Novelis Reports Revised First Quarter Results Regional income
increased 14% ATLANTA, May 12 /PRNewswire-FirstCall/ -- Novelis
Inc. (NYSE, TSX: NVL) today reported first quarter 2005 net income
of $29 million, or earnings per share (EPS) of $0.39. This is
comprised of consolidated net income of $59 million for the period
of January 6, the effective date of our spin from Alcan Inc., to
March 31, 2005, and a combined loss of $30 million on
mark-to-market derivatives from January 1 to 5, 2005, prior to our
spin from Alcan. Net income in the carve out statements as a part
of Alcan for the first quarter 2004 was $69 million (EPS $0.92).
The 2004 carve out statements included an allocation of interest
expense and corporate costs of Alcan. The after-tax increase
between first quarter 2004 and first quarter 2005 is $17 million
for interest expense and $12 million for corporate costs. FAS 133
mark-to-market income decreased by $17 million after-tax. Rolled
product shipments climbed by 4% to 712 thousand tonnes (kt) for the
first quarter of 2005 over the equivalent period in 2004. For 2005,
the increase in shipments is attributed to strong market demand,
largely in North America and Asia, and continued market share
growth in South America. Sales and operating revenues rose by 17%
for the first quarter of 2005 over the same quarter of 2004 while
cost of sales and operating expenses experienced a similar
percentage increase. The major contributing factors to both sales
and operating revenues and cost of sales were an increase in London
Metal Exchange (LME) pricing, which was up 13% for the year ago
quarter, and stronger shipment levels. Selling, general and
administrative expenses (SG&A) were $76 million in the first
quarter, up $16 million from the year-ago quarter. Included in
SG&A for the quarter are additional corporate head office costs
we incurred for the first time as a stand-alone company, $6 million
in start-up costs and the strengthening euro. Interest expense at
$44 million in first quarter 2005 was significantly higher than the
interest allocated from Alcan in the carve out statements in first
quarter 2004. A comparison to first quarter 2004 interest expense
is not meaningful as it did not reflect the level of debt, nor the
associated interest costs the Company would have incurred had it
operated on a stand- alone basis at that time. Other expenses
(income) - net was income of $14 million in the first quarter of
2005 and included Financial Accounting Standard No. 133 (FAS 133)
mark-to-market gains on derivatives of $14 million. We also
incurred debt issue costs of $13 million on undrawn facilities used
to back-up the Alcan notes we received in January 2005 as part of
our separation from Alcan. Alcan funded the $13 million of debt
issuance costs by reimbursing Novelis and the Alcan notes were
repaid from the proceeds of our 7.25% unsecured senior notes due
February 15, 2015. The first quarter of 2004 included FAS 133
mark-to- market gains of $42 million as well as a gain on asset
sales of $7 million. In the first quarter of 2005, the effective
tax rate was 47% compared to a composite statutory rate of 34%. In
2004, the effective tax rate for the first quarter was 38%,
compared to the composite statutory rate of 37%. The main
difference in the first quarter 2005 rate was a $6 million tax
provision in connection with our spin-off from Alcan, for which
there was no related income. "Our first quarter performance was an
insight into the true abilities of this company," said Brian
Sturgell, President and CEO. "We ended our last year as a part of
Alcan on solid operational footing, and we are starting our first
year as Novelis in a global leadership position. The first quarter
reflects the capabilities of our people and technology and what can
be accomplished in an environment of high metal prices. We stepped
out as an independent company and performed well on all key points
- cash flow therefore debt paydown, regional income, and shipment
growth. Our goal is to provide maximum value to the shareholder and
our efforts and strategy came together to do just that." The
historical 2004 unaudited combined financial statements are
presented in U.S. dollars using United States (U.S.) Generally
Accepted Accounting Principles (GAAP) and have been derived from
the accounting records of Alcan using the historical results of
operations and historical basis of assets and liabilities of the
businesses comprising Novelis. However, the historical unaudited
combined financial statements included herein may not necessarily
reflect the Group's results of operations, financial position and
cash flows in the future or what its results of operations,
financial position and cash flows would have been had Novelis been
a stand-alone company during the historical periods presented. As
these historical combined financial statements represent a portion
of the businesses of Alcan which did not at the time constitute a
separate legal entity, the net assets of Novelis have been
presented as Alcan's net investment in the businesses. Alcan's
investment in the businesses includes the accumulated earnings of
the businesses as well as cash transfers related to cash management
functions performed by Alcan. Subsequent to the spin-off from
Alcan, the financial statements no longer reflect Alcan as a
related party. For more information on the basis of presentation of
the historical combined financial statements, see note 2 to the
audited combined financial statements included in the Company's
recently filed annual report on Form 10-K for the year ended
December 31, 2004. Regional Results See Attachment A for a
description of Regional Income and a reconciliation of Regional
Income to Income Before Income Taxes and Other Items. Total
Regional Income 1st Qtr 1st Qtr % Chg 4th Qtr % Chg ($ in millions)
2005 2004 2004 Sales 2,118 1,810 17.0% 2,016 5.1% Regional Income
182 159 14.5% 116 56.9% Rolled Product Shipments (kt) 712 683 4.2%
671 6.1% Regional Income per Ton 256 233 9.8% 173 47.9%
Depreciation 58 61 -4.9% 68 -14.7% Capital Expenditures 23 20 15.0%
70 -67.1% Total Assets 5,667 6,691 -15.3% 5,954 -4.8% Regional
Income increased $23 million or approximately 14% for the first
quarter 2005 versus the prior year period. Rolled product shipments
climbed 4% in the quarter over the same period in 2004. Volume was
the largest driver behind the increase in Regional Income in the
first quarter 2005, with improved pricing being an additional
factor. The positive impact of the spreads between used beverage
cans (UBC) and primary metal along with our hedging program more
than offset the impact of our can price ceilings. These gains more
than compensated the negative effect of metal price timing
differences and a mix shift in Europe. Novelis North America North
America 1st Qtr 1st Qtr % Chg 4th Qtr % Chg ($ in millions) 2005
2004 2004 Sales 827 670 23.4% 735 12.5% Regional Income 57 69
-17.4% 32 78.1% Rolled Product Shipments (kt) 283 274 3.3% 256
10.5% Regional Income per Ton 201 252 -20.2% 125 60.8% Depreciation
18 17 5.9% 17 5.9% Capital Expenditures 8 11 -27.3% 21 -61.9% Total
Assets 1,480 2,688 -44.9% 1,406 5.3% Regional Income declined 17%
or $12 million from the first quarter 2004. The reduction was
mainly due to the adverse effect of metal price timing differences,
as well as higher freight and energy costs. These were partially
offset by an increase in rolled product shipments of 3% in the
first quarter of 2005 versus the same period last year, pricing
improvements in Industrial Products and Light Gauge Products as
well as a product portfolio improvement in Can Products. The
positive impact of the spreads between UBC and primary metal along
with our hedging program more than offset the impact of our can
price ceilings. Novelis Europe Europe 1st Qtr 1st Qtr % Chg 4th Qtr
% Chg ($ in millions) 2005 2004 2004 Sales 807 756 6.7% 792 1.9%
Regional Income 57 42 35.7% 38 50.0% Rolled Product Shipments (kt)
252 249 1.2% 228 10.5% Regional Income per Ton 226 169 34.1% 167
35.7% Depreciation 26 28 -7.1% 36 -27.8% Capital Expenditures 8 10
-20.0% 33 -75.8% Total Assets 2,469 2,363 4.5% 2,885 -14.4%
Regional Income for the first quarter of 2005 increased by 36% or
$15 million over the first quarter of 2004 results due to effective
management of SG&A and positive timing of expenses. The first
quarter 2005 saw gains from higher shipments and the impact of the
stronger euro on the translation of euro profits into U.S. dollars.
These improvements more than offset the shift in the product mix as
the softer economy in Europe led to lower sales in certain high-end
product lines. Novelis Asia Asia 1st Qtr 1st Qtr % Chg 4th Qtr %
Chg ($ in millions) 2005 2004 2004 Sales 338 268 26.1% 336 0.6%
Regional Income 30 20 50.0% 18 66.7% Rolled Product Shipments (kt)
114 108 5.6% 118 -3.4% Regional Income per Ton 263 185 42.2% 153
71.9% Depreciation 12 12 0% 12 0% Capital Expenditures 3 4 -25.0%
14 -78.6% Total Assets 987 922 7.0% 954 3.5% Asia experienced a
nearly 6% increase in volume over the first quarter 2004, while
regional income in the first quarter 2005 increased by 50% or $10
million over the same period last year. In the first quarter 2005
we experienced better pricing which more than offset the adverse
impact from the strengthening Korean currency on our costs.
Productivity improvements provided a benefit to the quarter as
de-bottlenecking opportunities helped expand capacity and allowed
us to grow. Novelis South America South America 1st Qtr 1st Qtr %
Chg 4th Qtr % Chg ($ in millions) 2005 2004 2004 Sales 149 118
26.3% 156 -4.5% Regional Income 38 28 35.7% 28 35.7% Rolled Product
Shipments (kt) 63 52 21.2% 69 -8.7% Regional Income per Ton 603 538
12.1% 406 48.5% Depreciation 11 12 -8.3% 11 0.0% Capital
Expenditures 2 3 -33.3% 11 -81.8% Total Assets 766 812 -5.7% 779
-1.7% South America had a strong quarter with regional income up
$10 million or almost 36% in the first quarter 2005 versus first
quarter 2004. Shipments in the first quarter 2005 were up over 21%,
a significant increase from the same period in 2004. Improved
pricing, higher shipments and the positive impact from higher ingot
prices on the production from our smelters in Brazil accounted for
the improvement. Cash from Operating Activities Cash from operating
activities was $112 million for the first quarter of 2005 with a
change in working capital, deferred items and other-net of $47
million. This represents a $26 million change in cash from
operating activities from the same quarter in 2004, or a 19%
change. The change in working capital deferred items and other-net
for the same period in 2004 was ($9) million. Free cash flow for
the first quarter of 2005 was $76 million, representing a 34%
change from the first quarter of 2004, which was $116 million. Cash
Flow 1st Qtr 1st Qtr % Chg 4th Qtr % Chg ($ in millions) 2005 2004
2004 Cash from Operating Activities 112 138 -18.8% -75 249.3%
Dividends -13 -2 550% 0 N/M Capital Expenditures -23 -20 15% -70
67.1% Free Cash Flow(1) 76 116 -34.5% -145 152.4% (1) "Free cash
flow" consists of cash from operating activities less capital
expenditures and dividends. Dividends include those paid by our
less than wholly-owned subsidiaries to their minority shareholders
and dividends to the common shareholders of Novelis. Management
believes that free cash flow is relevant to investors as it
provides a measure of the cash generated internally that is
available for debt service and other value creation opportunities.
Financing and Investment Activities In connection with the
reorganization transactions described below in Note 1 -- Background
and Basis of Presentation, the Company entered into senior secured
credit facilities providing for aggregate borrowings of up to $1.8
billion (as described in Note 3 thereof). These facilities consist
of a $1.3 billion seven-year senior secured Term Loan B facility,
bearing interest at LIBOR plus 1.75%, all of which was borrowed on
January 10, 2005, and a $500 million five-year multi-currency
revolving credit facility. The Term Loan B facility consists of an
$825 million Term Loan B in the United States and a $475 million
Term Loan B in Canada. The proceeds of the Term Loan B facility
were used in connection with the reorganization transactions,
Novelis' separation from Alcan and to pay related fees and
expenses. On February 3 2005, Novelis sold $1.4 billion aggregate
principal amount of senior unsecured debt securities (Senior
Notes). The Senior Notes, which were priced at par, bear interest
at 7.25% and will mature on February 15, 2015. The net proceeds of
the placement were used to repay Alcan notes that were issued in
connection with the reorganization transaction. At the spin-off
from Alcan, Novelis had $2,951 million of long term debt and
capital leases. With the strength of the cash flows in the first
quarter 2005, Novelis reduced its debt position by $70 million to
$2,881 million as at March 31, 2005. Capital expenditures totaled
$23 million for the first quarter 2005 and $20 million in the prior
year quarter representing re-investment rates of 40% and 33% of
depreciation, respectively. The majority of Novelis' capital
expenditures for the quarter were spent on keeping our quality and
technology advantage in the market, increasing productivity,
finding additional cost reductions and undertaking small projects
to increase capacity. 2005 Outlook The guidance for 2005 is based
on the fundamental drivers of the business moving forward. Regional
demand levels continue to be strong in all regions except Europe,
where economic activity continues to track sideways at best and all
four regions are performing well from an operational perspective.
Our clear focus over the next three years is to strengthen the
balance sheet and de-lever the company while maintaining our
operating leadership. The ability to achieve this goal is within
our reach as we drive value through improvements in our product
portfolio and focused growth. The outlook for 2005 includes two key
components. First, capital expenditures will not exceed $175
million. Second, regional income is expected to grow between 5% and
10%, excluding the impact of FAS 133 mark-to-market gains or losses
on derivatives but including the income from joint ventures. The
original guidance figure for growth was based on a historical
calculation of Business Group Profit for the full year 2004 of $597
million. However, in the future we will base the guidance on the
Total Regional Income as this is the measurement that is most
relied on by management for allocating resources and making
regional decisions. Under this new measurement, that base figure
would have been $654 million for 2004. Therefore, for 2005 the
regional income guidance is a 5% to 10% increase from the 2004 base
figure or a $33 million to $65 million increase. Novelis faces
challenges in our first year as an independent company. Significant
changes in currency, energy costs, economies and raw material costs
are uncertainties that are not under our control. The 2005 outlook
is based on information currently available to management.
Attachment A The following table summarizes the reconciliation of
Regional Income to Income Before Income Taxes and Other Items.
Fourth First Quarter Quarter ($ in millions) 2005 2004 2004
Regional Income Novelis North America 57 69 32 Novelis Europe 57 42
38 Novelis Asia 30 20 18 Novelis South America 38 28 28 Total
Regional Income 182 159 116 Corporate Office (27) (10) (18)
Additional Items for Reconciliation Equity accounted joint venture
eliminations (11) (11) (16) Change in fair market value of
derivatives 19 49 40 Restructuring, rationalization &
impairment 1 7 (74) Depreciation & amortization (58) (61) (68)
Interest (44) (19) (19) Income before income taxes and other items
62 114 (39) Regional Income comprises earnings before interest,
taxes, depreciation and amortization excluding certain items, such
as corporate office costs and asset and goodwill impairments,
restructuring, rationalization and the change in fair market value
of our derivatives, which are not under the control of the regional
groups. These items are managed by the company's head office, which
focuses on strategy development and oversees governance, policy,
legal compliance, human resources and finance. Financial
information for the regional groups includes the results of certain
joint ventures on a proportionately consolidated basis, which is
consistent with the way the business groups are managed. Under U.S.
GAAP, these joint ventures are accounted for under the equity
method. Therefore, in order to reconcile to income (loss) before
income taxes and other items, the Regional Income of these joint
ventures is removed from Total Regional Income for the company and
the net after-tax results are reported as equity income. The change
in the fair market value of derivatives has been removed from
individual regional results and is shown on a separate line. This
presentation provides a more accurate portrayal of underlying
business group results and is in line with the company's portfolio
approach to risk management. Novelis Inc. CONSOLIDATED AND COMBINED
STATEMENTS OF INCOME (unaudited) (in millions of US$, except per
share amounts) Three months ended March 31 2005 2004 Sales and
operating revenues - third parties 2,118 1,718 - related parties -
92 2,118 1,810 Costs and expenses Cost of sales and operating
expenses, excluding depreciation and amortization noted below -
third parties 1,884 1,505 - related parties - 80 Depreciation and
amortization 58 61 Selling, general and administrative expenses 76
60 Research and development expenses 8 10 Interest - third parties
44 11 - related parties - 8 Other expenses (income) - net - third
parties (14) 4 - related parties - (43) 2,056 1,696 Income before
income taxes and other items 62 114 Income taxes 29 43 Income
before other items 33 71 Equity income 2 2 Minority interests (6)
(4) Net income 29 69 Earnings per share Net income per share -
basic 0.39 0.93 Net income per share - diluted 0.39 0.92 Dividends
per common share 0.09 - Supplemental information (note 1): Net
income attributable to consolidated results of Novelis from January
6 to March 31, 2005 - increase to Retained earnings 59 Net loss
attributable to combined results of Novelis from January 1 to 5,
2005 - decrease to Owner's net investment (30) Net income 29
Novelis Inc. CONSOLIDATED AND COMBINED BALANCE SHEETS (unaudited)
(in millions of US$, except number of shares) March 31, December
31, As at 2005 2004 ASSETS Current assets Cash and time deposits 78
31 Trade receivables (net of allowances of $33 in 2005 and $33 in
2004) - third parties 1,078 710 - related parties - 87 Other
receivables - third parties 308 118 - related parties 38 846
Inventories Aluminum 1,085 1,081 Raw materials 18 20 Other supplies
146 125 1,249 1,226 Total current assets 2,751 3,018 Deferred
charges and other assets 277 193 Long-term receivables from related
parties 93 104 Property, plant and equipment Cost (excluding
Construction work in progress) 5,365 5,506 Construction work in
progress 116 112 Accumulated depreciation (3,231) (3,270) 2,250
2,348 Intangible assets (net of accumulated amortization of $10 in
2005 and $9 in 2004) 33 35 Goodwill 263 256 Total assets 5,667
5,954 LIABILITIES AND SHAREHOLDERS'/INVESTED EQUITY Current
liabilities Payables and accrued liabilities - third parties 1,443
859 - related parties 36 401 Short-term borrowings - third parties
26 229 - related parties - 312 Debt maturing within one year -
third parties 4 1 - related parties - 290 Total current liabilities
1,509 2,092 Debt not maturing within one year - third parties 2,851
139 - related parties - 2,307 Deferred credits and other
liabilities 460 472 Deferred income taxes 179 249 Minority
interests 141 140 Shareholders'/Invested equity Common shares, no
par value - unlimited number of shares authorized; issued and
outstanding: 73,988,932 shares - - Additional paid-in capital 460 -
Retained earnings 52 - Accumulated other comprehensive income 15 88
Owner's net investment - 467 527 555 Commitments and contingencies
Total liabilities and shareholders'/ invested equity 5,667 5,954
Novelis Inc. CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(unaudited) (in millions of US$) Three months ended March 31 2005
2004 OPERATING ACTIVITIES Net income 29 69 Adjustments to determine
cash from operating activities: Depreciation and amortization 58 61
Deferred income taxes (21) 19 Equity income (2) (2) Stock option
compensation 1 - Change in operating working capital, deferred
items and other - net 47 (9) Cash from operating activities 112 138
FINANCING ACTIVITIES Proceeds from issuance of new debt from third
parties 2,748 317 Debt repayments to third parties (2,720) -
Short-term borrowings - net - third parties (517) (152) - related
parties - 8 Dividends (7) - Dividends - minority interest (6) (2)
Net receipts from (payments to) Alcan 82 (81) Cash from (used for)
financing activities (420) 90 INVESTMENT ACTIVITIES Purchase of
property, plant and equipment (23) (20) Change in loans receivable
- third parties 370 - Change in loans receivable - related parties
8 (212) Cash from (used for) investment activities 355 (232)
Increase (Decrease) in cash and time deposits 47 (4) Cash and time
deposits - beginning of period 31 27 Cash and time deposits - end
of period 78 23 Novelis Inc. CONSOLIDATED AND COMBINED STATEMENTS
OF SHAREHOLDERS'/INVESTED EQUITY (unaudited) (in millions of US$,
except number of shares which is in thousands) Additional Common
Shares Paid-in Retained Shares Amount Capital Earnings Balance at
December 31, 2004 - - - - Net income - Q1 2005 - - - 59
Comprehensive loss - - - - Dividends - - - (7) Transfer (to)/from
Alcan - net - - - - Issuance of common stock in connection with the
distribution 73,989 - 460(a) - Balance at March 31, 2005 73,989 -
460 52 Accumulated Other Owner's Comprehensive Net Income
Investment Total Balance at December 31, 2004 88 467 555 Net income
- Q1 2005 - (30)(b) 29 Comprehensive loss (73) - (73) Dividends -
(7) (14) Transfer (to)/from Alcan - net - 30 30 Issuance of common
stock in connection with the distribution - (460) - Balance at
March 31, 2005 15 - 527 (a) Represents the amount of Owner's net
investment after transfers (to)/from Alcan - net. (b) Refer to note
1 - Background and Basis of Presentation. Novelis Inc. (in millions
of US$) 1. BACKGROUND AND BASIS OF PRESENTATION Background On May
18, 2004, Alcan Inc. (Alcan) announced its intention to separate
its rolled products business into a separate company and to pursue
a spin-off of that business to its shareholders. The rolled
products businesses were managed under two separate operating
segments within Alcan, Rolled Products Americas and Asia and Rolled
Products Europe. Alcan and its subsidiaries contributed and on
January 6, 2005, transferred to a new public company, Novelis Inc.
(the Company or Novelis), substantially all of the aluminum rolled
products businesses operated by Alcan prior to its 2003 acquisition
of Pechiney, together with some of Alcan's alumina and primary
metal-related businesses in Brazil, which are fully integrated with
the rolled products operations there, as well as four former
Pechiney rolling facilities in Europe, as their end-use markets and
customers are more similar to those of Novelis. Novelis, which was
formed in Canada on September 21, 2004, acquired the abovementioned
businesses on January 6, 2005, through the reorganization
transactions described above. On January 6, 2005, the spin-off
occurred following the approval by Alcan's Board of Directors and
shareholders, and the receipt of other required legal and
regulatory approvals. Alcan shareholders received one Novelis
common share for every five Alcan common shares held. Common shares
of Novelis began trading on a "when issued" basis on the Toronto
(TSX) and New York (NYSE) stock exchanges on January 6, 2005, with
a distribution record date of January 11, 2005. "Regular Way"
trading began on the TSX on January 7, 2005, and on the NYSE on
January 19, 2005. The Company together with its subsidiaries
produces aluminum sheet and light gauge products where the end-use
destination of the products includes the construction and
industrial, beverage and food cans, foil products and
transportation markets. The Company operates in four continents,
North America, South America, Asia and Europe through 37 operating
plants and three research facilities in 12 countries. In addition
to aluminum rolled products plants, the Company's South American
businesses include bauxite mining, aluminum refining and smelting
facilities that are integrated with the rolling plants in Brazil.
Post-transaction adjustments The agreements giving effect to the
spin-off provide for various post- transaction adjustments and the
resolution of outstanding matters, which are expected to be carried
out by the parties by the end of 2005. These adjustments, for the
most part, will be reflected as changes to shareholders' equity.
Agreements between Novelis and Alcan Novelis has entered into
various agreements with Alcan for the use of transitional and
technical services, the supply of Alcan's metal and alumina, the
licensing of certain of Alcan's patents, trademarks and other
intellectual property rights, and the use of certain buildings,
machinery and equipment, technology and employees at certain
facilities retained by Alcan, but required in Novelis' business.
Basis of presentation The unaudited combined financial results for
the period from January 1 to January 5, 2005 represent the
operations and cash flows of the Novelis entities on a carve-out
basis. The unaudited consolidated results as at March 31, 2005 and
for the period from January 6 (the date of the spin-off from Alcan)
to March 31, 2005 represent the operations, cash flows and
financial position of the Company as a stand-alone entity. The
consolidated and combined financial statements include the
financial results for both of these periods. All income earned and
cash flows generated by the Novelis entities as well as the risks
and rewards of these businesses from January 1 to 5, 2005 were
primarily attributed to Novelis and are included in the unaudited
consolidated results for the period from January 6 to March 31,
2005, with the exception of mark-to-market losses of $30 on
derivative contracts primarily with Alcan. These mark-to-market
losses for the period from January 1 to 5, 2005, were recorded in
the unaudited consolidated and combined statements of income for
the three months ended March 31, 2005, and are reflected as a
decrease in Owner's net investment. The historical combined
financial statements as at December 31, 2004 and for the quarter
ended March 31, 2004 (the historical combined financial statements)
have been derived from the accounting records of Alcan using the
historical results of operations and historical basis of assets and
liabilities of the businesses subsequently transferred to Novelis.
Management believes the assumptions underlying the combined
financial statements are reasonable. However, the historical
financial statements included herein may not necessarily reflect
the Company's results of operations, financial position and cash
flows or what its results of operations, financial position and
cash flows would have been had Novelis been a stand-alone company
during the periods presented. Alcan's investment in the Novelis
businesses, presented as Owner's net investment in the historical
combined financial statements, includes the accumulated earnings of
the businesses as well as cash transfers related to cash management
functions performed by Alcan. In certain instances, amounts
presented in the unaudited historical combined financial statements
have been adjusted prospectively in the unaudited consolidated and
combined financial statements as at and for the quarter ended March
31, 2005. 2. RELATED PARTY TRANSACTIONS The Company enters into
transactions with related parties in the ordinary course of
business. Alcan is the primary supplier of prime and sheet ingot to
the Company as well as the counterparty to all of the Company's
metal derivatives and most of the currency derivatives. The Company
also sells inventory to Alcan and certain equity-accounted
investees. In 2004 and prior years, Alcan was considered a related
party to Novelis. However, subsequent to the spin-off, Alcan is no
longer a related party, as defined in SFAS No. 57, Related Party
Disclosures. In 2004, all related parties balances on the statement
of income represent principally transactions between Alcan and
Novelis. Subsequent to the spin- off, Novelis repaid its net
obligation to Alcan at December 31, 2004 through third party
financing (refer to note 3 - Debt Not Maturing Within One Year). At
March 31, 2005, balances due to and from related parties comprise
balances between Novelis and its equity-accounted investees. 3.
DEBT NOT MATURING WITHIN ONE YEAR All of the Company's related
party debt of $2,597 as at December 31, 2004 was payable to Alcan
and was fully repaid in the first quarter of 2005. The related
party debt was comprised of a combination of fixed and floating
rate debt of $1,392 and fixed rate promissory notes (Alcan Notes)
obtained in December 2004 of $1,205. The Alcan Notes comprised a
major portion of the $1,375 bridge financing provided by Alcan to
the Company as a result of the reorganization transactions
described in note 1 - Background and Basis of Presentation. The
remaining balance of the Alcan Notes of $170 was obtained in
January 2005. The Alcan Notes were duly refinanced with the
proceeds of the $1.4 billion 10-year Senior Notes issued in
February 2005, discussed below. In connection with the
reorganization transactions described in note 1 - Background and
Basis of Presentation, the Company entered into senior secured
credit facilities providing for aggregate borrowings of up to $1.8
billion. These facilities consist of a $1.3 billion seven-year
senior secured Term Loan B facility, bearing interest at LIBOR plus
1.75%, all of which was borrowed on January 10, 2005, and a $500
five-year multi-currency revolving credit facility. The Term Loan B
facility consists of an $825 Term Loan B in the U.S. and a $475
Term Loan B in Canada. The proceeds of the Term Loan B facility
were used in connection with the reorganization transactions, the
Company's separation from Alcan and to pay related fees and
expenses. The Company has entered into interest rate swaps to fix
the interest rate on $310 of the variable rate Term Loan B debt at
an effective weighted average interest rate of 5.5% for periods of
up to three years. On January 31, 2005, Novelis announced that it
had agreed to sell $1.4 billion aggregate principal amount of
senior unsecured debt securities (Senior Notes). The Senior Notes,
which were priced at par, bear interest at 7.25% and will mature on
February 15, 2015. The net proceeds of the placement, received on
February 3, 2005, were used to repay the Alcan Notes. Novelis,
incorporated January 6, 2005, is the global leader in aluminum
rolled products and aluminum can recycling, with 37 operating
facilities in 12 countries and more than 13,500 dedicated
employees. Novelis has the unique ability to provide its customers
with a regional supply of high-end rolled aluminum throughout Asia,
Europe, North America, and South America. Through its advanced
production capabilities, Novelis supplies aluminum sheet and foil
to automotive, transportation, beverage and food packaging,
construction, industrial and printing markets. Please visit
http://www.novelis.com/ for more information on Novelis. Statements
made in this news release which describe the Company's intentions,
expectations or predictions may be forward-looking statements
within the meaning of securities laws. The Company cautions that,
by their nature, forward-looking statements involve risk and
uncertainty and that the Company's actual results could differ
materially from those expressed or implied in such statements.
Important factors which could cause such differences include global
supply and demand conditions for rolled aluminum products, changes
in the relative value of various currencies, demand and pricing
within the principal markets for the Company's products, changes in
government regulations, particularly those affecting environmental,
health or safety compliance, economic developments, relationships
with (and financial or operating conditions of) customers and
suppliers, competition from other aluminum rolled products
producers as well as from substitute materials such as steel,
glass, plastic and composite materials, and the level of our
indebtedness and ability to generate cash and other factors
relating to the Company's ongoing operations. Reference should be
made to the Company's 2004 annual report on Form 10-K for a summary
of major risk factors. NOTE TO FINANCIAL MEDIA Novelis executives
will discuss the company's performance during a conference call
today with financial analysts beginning at 8:00 a.m. ET. Reporters
are invited to listen to the call. To access the call, U.S. callers
should dial (800) 561-2601. International callers should dial (617)
614-3518, passcode for both numbers is 4975 6737. Beginning at
11:00 a.m. ET today, a replay of the presentation will be available
until midnight on Wednesday, May 18, 2005. To access the replay,
U.S. callers should dial 888-286-8010, international callers should
call 617-801-6888. The access code for U.S. and International is
6311 2284. The conference call will also be webcast on the Novelis
Investor Relations website at http://www.novelis.com/. A
presentation will be available during the webcast and a
downloadable version will be accessible on the Novelis website.
DATASOURCE: Novelis Inc. CONTACT: Media, Jennifer Dervin,
+1-404-814-4208, or Investors, Holly Ash, +1-404-814-4212, both of
Novelis Inc. Web site: http://www.novelis.com/
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