEFICIT

Current liabilities

Current portion of long–term debt

$

90

$

47

Short–term borrowings

517

579

Accounts payable

 — third parties

1,496

1,506

 — related parties

52

48

Fair value of derivative instruments

80

85

Accrued expenses and other current liabilities

468

569

Total current liabilities

2,703

2,834

Long–term debt, net of current portion

4,460

4,421

Deferred income tax liabilities

113

89

Accrued postretirement benefits

795

820

Other long–term liabilities

190

175

Total liabilities

8,261

8,339

Commitments and contingencies

Shareholder's deficit

Common stock, no par value; unlimited number of shares authorized; 1,000 shares issued and outstanding as of December 31, 2016 and March 31, 2016

—

—

Additional paid–in capital

1,404

1,404

Accumulated deficit

(965)

(963)

Accumulated other comprehensive loss

(606)

(500)

Total deficit of our common shareholder

(167)

(59)

Noncontrolling interests

(19)

—

Total deficit

(186)

(59)

Total liabilities and deficit

$

8,075

$

8,280

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in millions)

Nine Months Ended December 31,

2016

2015

OPERATING ACTIVITIES

Net loss

$

(1)

$

(67)

Adjustments to determine net cash used in operating activities:

Depreciation and amortization

267

264

Gain on unrealized derivatives and other realized derivatives in investing activities, net

(23)

(25)

Gain on assets held for sale

(2)

—

Loss on sale of business

27

—

Loss on sale of assets

4

2

Impairment charges

—

8

Loss on extinguishment of debt

112

13

Deferred income taxes

15

(60)

Amortization of fair value adjustments, net

7

9

Equity in net loss of non-consolidated affiliates

8

2

Loss (gain) on foreign exchange remeasurement of debt

41

(5)

Amortization of debt issuance costs and carrying value adjustments

10

15

Other, net

1

—

Changes in assets and liabilities including assets and liabilities held for sale (net of effects from divestitures):

Accounts receivable

(108)

166

Inventories

(200)

146

Accounts payable

59

(422)

Other current assets

18

6

Other current liabilities

(117)

(42)

Other noncurrent assets

(17)

21

Other noncurrent liabilities

50

(30)

Net cash provided by operating activities

151

1

INVESTING ACTIVITIES

Capital expenditures

(138)

(282)

Proceeds from sales of assets, third party, net of transaction fees and hedging

2

2

Outflows from the sale of a business, net of transaction fees

(2)

—

Proceeds (outflows) from investment in and advances to non-consolidated affiliates, net

12

(5)

Outflows from related party loans receivable, net

(3)

—

Proceeds (outflows) from settlement of other undesignated derivative instruments, net

7

(11)

Net cash used in investing activities

(122)

(296)

FINANCING ACTIVITIES

Proceeds from issuance of long-term and short-term borrowings

2,770

151

Principal payments of long-term and short-term borrowings

(2,676)

(194)

Revolving credit facilities and other, net

(20)

178

Dividends, noncontrolling interest

—

(1)

Debt issuance costs

(139)

(15)

Net cash (used in) provided by financing activities

(65)

119

Net decrease in cash and cash equivalents

(36)

(176)

Effect of exchange rate changes on cash

(15)

5

Cash and cash equivalents — beginning of period

556

628

Cash and cash equivalents — end of period

$

505

$

457

Reconciliation from Net income (loss) attributable to our common shareholder to Adjusted EBITDA, and Adjusted EBITDA excluding Metal Price Lag (unaudited)

Novelis is providing disclosure of the reconciliation of reported non-GAAP financial measures to their comparable financial measures on a GAAP basis. To better analyze underlying operational results, the following table also shows Adjusted EBITDA to Adjusted EBITDA excluding the impact of Metal Price Lag. On certain sales contracts we experience timing differences on the pass through of changing aluminum prices from our suppliers to our customers. Additional timing differences occur in the flow of metal costs through moving average inventory cost values and cost of goods sold. This timing difference is referred to as metal price lag. Although we use derivatives contracts to minimize the price lag associated with LME base aluminum prices, we do not use derivative contracts for local market premiums, as these are not prevalent in the market.

(in millions)

Three Months Ended
December 31,

Nine Months Ended
December 31,

2016

2015

2016

2015

Net income (loss) attributable to our common shareholder

$

63

$

6

$

(2)

$

(67)

Noncontrolling interests

1

—

1

—

Income tax provision

(47)

(16)

(110)

(28)

Interest, net

(65)

(77)

(224)

(235)

Depreciation and amortization

(88)

(88)

(267)

(264)

EBITDA

264

187

600

460

Unrealized gains (losses) on change in fair value of derivative instruments, net

21

(2)

18

18

Realized gains (losses) on derivative instruments not included in segment income

1

1

2

(1)

Adjustment to eliminate proportional consolidation

(4)

(7)

(20)

(22)

Loss on sale of a business

—

—

(27)

—

Gain (loss) on sale of fixed assets

2

(1)

(4)

(2)

Gain on assets held for sale

—

—

2

—

Loss on extinguishment of debt

—

—

(112)

(13)

Restructuring and impairment, net

(1)

(10)

(4)

(29)

Other costs, net

(6)

(6)

(17)

(12)

Adjusted EBITDA

$

251

$

212

$

762

$

521

Metal price lag

(4)

(26)

(32)

(165)

Adjusted EBITDA excluding metal price lag

$

255

$

238

$

794

$

686

Free Cash Flow and Cash and Cash Equivalents (unaudited)

The following table shows the "Free cash flow" for the nine months ended December 31, 2016 and 2015 and the ending balances of cash and cash equivalents (in millions).

Nine Months Ended December 31,

2016

2015

Net cash provided by operating activities

$

151

$

1

Net cash used in investing activities

(122)

(296)

Less: Proceeds from sales of assets, net of transaction fees and hedging

—

(2)

Free cash flow

$

29

$

(297)

Ending cash and cash equivalents

$

505

$

457

Total Liquidity (unaudited)

The following table shows available liquidity as of December 31, 2016 and March 31, 2016 (in millions).

December 31,

March 31,

2016

2016

Cash and cash equivalents

$

505

$

556

Availability under committed credit facilities

534

640

Total liquidity

$

1,039

$

1,196

Reconciliation of Net income (loss) attributable to our common shareholder, to Net Income attributable to our common shareholder, excluding Special Items (unaudited)

The following table shows Net Income attributable to our common shareholder excluding special items (in millions).  We adjust for items which may recur in varying magnitude which affect the comparability of the operational results of our underlying business.

Three Months Ended
December 31,

Nine Months Ended
December 31,

2016

2015

2016

2015

Net income (loss) attributable to our common shareholder

$

63

$

6

$

(2)

$

(67)

Special Items:

Gain on assets held for sale

—

—

(2)

—

Loss on sale of a business

—

—

27

—

Loss on extinguishment of debt

—

—

112

13

Metal price lag

4

26

32

165

Restructuring and impairment, net

1

10

4

29

Tax effect on special items

(1)

(10)

(10)

(59)

Net income attributable to our common shareholder, excluding special items

$

67

$

32

$

161

$

81

Segment Information (unaudited)

The following table shows selected segment financial information (in millions, except shipments which are in kilotonnes).

Selected Operating Results Three Months Ended December 31, 2016

North

America

Europe

Asia

South

America

Eliminations and Other

Total

Adjusted EBITDA

$

92

$

39

$

37

$

83

$

—

$

251

Metal price lag

2

(5)

(3)

2

—

(4)

Adjusted EBITDA excluding metal price lag

$

90

$

44

$

40

$

81

$

—

$

255

Shipments

Rolled products - third party

247

222

161

120

—

750

Rolled products - intersegment

—

4

1

5

(10)

—

Total rolled products

247

226

162

125

(10)

750

Selected Operating Results Three Months Ended December 31, 2015

North

America

Europe

Asia

South

America

Eliminations and Other

Total

Adjusted EBITDA

$

68

$

37

$

30

$

77

$

—

$

212

Metal price lag

(16)

(8)

(3)

1

—

(26)

Adjusted EBITDA excluding metal price lag

$

84

$

45

$

33

$

76

$

—

$

238

Shipments

Rolled products - third party

253

220

183

123

—

779

Rolled products - intersegment

—

12

10

9

(31)

—

Total rolled products

253

232

193

132

(31)

779

Selected Operating Results Nine Months Ended December 31, 2016

North

America

Europe

Asia

South

America

Eliminations and Other

Total

Adjusted EBITDA

$

268

$

133

$

124

$

237

$

—

$

762

Metal price lag

(8)

(17)

(8)

1

—

(32)

Adjusted EBITDA excluding metal price lag

$

276

$

150

$

132

$

236

$

—

$

794

Shipments

Rolled products - third party

740

695

512

331

—

2,278

Rolled products - intersegment

1

13

4

18

(36)

—

Total rolled products

741

708

516

349

(36)

2,278

Selected Operating Results Nine Months Ended December 31, 2015

North

America

Europe

Asia

South

America

Eliminations and Other

Total

Adjusted EBITDA

$

163

$

69

$

100

$

190

$

(1)

$

521

Metal price lag

(79)

(78)

(10)

2

—

(165)

Adjusted EBITDA excluding metal price lag

$

242

$

147

$

110

$

188

$

(1)

$

686

Shipments

Rolled products - third party

782

686

538

329

—

2,335

Rolled products - intersegment

1

48

35

27

(111)

—

Total rolled products

783

734

573

356

(111)

2,335