Novelis Inc., which announced last month that it would delay filing its quarterly report because of a restatement, is searching for a new chief financial officer and a new controller.
The maker of aluminum products credited chief financial officer Geoffrey P. Batt and controller Jo-Ann Longworth for their roles in establishing the Novelis finance department after the company’s spin-off from Alcan Inc. this past January. Batt and Longworth will stay on until their successors are in place.
In an open letter to shareholders, president and chief executive officer Brian W. Sturgell wrote that “The audit committee and I intend to charge the new CFO with making any changes necessary to bring the company in line with best financial and investor relations practices.”
Over the past few months, stated the CEO, two significant factors damaged the company’s credibility with the investment community and made a negative impact on its stock price. The first was the inability of Novelis to quantify its metal price exposure; the second was the restatement and filing delay.
Regarding the former, Sturgell wrote that as a result of newly negotiated can-sheet contracts in North America, “we expect that we will no longer have metal price ceiling exposure beyond 2006 that exceeds our internal hedge position.” He added that Novelis has significantly revised its hedging policy to cap remaining metal price ceiling exposure “to minimize our exposure during the fourth quarter of 2005 and during 2006.”
As for the latter: On November 7, Novelis announced that it would delay the release of its third-quarter results and restate its financials for the first and second quarters of 2005. One issue at play, wrote Sturgell, was the reversal of a reserve related to a long-standing Brazilian tax litigation matter.
Another issue that led to the restatement and filing delay, he added, relates to tax accounting on currency impacts on loans from Alcan to European subsidiaries. Under a transition service agreement, Alcan calculated these amounts for Novelis and provided the newly spun-off company with the journal entries associated with these taxes that Novelis needed to book in the first and second quarters.
“Novelis assumed the responsibility for preparing these entries in the third quarter and determined that accounting in this area for the first and second quarters had been incorrect,” the CEO added. “This required us to reexamine the impact on our first and second quarters for materiality.”
“While these issues are highly technical, they had a material impact on our financial results in our first and second quarters,” he further stated. “As a result, the audit committee of the board of directors decided to undertake a review of our opening contingencies and reserves as well as the adjustments made to create Novelis’ opening balance sheet.”